<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, 1998
Commission file number 0-9993
MICROS SYSTEMS, INC.
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(Exact name of Registrant as specified in its charter)
MARYLAND 52-1101488
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(State of incorporation) (I.R.S. Employer
Identification Number)
12000 Baltimore Avenue, Beltsville, Maryland 20705-1291
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 301-210-6000
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
YES x NO
----- -----
As of September 30, 1998, there were 16,119,766 shares of Common Stock, $0.025
par value, outstanding.
1
<PAGE> 2
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1998
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. All references to fiscal 1998 share and per share
amounts presented in Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Notes to Consolidated Financial Statements in
this Form 10-Q have been retroactively restated to reflect a two-for-one stock
split effected in the form of a stock dividend in the fourth quarter of fiscal
1998. 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, 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>
September 30, June 30,
1998 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $14,196 $13,592
Accounts receivable, net of allowance for
doubtful accounts of $2,684 at September 30,
1998 and $2,298 at June 30, 1998 86,158 85,436
Inventories 35,518 32,232
Deferred income taxes 4,759 4,715
Prepaid expenses and other current assets 9,999 7,136
------- ------
Total current assets 150,630 143,111
Property, plant and equipment, net of accumulated
depreciation and amortization of $21,381 at
September 30, 1998 and $19,893 at June 30, 1998 22,439 21,764
Deferred income taxes, non-current 5,036 4,644
Goodwill and intangible assets, net of
accumulated amortization of $9,726 at
September 30, 1998 and $8,883 at June 30, 1998 18,606 17,597
Purchased and internally developed software costs,
net of accumulated amortization of $7,260 at
September 30, 1998 and $6,654 at June 30, 1998 19,017 16,964
Other assets 434 531
---- ----
Total assets $216,162 $204,611
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $26,029 $26,830
Current portion of long-term debt 1,510 1,970
Current portion of capital lease obligations 275 280
Accounts payable 19,765 18,968
Accrued expenses and other current liabilities 25,320 29,350
Income taxes payable 8,728 9,158
Deferred income taxes 71 44
Deferred service revenue 18,958 11,112
------- -------
Total current liabilities 100,656 97,712
Long-term debt, net of current portion 6,880 4,074
Capital lease obligations, net of current portion 3,463 3,466
Deferred income taxes, non-current 6,673 6,682
Minority interests 1,141 944
------ ----
Total liabilities 118,813 112,878
-------- --------
Commitments and contingencies
Shareholders' equity:
Common stock, $0.025 par; authorized 30,000
shares; issued and outstanding 16,120 at
September 30, 1998 and 16,101 at June 30, 1998 403 403
Capital in excess of par 20,520 20,097
Retained earnings 79,074 75,566
Accumulated other comprehensive income (Note 4) (2,648) (4,333)
------- --------
Total shareholders' equity 97,349 91,733
------- -------
Total liabilities and shareholders' equity $216,162 $204,611
========= =========
</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,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenue:
Hardware and software $41,467 $37,412
Service 25,172 22,176
-------- --------
Total revenue 66,639 59,588
-------- --------
Costs and expenses:
Cost of sales
Hardware and software 20,601 18,422
Service 12,855 11,879
-------- --------
Total cost of sales 33,456 30,301
Selling, general and administrative expenses 19,811 18,859
Research and development expenses 3,703 3,158
Office closure costs 427 --
Depreciation and amortization 2,393 1,882
------- -------
Total costs and expenses 59,790 54,200
-------- --------
Income from operations 6,849 5,388
Non-operating income (expense):
Interest income 71 68
Interest expense (716) (300)
Other income (expense), net (183) 78
------ ----
Income before taxes, minority interests and
equity in net earnings of affiliates 6,021 5,234
Income taxes 2,408 2,096
------- -------
Income before minority interests and
equity in net earnings of affiliates 3,613 3,138
Minority interests and equity in net
earnings of affiliates (105) (123)
------ ------
Net income $3,508 $3,015
======== ========
Net income per common share:
Basic $0.22 $0.19
======= =======
Diluted $0.21 $0.18
======= =======
