<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, 1997
Commission file number 0-9993
MICROS SYSTEMS, INC.
----------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
MARYLAND 52-1101488
-----------------------------------------------------------------
(State of incorporation) (I.R.S. Employer
Identification Number)
12000 Baltimore Avenue, Beltsville, Maryland 20705-1291
-----------------------------------------------------------------
(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, 1997, there were 8,009,472 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, 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 and its Form
10-Q for the quarter ended September 30, 1997 for the fiscal year ending June
30, 1998, 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>
December 31, June 30,
1997 1997
---- ----
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 8,626 $ 10,864
Accounts receivable, net of allowance for
doubtful accounts of $2,247 at December 31,
1997 and $2,508 at June 30, 1997 66,940 64,541
Inventories 32,488 23,855
Deferred income taxes 3,424 3,437
Prepaid expenses and other current assets 8,273 5,053
--------- ---------
Total current assets 119,751 107,750
Property, plant and equipment, net of accumulated
depreciation and amortization of $17,184 at
December 31, 1997 and $15,303 at June 30, 1997 20,721 19,297
Deferred income taxes, non-current 4,771 5,026
Goodwill and intangible assets, net of
accumulated amortization of $7,223 at
December 31, 1997 and $5,731 at June 30, 1997 18,264 20,806
Purchased and internally developed software,
net of accumulated amortization of $5,635 at
December 31, 1997 and $4,825 at June 30, 1997 12,504 9,872
Other assets 668 799
--------- ---------
Total assets $ 176,679 $ 163,550
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Bank lines of credit $ 18,342 $ 11,740
Current portion of long-term debt 2,516 2,846
Current portion of capital lease obligation 213 210
Accounts payable 21,389 16,797
Accrued expenses and other current liabilities 23,617 30,567
Income taxes payable 8,341 5,182
Deferred service revenue 11,406 12,570
--------- ---------
Total current liabilities 85,824 79,912
Long-term debt, net of current portion 4,675 3,368
Capital lease obligation, net of current portion 3,447 3,711
Deferred income taxes 3,278 3,321
Minority interests 1,399 1,511
--------- ---------
Total liabilities 98,623 91,823
--------- ---------
Commitments and contingencies
Shareholders' equity:
Common stock, $.025 par; authorized 30,000
shares; issued and outstanding 8,009 at
December 31, 1997 and 7,992 at June 30, 1997 200 200
Capital in excess of par 18,540 18,103
Retained earnings 63,757 56,126
Accumulated foreign currency translation
adjustments (4,441) (2,702)
--------- ---------
Total shareholders' equity 78,056 71,727
--------- ---------
Total liabilities and shareholders' equity $ 176,679 $ 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 December 31,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Revenue:
Hardware and software $42,186 $35,867
Service 24,081 20,090
------- -------
Total revenue 66,267 55,957
------- -------
Costs and expenses:
Cost of sales
Hardware and software 19,261 17,613
Service 12,469 10,060
------- -------
Total cost of sales 31,730 27,673
Selling, general and administrative
expenses 20,385 16,813
Research and development expenses 3,265 2,467
Depreciation and amortization 2,072 1,511
------- -------
Total costs and expenses 57,452 48,464
------- -------
Income from operations 8,815 7,493
Non-operating income (expense):
Interest income 131 113
Interest expense (372) (371)
Other income (expense), net (71) 101
------- -------
Income before taxes and minority
interest, equity in net earnings of
affiliates and cumulative effect of
accounting change 8,503 7,336
Income tax expense 3,398 2,938
------- -------
Income before minority interest, equity in
net earnings of affiliates and
cumulative effect of accounting change 5,105 4,398
Minority interest and equity in net
earnings of affiliates (77) (387)
------- -------
Net income before cumulative effect of
accounting change 5,028 4,011
Cumulative effect of change in accounting
principle, net of tax benefit of $274 (412) -
------- -------
Net income $ 4,616 $ 4,011
======= =======
Diluted net income per common and common
equivalent share:
Income before cumulative effect of
accounting change $ 0.61 $ 0.50
Cumulative effect of change in
accounting principle (.05) -
------- -------
Diluted net income per common and
common equivalent share $ 0.56 $ 0.50
======= =======
Basic net income per common share:
Income before cumulative effect of
accounting change $ 0.63 $ 0.50
Cumulative effect of change in
accounting principle (.05) -
------- -------
Basic net income per common share $ 0.58 $ 0.50
======= =======
Weighted-average number of shares outstanding:
Diluted 8,293 8,055
======= =======
Basic 8,008 7,958
======= =======
</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,
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Revenue:
Hardware and software 79,598 $ 66,828
Service 46,257 36,645
-------- --------
Total revenue 125,855 103,473
-------- --------
Costs and expenses:
Cost of sales
Hardware and software 37,683 32,581
Service 24,348 18,463
-------- --------
Total cost of sales 62,031 51,044
Selling, general and administrative
expenses 39,245 32,806
Research and development expenses 6,423 4,413
Depreciation and amortization 3,953 3,317
-------- --------
Total costs and expenses 111,652 91,580
-------- --------
Income from operations 14,203 11,893
Non-operating income (expense):
Interest income 199 219
Interest expense (672) (782)
Other income (expense), net 7 142
-------- --------
Income before taxes and minority
interest, equity in net earnings of
affiliates and cumulative effect of
accounting change 13,737 11,472
Income tax expense 5,494 4,592
-------- --------
Income before minority interest, equity in
net earnings of affiliates and
cumulative effect of accounting change 8,243 6,880
Minority interest and equity in net
earnings of affiliates (200) (542)
-------- --------
Net income before cumulative effect of
accounting change 8,043 6,338
Cumulative effect of change in accounting
principle, net of tax benefit of $274 (412) -
-------- --------
Net income $ 7,631 $ 6,338
======== ========
Diluted net income per common and common
equivalent share:
Income before cumulative effect of
accounting change $ 0.97 $ 0.79
Cumulative effect of change in
accounting principle (.05) -
-------- --------
Diluted net income per common and
common equivalent share $ 0.92 $ 0.79
======== ========
Basic net income per common share:
Income before cumulative effect of
accounting change $ 1.00 $ 0.80
Cumulative effect of change in
accounting principle (.05) -
-------- --------
Basic net income per common share $ 0.95 $ 0.80
======== ========
Weighted-average number of shares outstanding:
Diluted 8,269 7,997
======== ========
Basic 8,003 7,952
======== ========
</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,
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Net cash flows (used in) provided by operating
activities: $(2,714) $10,283
------- -------
Cash flows from investing activities:
Purchases of property, plant and
equipment (3,843) (3,100)
Proceeds on dispositions of property,
plant and equipment 83 35
Purchased and internally developed
software costs (3,693) (3,450)
Dividends to minority owners (351) (112)
Net cash paid for acquisitions and
minority interests (238) (494)
------- -------
Net cash used in investing activities (8,042) (7,121)
------- -------
Cash flows from financing activities:
Principal payments on line of credit (3,397) (1,451)
Principal payments on long-term debt
and capital lease obligation (1,808) (3,155)
Proceeds from line of credit 10,500 -
Proceeds from issuance of long term debt 2,870 59
Proceeds from issuance of stock 372 99
Income tax benefit from stock options
exercised 64 25
------- -------
Net cash provided by (used in)
financing activities 8,601 (4,423)
------- -------
Effect of exchange rate changes on cash (83) -
------- -------
Net decrease in cash and cash equivalents (2,238) (1,261)
Cash and cash equivalents at beginning of period 10,864 15,231
------- -------
Cash and cash equivalents at end of period $ 8,626 $13,970
======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 714 $ 943
======= =======
Income taxes $ 928 $ 2,216
======= =======
</TABLE>
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, 1997
(Unaudited)
1. Inventories
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1997
----------------- -----------------
<S> <C> <C>
Raw materials $ 8,533 $ 7,594
Work-in-process 2,356 3,515
Finished goods 21,599 12,746
----------------- -----------------
$ 32,488 $ 23,855
================= =================
</TABLE>
2. Earnings per share
The Company has adopted SFAS No. 128, "Earnings per Share", for the
quarter ending December 31, 1997 and has restated all prior period
earnings per share data in accordance with SFAS No. 128. Basic
earnings per share excludes the dilutive effect of all outstanding
stock options and is computed by dividing net income by the weighted
average common shares outstanding. For the quarters ending December
31, 1997 and 1996, the weighted average common shares outstanding were
8,008 and 7,958, respectively. For the six months ended December 31,
1997 and 1996, the weighted average common shares outstanding were
8,003 and 7,952, respectively. Diluted earnings per share reflects
the potential dilution that could occur if outstanding stock options
were exercised and is computed by increasing the denominator of the
basic calculation by the weighted average number of shares to reflect
the potential dilutive stock options outstanding. For the quarters
ending December 31, 1997 and 1996, the weighted average dilutive
number of stock options outstanding were 285 and 97, respectively. For
the six months ended December 31, 1997 and 1996, the weighted average
number of dilutive stock options outstanding were 266 and 45,
respectively.