Weighted-average number shares outstanding:
Basic 16,115 15,998
======== ========
Diluted 17,048 16,490
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended September 30, 1998
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Capital Other
-------------------- in Excess Retained Comprehensive
Shares Amount of Par Earnings Income Total
-------- -------- --------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 16,101 $403 $20,097 $75,566 $(4,333) $91,733
Stock issued upon exercise of
options 19 -- 339 -- -- 339
Income tax benefit from stock
options exercised -- -- 84 -- -- 84
Comprehensive income (Note 4)
Net income -- -- -- 3,508 -- --
Foreign currency translation
adjustments -- -- -- -- 1,685 --
Total comprehensive income -- -- -- -- -- 5,193
------ ---- ------- ------- -------- --------
Balance, September 30, 1998 16,120 $403 $20,520 $79,074 $(2,648) $97,349
====== ==== ======= ======= ======== ========
</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>
Three Months Ended September 30,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
Net cash flows from operating activities: $4,927 $3,234
-------- --------
Cash flows from investing activities:
Purchases of property, plant and
equipment (2,278) (2,266)
Internally developed software (2,377) (1,143)
Net cash paid for acquisitions (975) (238)
------ ------
Net cash used in investing
activities (5,630) (3,647)
-------- --------
Cash flows from financing activities:
Principal payments on line of credit (4,295) --
Principal payments on long-term debt
and capital lease obligations (960) (1,098)
Proceeds from lines of credit 3,000 --
Proceeds from issuance of debt 2,995 --
Proceeds from issuance of stock 339 316
Income tax benefit from stock options
exercised 84 63
------- ------
Net cash provided by (used in)
financing activities 1,163 (719)
------- ------
Effect of exchange rate changes on cash 144 (366)
----- ------
Net increase (decrease) in cash and cash equivalents 604 (1,498)
Cash and cash equivalents at beginning of
period 13,592 10,864
-------- --------
Cash and cash equivalents at end of period $14,196 $9,366
========= ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $990 $367
======== ======
Income taxes $2,205 $188
======== ======
</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 September 30, 1998
(Unaudited, in thousands, except per share data)
1. Inventories
The components of inventories are as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------------------ ------------------------
<S> <C> <C>
Raw materials $ 5,577 $ 5,415
Work-in-process 2,419 1,762
Finished goods 27,522 25,055
------------------------ ------------------------
$ 35,518 $ 32,232
======================== ========================
</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. On June 22,
1998, the United States District Court Judge granted MICROS' motion
to dismiss four of the seven causes of action. As Budgetel's motion
for leave to file an amended complaint was granted, however, it is
expected that Budgetel will elect to file a first amended complaint.
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 resulting
liability, if any, should not have a material adverse effect on the
Company's results of operations or financial position.
3. Net Income per Share
Basic net income per common share is computed by dividing net income
by the weighted-average number of shares outstanding. Diluted net
income per share includes the dilutive effect of stock options.
A reconciliation of weighted average of common shares outstanding
assuming dilution is as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Net Income $ 3,508 $ 3,015
======== ========
Average common shares outstanding 16,115 15,998
Dilutive effect of outstanding stock
options 933 492
--- ---
Average common shares outstanding
assuming dilution 17,048 16,490
====== ======
Basic Net Income per Share $0.22 $0.19
===== =====
Diluted Net Income per Share $0.21 $0.18
===== =====
</TABLE>
7
<PAGE> 8
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended September 30, 1998
(Unaudited, in thousands, except per share data)
3. Net Income per Share, continued
For both the three month periods ended September 30, 1998 and 1997,
one thousand options were excluded from the above reconciliation as
these options were anti-dilutive for these periods.
4. Comprehensive Income
On July 1, 1998, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive
Income." Total comprehensive income is reported in the consolidated
statements of shareholders' equity and includes net income and
foreign currency translation adjustments.