For the three month and six month periods ended December 31, 1997 and
1996, respectively, all options outstanding were included in the above
earnings per share calculations as no options were anti-dilutive for
these periods.
3. Change in Accounting Principle
On November 20, 1997, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board issued consensus ruling 97-13
which requires certain business reengineering and information
technology implementation costs that have previously been capitalized
to now be expensed as incurred. In addition, any previously
capitalized costs which are addressed by EITF-13 must also be written
off as a cumulative adjustment in the quarter containing November 20,
1997.
As a result of this ruling, the Company recorded a one-time after-tax
charge of $0.4 million, or $.05 per common share in the quarter ending
December 31, 1997. The charge represents the business process
reengineering costs capitalized to date relating to MICROS'
installation of a new information system. Prior to this ruling, these
costs had been capitalized and were to be amortized over the useful
life of the system.
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 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
7
-
<PAGE> 8
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1997
4. Legal proceedings, continued
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.
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, 1997 for an additional one year period,
expiring on December 31, 1998. In addition, the Company has a DM 15.0
million (approximately $8.3 million at the December 31, 1997 exchange
rate) borrowing facility. Under the terms of this facility, the
Company may, at its option, borrow in the form of a line of credit or
in the form of term debt. For both of these credit agreements, at
December 31, 1997, the Company had borrowed approximately $23.4
million and has approximately $9.9 million available. Of the $23.4
million outstanding as of December 31, 1997, $18.3 million represents
line of credit borrowings, with the balance representing term debt.
The increase in the Company's borrowings during fiscal 1998 stems
primarily from an increase in working capital requirements during the
latter portion of the second quarter of the fiscal year. The working
capital increase was primarily due to inventory build-up associated
with delays in product shipments, increased volume for anticipated
demand in the last two quarters of the fiscal year and planned safety
stock to adequately transition manufacturing from MICROS headquarters
to an independent third party. As the Company has significant
international operations, its DM-denominated borrowings do not
represent a significant foreign exchange risk. On an overall basis,
the Company monitors and adjusts its foreign currency positions in
an effort to reduce its foreign exchange risk.
Net cash used by operating activities for the six months ended
December 31, 1997 was $2.7 million. In addition, the Company used
$7.5 million for the purchase of property, plant and equipment and
internally developed software. Financing activities for the first six
months of fiscal 1998 provided $8.6 million, principally representing
borrowings of approximately $13.4 million and debt and capital lease
repayments of approximately $5.2 million.
The Company anticipates that its cash flow from operations along with
available lines of credit, in conjunction with other lines of credit
or other commercial borrowings for which the Company may be eligible,
are sufficient to provide the current working capital needs of the
Company. 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 be approximately $1.0
million less than its 1997 expenditures.
Results of Operations - Second Quarter and Six Month Comparisons
The Company recorded income in the second quarter of fiscal 1998, on a
diluted basis, of $.61 per common share, before the effect of an
accounting change, compared with net income, on a diluted basis, of
$.50 per share in the second quarter of fiscal 1997. Income for the
six months ended December 31, 1997, on a diluted basis, was $.97 per
share, before the effect of an accounting change, compared with net
income, on a diluted basis, of $.79 per common share for the first six
months of fiscal 1997. The increased income for the quarter was
primarily due to higher sales volumes and improved gross margins,
partially offset by higher operating expenses, while the increased
income for the year to date was primarily due to higher sales volumes
also offset by higher operating expenses.
Net income, on a diluted basis, for the second quarter and first six
months of fiscal 1998 was $.56 and $.92, respectively, including a
one-time after-tax charge of $0.4 million, or $.05 per common share.
This one-time cost stems from a charge
8
-
<PAGE> 9
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1997
Results of Operations - Second Quarter and Six Month Comparisons,
Continued
taken in the second quarter of fiscal 1998 in conjunction with a
ruling issued by the Financial Accounting Standards Board Emerging
Issues Task Force, EITF Issue No. 97-13. This ruling required all
previously capitalized business process re-engineering costs incurred
in conjunction with a technology transformation project to be
immediately expensed in the quarter ending December 31, 1997.