Item 2. Management's discussion and analysis of financial condition and results
of operations
Liquidity and Capital Resources
The Company has a $35.0 million unsecured committed multi-currency line of
credit which expires on December 31, 1998. Such line is convertible, at the
Company's option, to three-year term debt. 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 a credit facility from
a European bank in the amount of DM 15.0 million (approximately $9.0 million at
the September 30, 1998 exchange rate). 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 September 30, 1998, the Company
had borrowed approximately $33.0 million and has approximately $11.0 million
available. Of the $33.0 million outstanding as of September 30, 1998, $26.0
million represents line of credit borrowings and $7.0 million represents term
debt. As of September 30, 1998, the Company's DM-denominated borrowings under
these credit facilities amounted to DM 16.7 million (approximately $10.0 million
at the September 30, 1998 exchange rate.) The increase in the Company's combined
credit facility borrowings during fiscal 1999 stems primarily from continued
spending for internally developed software, along with increased levels of
inventory and accounts receivable. The Company believes it can operate at a
lower inventory level and currently believes it can achieve this during fiscal
1999.
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 its cash and debt positions in each
currency in an effort to reduce its foreign exchange risk.
8
<PAGE> 9
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1998
Liquidity and Capital Resources - Continued
Net cash provided by operating activities for the three months ended
September 30, 1998 was $4.9 million. The Company used $5.6 million in investing
activities, primarily for the purchase of property, plant and equipment and
internally developed software. Net financing activities for the first three
months of fiscal 1999 provided $1.2 million, primarily through the issuance of
term debt.
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 1999 will continue to increase for the remainder of the fiscal year but
should be lower than fiscal 1998's expenditures of $9.3 million.
Results of Operations - First Quarter Comparison
The Company recorded diluted net income of $0.21 per common share in the
first quarter of fiscal 1999, compared with diluted net income of $0.18 per
common share in the first quarter of fiscal 1998. For the quarter, the increased
net income was primarily due to higher sales volumes and a slight improvement in
gross margins along with lower operating expenses as a percentage of sales.
Revenue of $66.6 million for the first quarter of fiscal 1999 increased
$7.1 million, or 11.8%, compared to the same period last year. A comparison of
the sales mix for fiscal years 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Hardware 40.4% 44.7%
Software 21.8% 18.1%
Service 37.8% 37.2%
----- -----
100.0% 100.0%
====== ======
</TABLE>
Both hardware and software sales increased in absolute dollars in fiscal
1999 in comparison to the prior year. Hardware sales declined as a percentage of
total sales while software sales increased primarily due to significant sales of
certain Fidelio products in fiscal 1999's first quarter. Service sales increased
in absolute dollars and as a proportion of total sales for the first quarter in
comparison to the prior year primarily due to the continued expansion of the
Company's hotel business and the installation and support revenues.
Combined hardware and software revenues for the first quarter of fiscal
1999 increased $4.1 million, or 10.8%, while service revenues increased $3.0
million, or 13.5%, over the same period a year earlier.
9
<PAGE> 10
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1998
Results of Operations - First Quarter Comparison, Continued
Cost of sales, as a percentage of revenue, decreased to 50.2% for the
first quarter of fiscal 1999 from 50.9% for the first quarter of fiscal 1998.
Cost of sales for hardware and software products, as a percentage of related
revenue, was 49.7% in the first quarter of fiscal 1999 compared to 49.2% for the
same quarter a year earlier. This increase was the result of decreased margins
associated with hardware sales, which more than offset the favorable gross
margin effect of increased software sales.
Service costs, as a percentage of service revenue, decreased to 51.1% in
the first quarter of fiscal 1999 compared to 53.6% in the same quarter in fiscal
1998. The first quarter decrease in comparison to the prior year was due to
continued expansion of the Company's customer base and the ability of the
Company to increase service revenues at a rate in excess of service costs.
Selling, general and administrative expenses increased $1.0 million, or
5.1%, in the first quarter of fiscal 1999 compared to the same period last year.