Additionally, all such future costs are to be expensed as incurred.
The charge represents the business process reengineering costs
capitalized to date relating to MICROS' installation of a new
information system. Prior to this ruling, these costs had been
capitalized and were to be amortized over the useful life of the
system.
Revenue of $66.3 million for the second quarter of fiscal 1998
increased $10.3 million, or 18.4%, compared to the same period last
year. For the first six months of fiscal 1998, revenue increased
$22.4 million to $125.9 million, or 21.6%, over the same period in
fiscal 1997. A comparison of the sales mix for fiscal years 1998 and
1997 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Hardware 42.6% 43.2% 43.6% 44.0%
Software 21.1% 20.9% 19.7% 20.6%
Service 36.3% 35.9% 36.7% 35.4%
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
</TABLE>
While hardware sales represent a smaller proportion of total sales in
fiscal 1998 in comparison to the prior year, this category continued
to grow in absolute dollars. For the quarter, the increases in
software and service sales, relative to total sales are primarily due
to continued growth in Fidelio sales. For the year to date, software
sales continued to grow in absolute dollars, despite a minor decline
as a percentage of total sales.
Combined hardware and software revenues for the second quarter of
fiscal 1998 increased $6.3 million, or 17.6%, while service revenues
increased $4.0 million, or 19.9%, over the same period a year earlier.
On a year-to-date basis, hardware and software sales increased $12.8
million, or 19.1%, while service revenues increased $9.6 million, or
26.2%, over the same period a year earlier.
Cost of sales, as a percentage of revenue, decreased to 47.9% from
49.5% for the second quarter of fiscal 1998 compared to the second
quarter of fiscal 1997. For both the first six months of fiscal 1998
and 1997, cost of sales, as a percentage of revenue, was 49.3%. Cost
of sales for hardware and software products, as a percentage of
related revenue, was 45.7% in the second quarter of fiscal 1998
compared to 49.1% for the same quarter a year earlier and 47.3%
compared to 48.8% for the first six months of fiscal 1998 and 1997,
respectively. For both the quarter and year to date, these declines
are due to a favorable shift in the mix between hardware and software
sales.
Service costs, as a percentage of service revenue, increased to 51.8%
in the second quarter of fiscal 1998 compared to 50.1% in the same
quarter in fiscal 1997. Service costs, as a percentage of service
revenue, increased to 52.6% in the first six months of fiscal 1998
compared to 50.4% for the same period in fiscal 1997. The increased
costs for both the quarter and year-to-date were primarily due to
continued expansion of the Company's service organization and the
initial costs associated with adding additional personnel.
Selling, general and administrative expenses increased $3.6 million,
or 21.3%, in the second quarter of fiscal 1998 compared to the same
period last year. As a percentage of revenue, selling, general and
administrative expenses increased to 30.8% in the second quarter of
fiscal 1998 compared to 30.1% in the second quarter
9
-
<PAGE> 10
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1997
Results of Operations - Second Quarter and Six Month Comparisons,
Continued
of fiscal 1997 as costs grew at a rate in excess of sales. For the
first six months of fiscal 1998, selling, general and administrative
expenses, as a percentage of revenue, were 31.2% compared to 31.7% for
the same period a year earlier. The year-to-date decrease is
primarily the result of sales growth 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
$798,000, or 32.4%, in the second quarter of fiscal 1998 compared to
the same period a year earlier. Actual research and development
expenditures, including capitalized software development costs of $2.6
million in the second quarter of fiscal 1998 and $1.1 million in the
second quarter of fiscal 1997, increased $2.2 million, or 63.1%,
compared to the same period a year earlier. For the first six months
of fiscal 1998, research and development expenses (exclusive of
capitalized software development costs),which consist primarily of
labor costs, increased $2.0 million, or 45.6%, compared to the same
period a year earlier. Actual research and development expenditures
for the first six months of fiscal 1998, including capitalized
software development costs of $3.7 million, increased $3.4 million, or
51.7%, 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 increased expenditures in both the POS and hotel
businesses. The Company currently anticipates its research and
development expenditures to remain at current dollar levels.