As a percentage of revenue, selling, general and administrative expenses
decreased to 29.7% in the first quarter of fiscal 1999 compared to 31.7% in the
first quarter of fiscal 1998 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 $0.5
million, or 17.3%, in the first quarter of fiscal 1999 compared to the same
period a year earlier. Actual research and development expenditures, including
capitalized software development costs of $2.4 million in the first quarter of
fiscal 1999 and $1.1 million in the first quarter of fiscal 1998, increased $1.8
million, or 41.4%, compared to the same period a year earlier. The increase in
absolute dollars for the three-month period is primarily due to increased
expenditures in the Company's hotel business and to a lesser extent, increased
expenditures in the Company's POS business.
Office closure costs relate to follow-on costs associated with the
Company's fourth quarter of fiscal 1998 permanent closure of its facility in
Munich, Germany. These costs relate to the relocation of former Munich employees
to their new places of employment within the Company.
Income from operations for the first quarter of fiscal 1999 was $6.8
million, or 10.3% of revenue, compared to income of $5.4 million, or 9.0% of
revenue, in the same period a year earlier. For the first quarter of fiscal
1999, the Company's higher dollar income from operations is primarily due to
higher sales and improved gross margins, along with lower operating expenses as
a percentage of sales.
Interest expense increased $0.4 million to $0.7 million, or 138.7%, for
the first quarter of fiscal 1999 from $0.3 million for the same period a year
ago as the Company increased its debt obligations to fund its internal software
development efforts and to meet its working capital requirements.
The effective tax rate for the first quarter of both fiscal years 1999 and
1998 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.
10
<PAGE> 11
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1998
Results of Operations - First Quarter Comparison, Continued
Year 2000
The Company is currently in the process of performing a review of its
business systems, and is querying its customers, vendors and resellers with
respect to Year 2000 compliance issues. The "Year 2000 Issue" is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have a
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in normal business
activities.
In 1997, the Company created a corporate-wide Year 2000 project team
representing all business units of the Company. The team was divided into three
segments, each of which was tasked with analyzing one of the following three
sets of issues: (i) Year 2000 compliance issues with respect to Company internal
information technology systems and non-information technology systems; (ii) Year
2000 compliance issues with respect to the information systems of certain key
Company vendors and suppliers; and (iii) Year 2000 compliance issues with
respect to Company products that the Company sells and licenses to its worldwide
customer base.
Year 2000 Compliance Issues with respect to Company Internal Systems
The Company's Management Information Systems Department assumed all Year
2000 obligations associated with testing, analyzing and implementing the
Company's internal information systems. Although these activities were not
formally assigned to the MIS department until 1997, the department had
nonetheless embraced such as part of its implementation of new enterprise
resources planning systems in 1996. This implementation involved replacing all
internal information systems with Oracle Applications Release 10.7. As part of
this implementation, the Company required certification that all Oracle products
were Year 2000 compliant, which such certification has been provided. The
Company is in the process of verifying the Year 2000 compliance of certain
Oracle products, which is expected to be completed by March 31, 1999.
Internationally, the Company currently intends to adopt Year 2000 compliant
Oracle applications at certain central locations. The Company expects to render
appropriate upgrades to existing systems by July of 1999 at the non-central
international offices, where deemed appropriate or necessary.
Year 2000 Compliance Issues with respect to the Information Systems of Certain
Key Company Vendors and Suppliers
In addition to internal Year 2000 activities and the review and
remediation of the Company's internal information systems, the Company is in
contact with its key suppliers and vendors to assess their compliance. The
Company has received to date certain assurances from these suppliers and vendors
that any Year 2000 issues from which they suffer will not materially adversely
affect MICROS. There can, however, be no absolute assurance that there will not
be a material adverse effect on the Company if third parties do not convert
their systems in a timely manner and in a way that is compatible with the
Company's systems. The Company believes that its current and future actions with
suppliers will minimize these risks.
11
<PAGE> 12
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1998
Results of Operations - First Quarter Comparison, Continued
Year 2000 Compliance Issues with respect to Company Products that the Company
Sells and Licenses to its Worldwide Customer Base
Finally, the Company is currently in the process of completing the testing
of its existing product offerings. The testing includes an analysis of both
standard products, currently offered, and all custom products that have been
offered or developed since 1995, which the Company currently supports. The
testing is not performed with respect to any legacy products that the Company
does not currently sell or support. In the event that the testing determines
that a product may not be Year 2000 compliant, the Company has or will develop
either a fix, or a migration path to a product that is Year 2000 compliant.