Income from operations for the second quarter of fiscal 1998 was $8.8
million, or 13.3% of revenue, compared to income of $7.5 million, or
13.4% of revenue, in the same period a year earlier. For the first
six months of fiscal 1998, income from operations was $14.2 million
compared to income of $11.9 million a year earlier. For both the
second quarter and first six months of fiscal 1998, the Company's
improved income from operations is primarily due to higher sales and
higher gross margins, partially offset by higher operating expenses.
Interest income for the second quarter of fiscal 1998 increased
$18,000 to $131,000, or 15.9%, compared to $113,000 for the second
quarter of fiscal 1997. The increase in interest income for the
period is primarily due to higher average cash balances during the
quarter. Interest expense increased $1,000 to $372,000 for the second
quarter of fiscal 1998 from $371,000 for the same period a year ago.
Interest income for the first six months in fiscal 1998 was $199,000
compared to $219,000, a decrease of 9.1%, for the comparable period in
fiscal 1997 as a result of a lower average investment balance year to
date during fiscal 1998. Interest expense for the first six months in
fiscal 1998 was $672,000 compared to $782,000, a decrease of 14.1%,
for the comparable period in fiscal 1997 primarily due to the decrease
in the Company's overall debt during the first six months of fiscal
1998 in comparison to the same period in fiscal 1997, notwithstanding
the increase in debt levels at the end of the second quarter of fiscal
1998.
The effective tax rate for both the second quarter of fiscal years
1998 and 1997 as well as the year to date effective tax rate is 40.0%.
The cumulative effect of a change in accounting principle relates to a
one-time after-tax charge of $412,000, or $.05 per common share. This
one-time charge, which was $686,000 on a pre-tax basis, stems from a
charge taken in the second quarter of fiscal 1998 in conjunction with
a ruling issued by the Financial Accounting Standards Board Emerging
Issues Task Force, EITF Issue No. 97-13. This ruling required all
previously capitalized business process re-engineering costs incurred
in conjunction with a technology transformation project to be
immediately expensed in the Company's quarter ending December 31,
1997. Additionally, all such future costs are to be expensed as
incurred. The charge represents the business process reengineering
costs capitalized to date relating to MICROS' installation of a new
management information system. Prior to this ruling, these costs had
been capitalized and were to be amortized over the useful life of the
system.
10
--
<PAGE> 11
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1997
Results of Operations - Second Quarter and Six Month Comparisons,
Continued
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 product
and service margins to decline. There can be no assurance that the
Company will be able to continue to increase sufficiently sales of its
higher margin products, including software, 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 3400 QSA and the
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; inflationary pressures in the labor markets, especially
in the high technology industry; and controlling expenses, including
those relating to infrastructure expansion. Other risks are disclosed
in the Company's releases and SEC filings.
11
--
<PAGE> 12
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 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.
Item 2. Changes in Securities.
An amendment of the Company's Articles of Incorporation to increase
the number of shares of common stock that the Company is authorized to issue
from 10,000,000 to 30,000,000 shares, and to delete a preemptive rights
provision, was approved by the Company's shareholders at the annual meeting
held on November 21, 1997. Articles of Amendment were filed with the Maryland
State Department of Assessments and Taxation on December 1, 1997.
Item 3.
No events occurred during the quarter covered by the report that would
require a response to this item.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on November 21, 1997. A
quorum was present and shareholders voted on the following matters:
1. Approval of an Amendment to the Articles of Incorporation
The shareholders voted 4,265,098 shares in the affirmative and 2,065,096 shares
in the negative with respect to a proposal to adopt an amendment to the
Company's Articles of Incorporation. A total of 12,129 shares abstained from
the vote. There were 1,032,156 broker non-votes. The amendment increases the
number of shares of common stock that the Company is authorized to issue from
10,000,000 to 30,000,000 shares, and deletes a preemptive rights provision. As
the requisite number of shares required for approval was obtained, the
amendment was approved, and Articles of Amendment were filed with the Maryland
State Department of Assessments and Taxation on December 1, 1997.
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>
Vote Withheld
Nominee For (Abstain)
------- --- -------------
<S> <C> <C>
Louis M. Brown, Jr. 7,285,268 89,211
Daniel Cohen 7,285,163 89,316
A.L. Giannopoulos 7,283,908 90,571
F. Suzanne Jenniches 7,282,463 92,016
John G. Puente 7,285,163 89,316
Dwight S. Taylor 7,258,793 115,686
Alan M. Voorhees 7,262,278 112,201
</TABLE>
12
--
<PAGE> 13
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1997
Part II - Other Information, continued
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, 1998. 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 7,361,983 shares voted in the
affirmative; a total of 7,941 shares voted in the negative; and a total of
4,555 shares abstained from the vote.
4. Approval of Amendment to Stock Option Plan
The shareholders voted 5,893,488 shares in the affirmative and 521,522 shares
in the negative with respect to an amendment to the 1991 Stock Option Plan. A
total of 53,099 shares abstained from the vote, and there were 906,370 broker
non-votes. The amendment modifies the 1991 Stock Option Plan in three
respects: (i) the number of shares available under the 1991 Stock Option Plan
is increased by 600,000, with the aggregate number of shares that can be issued
under the plan being 1,750,000; (ii) a limit is imposed on the maximum number
of shares subject to grants to any individual in any fiscal year to 100,000
shares; and (iii) a provision allowing the Company to accept the surrender of
outstanding options and authorize new options in substitution therefore is
deleted. As the requisite number of shares required for approval was obtained,
the amendment was approved.
Item 5. Other Information
On February 11, 1998, the Company and A.L. Giannopoulos, President and
Chief Executive Officer, entered into the Second Amendment (the "Second
Amendment") to the Employment Agreement, which serves to amend the Employment
Agreement dated June 1, 1995, between the Company and Mr. Giannopoulos, as
first amended by the First Amendment dated February 6, 1997. The Second
Amendment extends the term of the Employment Agreement until June 30, 2002, and
provides for compensation for the extension term. Prior to execution of the
Second Amendment, the term of the Employment Agreement expired on December 31,
1999.
13
--
<PAGE> 14
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1997
Part II - Other Information, continued
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3(i) - Articles of Amendment to Articles of
Incorporation
Exhibit 10 - Material Contracts
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
14
--
<PAGE> 15
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 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)
February 13, 1998 s/ Gary C. Kaufman
- ----------------- ------------------
Gary C. Kaufman
Senior Vice President, Finance and
Administration/Chief Financial Officer
February 13, 1998 s/ Roberta J. Watson
- ----------------- --------------------
Roberta J. Watson
Vice President and Controller
15
--
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered Page
- ------- -------------
<S> <C> <C>
3(i) Articles of Amendment to Articles of Incorporation 17-19
10 Material Contracts 20-22
11 Computation of Earnings Per Share 23
27 Financial Data Schedule 24
</TABLE>
16
--
<PAGE> 1
EXHIBIT 3(i) ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION
MICROS SYSTEMS, INC.
ARTICLES OF AMENDMENT
MICROS Systems, Inc., a Maryland corporation, having its principal
office at 12000 Baltimore Avenue, Beltsville, Maryland 20705 (which is
hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The Articles of Incorporation of the Corporation are hereby
amended by striking out Article FIFTH thereof in its entirety and inserting in
lieu thereof the following:
"FIFTH: The total number of shares which the Corporation
shall have authority to issue is 30,000,000, all such shares to be
common stock, par value $0.025 per share. Dividends may be declared
on the common stock and each share of common stock will entitle the
holder thereof to one vote in all proceedings in which action should
be taken by stockholders of the Corporation."
SECOND: The Articles of Incorporation of the Corporation are hereby
further amended by striking out Article SEVENTH, subsection (e), thereof in its
entirety and inserting in lieu thereof the following:
"(e) No holders of stock of the Corporation, of whatever
class, shall have any preferential right of subscription to any shares
of any class or to any securities convertible into shares of stock of
the Corporation, nor any right of subscription to any thereof other
than such, if any, as the Board of Directors in its discretion may
fix; and any shares of convertible securities which the Board of
Directors may determine to offer for subscription to the holders of
stock may, as said Board of Directors shall determine, be offered to
holders of any class or classes of stock at the time existing to the
exclusion of holders of any or all other classes at the time
existing."
THIRD: The Board of Directors of the Corporation at a meeting duly
convened and held on September 24, 1997, adopted a resolution in which was set
forth the foregoing amendments to the Articles of Incorporation of the
Corporation, declaring that said amendments were advisable and directing that
such amendments be submitted for action thereon at the next annual meeting of
the stockholders of the Corporation.
17
--
<PAGE> 2
EXHIBIT 3(i) ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION, continued
FOURTH: The amendments of the Articles of Incorporation of the
Corporation as hereinabove set forth were approved by the affirmative vote of a
majority of the total votes eligible to be cast at the annual meeting of
stockholders held on November 21, 1997, in accordance with the provisions of
Article SEVENTH, subsection (f), of the Articles of Incorporation of the
Corporation.
FIFTH: (a) Prior to the amendment, the Corporation had authority
to issue 10,000,000 shares of common stock with a par value of $.025 per share.
(b) After amendment the Corporation has authority to
issue 30,000,000 shares of common stock with a par value of $.025 per share.
(c) The capital stock of the Corporation is not divided
into classes.
(d) The aggregate par value of all shares of common stock
of the Corporation is $750,000.
IN WITNESS WHEREOF, MICROS Systems, Inc. has caused these presents to
be signed in its name and on its behalf by its President and its corporate seal
to be hereunto affixed and attested by its Secretary on the __ day of November,
1997.
ATTEST MICROS SYSTEMS, INC.
- -------------------------- ----------------------------------
Judith F. Wilbert By: A.L. Giannopoulos
Secretary Its: President and Chief Executive
Officer
THE UNDERSIGNED, President and Chief Executive Officer of MICROS
Systems, Inc., who executed on behalf of the Corporation the foregoing Articles
of Amendment of which this is made a part, hereby acknowledges in the name and
on behalf of said Corporation that the foregoing Articles of Amendment to be
the corporate act of said Corporation, and hereby certifies that to the best of
his knowledge, information, and belief the matters and facts set forth therein
with respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
-----------------------------
A.L. Giannopoulos
President and Chief Executive
Officer
18
--
<PAGE> 3
EXHIBIT 3(i) ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION, continued
STATE OF MARYLAND, COUNTY OF PRINCE GEORGES, To wit:
I HEREBY CERTIFY that on this __ day of November, 1997, before me, the
subscriber, a Notary Public in and for the State and County aforesaid,
personally appeared A.L. Giannopoulos, President of the Corporation and made
oath in due form of law that he executed the above on behalf of the
Corporation, being authorized to do so, and executed same in my presence.
AS WITNESS My Hand and Notarial Seal.
My commission expires:
------------------------------
Judith F. Wilbert
Notary Public
19
--
<PAGE> 1
EXHIBIT 10 MATERIAL CONTRACTS
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This Second Amendment to the Employment Agreement is effective the
first day of February, 1998 (the "Second 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 the Company entered into an Employment
Agreement dated June 1, 1995, as amended by the First Amendment dated February
6, 1997 (the agreement as amended hereinafter referred to as the "Agreement");
and
WHEREAS, the parties hereto would like to amend the Agreement pursuant
to this Second 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; (ii) to reward the
Executive for achieving financial objectives; and (iii) to solidify the
long-term management structure of the Company.
NOW, THEREFORE, the Company and the Executive, for good and valuable
consideration, and pursuant to the terms, conditions, and covenants contained
herein, hereby agree as follows:
1. Section 3 of the Agreement, captioned "Term", shall be deleted in its
entirety and the following new language inserted in lieu thereof:
"The term of this Agreement shall commence upon the day and year first
above written ("Commencement Date") and shall continue until June 30,
2002, unless sooner terminated, as provided herein."
2. Section 4 of the Agreement, captioned "Salary", 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 June 30, 2000 $445,500
- ------------------------------------------------------------------
July 1, 2000 through June 30, 2001 $500,500
- ------------------------------------------------------------------
July 1, 2001 through June 30, 2002 $577,500
- ------------------------------------------------------------------
</TABLE>
20
--
<PAGE> 2
EXHIBIT 10 MATERIAL CONTRACTS, continued
3. Section 5 of the Agreement, captioned "Bonuses", is amended in the
following two respects:
A. The target bonus chart contained therein is deleted in its entirety and the
following is inserted 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 $250,000
- --------------------------------------------------------------------
June 30, 2001 $300,000
- --------------------------------------------------------------------
June 30, 2002 $350,000
- --------------------------------------------------------------------
</TABLE>
B. The last paragraph of Section 5 is deleted in its entirety and the
following is inserted in lieu thereof:
"Any bonus required to be paid pursuant to this Section 5 shall be
paid by the Company to the Executive within ninety (90) days following
the close of the fiscal year of the Company to which such bonus
applies."
4. Section 6 of the Agreement, captioned "Stock Option", shall be amended by
adding at the end of the existing text the following new text:
"All grants to the Executive hereunder on or after January 1, 1998,
whether under the Company Plan or any successor employee stock option
plan, shall provide for full vesting of all grants on the first year
anniversary of such grant, unless earlier vesting is permitted under
the applicable plan, or unless a different vesting regimen is required
pursuant to governing law."
5. The first paragraph of Section 16(c)(3) of the Agreement shall be deleted
in its entirety and the following new language inserted in lieu thereof:
"Payment Upon Termination By The Company. If the Company terminates
the Executive's employment for any reason other than Good Cause, the
Executive shall be entitled to receive from the Company and the
Company shall pay to the Executive in one lump sum, within fifteen
(15) days following the Executive's termination of employment, all of
the salary and Target Bonus payments provided for in Sections 4 and 5
of this Agreement for the period beginning on the date of the
Executive's termination of employment and ending on June 30, 2002."
6. The first paragraph of Section 16(c)(4) of the Agreement shall be deleted
in its entirety and the following new language inserted in lieu thereof:
"Payment Upon Termination By The Executive. If the Executive
terminates his employment with the Company for Good Reason, other than
Good Reason described in Section 16(a)(3)a), he shall be entitled to
receive from the Company and the Company shall pay to the Executive in
one lump sum, within fifteen (15) days following the date of the
Executive's termination of employment, all of the salary and Target
Bonus payments provided for in Sections 4 and 5 of this Agreement for
the period beginning on the date of the Executive's termination and
ending on June 30, 2002. If the Executive terminates his employment
with the Company for the Good Reason described in Section 16(a)(3)a),
then and in such event, he shall be entitled to receive from the
Company and the Company shall pay to the Executive in one lump sum,
within fifteen (15) days following the date of the Executive's
termination of employment, an amount equal to the lesser of (i) all of
the salary and Target Bonus payments provided for in Sections 4 and 5
of this Agreement for the period beginning on the date of the
Executive's termination and ending on June 30, 2002, or (ii) all of
the salary and Target Bonus payments
21
--
<PAGE> 3
EXHIBIT 10 MATERIAL CONTRACTS, continued
provided for in Sections 4 and 5 of this Agreement for the period
commencing on the date of the Executive's termination and ending on
the third anniversary of the date of the Executive's termination."
7. All other provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Second Amendment as
of the dates indicated below, the effective date of this Second Amendment being
the first day of February, 1998.
COMPANY:
ATTEST: MICROS SYSTEMS, INC.
By: (SEAL)
- ------------------ ----------------------
Louis M. Brown, Jr.
Chairman
[Corporate Seal]
EXECUTIVE:
WITNESS:
(SEAL)
- ------------------ --------------------------
A. L. GIANNOPOULOS
22
--
<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
December 31,
1997 1996
------ ------
<S> <C> <C>
Weighted-average number of common shares 8,008 7,958
Dilutive effect of outstanding stock options 285 97
------ ------
Weighted-average number of common and common
equivalent shares outstanding 8,293 8,055
====== ======
Net income $4,616 $4,011
====== ======
Net income per common and common
equivalent share $ 0.56 $ 0.50
====== ======
<CAPTION>
Six months ended
December 31,
1997 1996
------ ------
<S> <C> <C>
Weighted-average number of common shares 8,003 7,952
Dilutive effect of outstanding stock options 266 45
------ ------
Weighted-average number of common and common
equivalent shares outstanding 8,269 7,997
====== ======
Net income $7,631 $6,338
====== ======
Net income per common and common
equivalent share $ 0.92 $ 0.79
====== ======
</TABLE>
23
--
<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, 1997 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-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 8,626
<SECURITIES> 0
<RECEIVABLES> 69,187
<ALLOWANCES> 2,247
<INVENTORY> 32,488
<CURRENT-ASSETS> 119,751
<PP&E> 37,905
<DEPRECIATION> 17,184
<TOTAL-ASSETS> 176,679
<CURRENT-LIABILITIES> 85,824
<BONDS> 10,851
0
0
<COMMON> 200
<OTHER-SE> 77,856
<TOTAL-LIABILITY-AND-EQUITY> 176,679
<SALES> 79,598
<TOTAL-REVENUES> 125,855
<CGS> 37,683
<TOTAL-COSTS> 73,969
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 672
<INCOME-PRETAX> 13,737
<INCOME-TAX> 5,494
<INCOME-CONTINUING> 8,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (412)
<NET-INCOME> 7,631
<EPS-PRIMARY> 0.95
<EPS-DILUTED> 0.92
</TABLE>