While certain potential issues have been identified to date, the expense of
upgrading product applications to be Year 2000 compliant has not been material.
The Company maintains a site on its web page which details the products that the
Company will test or has tested, and the Year 2000 compliance status thereof.
The site is updated routinely.
Year 2000 Compliance Costs
Through fiscal 1998, the Company has expensed all incremental costs
related to the Year 2000 analysis and remediation efforts. Internal and external
costs specifically associated with modifying software for the Year 2000 will be
charged to expense as incurred. All of these costs are being funded through
operating cash flows.
The Company believes it is diligently addressing the Year 2000 issues and
that it will satisfactorily resolve significant Year 2000 problems. The Company
anticipates completing substantially all of its Year 2000 projects during fiscal
1999, with major completion milestones being targeted for the second and fourth
quarters of fiscal 1999. In the event that the Company determines that it may
fail to achieve these milestones, additional internal resources will be focused
on completing these projects or developing contingency plans.
Based on preliminary reviews from presently available information, it is
believed that with the Company's current installation of a new business
operating system, and the significant capital equipment purchases in recent
years to upgrade the Company's technological capabilities, the additional costs
of addressing potential problems are not expected to have a material adverse
impact on the Company's results of operations, liquidity and capital resources.
However, if the Company, its large customers, or significant suppliers are
unable to resolve such processing issues in a timely manner, it could have a
material impact on the results of operations, liquidity or capital resources of
the Company. Moreover, the Company's expectations with respect to future costs
and the timely completion of its Year 2000 modifications are subject to
uncertainties that could cause actual results to differ materially from what has
been discussed above. Factors that could influence the amount of future costs
and the effective timing of remediation efforts include the success of the
Company in identifying systems that contain two-digit year codes, the nature and
amount of testing required to upgrade or replace each of the affected systems,
and the success of the Company's key suppliers in addressing the Year 2000
issue.
Euro Conversion
On January 1, 1999, certain member nations of the European Economic and
Monetary Union ("EMU") will adopt a common currency, the Euro. For a three-year
transition period, both the Euro and individual participants' currencies will
remain in circulation. After June 30, 2002, the Euro will be the sole legal
tender for EMU countries. The adoption of the Euro will affect a multitude of
financial systems and
12
<PAGE> 13
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1998
Results of Operations - First Quarter Comparison, Continued
business applications as the commerce of these nations will be transacted in the
Euro and the existing national currency during the transition period. As of
September 30, 1998, of the eleven countries currently admitted to the EMU, the
Company has subsidiary operations in six of those countries and distributor
relationships in the remaining five countries.
MICROS is currently addressing Euro related issues and its impact on
information systems, currency exchange rate risk, taxation, contracts,
competition and pricing. Action plans currently being implemented are expected
to result in compliance with all laws and regulations; however, there can be no
certainty that such plans will be successfully implemented or that external
factors will not have an adverse effect on the Company's operations. Moreover,
there is still some uncertainty with respect to the interpretation of certain
Euro regulations, and the impact of the regulations on the Company's Euro
implementation. Any costs associated with the adoption of the Euro will be
expensed as incurred and the Company currently does not expect these costs to be
material to its results of operations, financial condition or liquidity.
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. 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. These and other risks are disclosed in the Company's
releases and SEC filings, including in the section titled "Business and
Investment Risks; Information Relating to Forward-Looking Statements", in the
Company's Annual Report on Form 10-K for the Fiscal Year ended June 30, 1998.
13
<PAGE> 14
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1998
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has experienced rapid growth internationally. MICROS'
significant international business and presence does expose the Company to
certain market risks, such as currency, interest rate and political risks. With
respect to currency risk, the Company transacts business in over 25 different
currencies through its foreign subsidiaries. The fluctuation of currencies
impacts sales and profitability. Frequently, sales and the costs associated with
such sales are not always denominated in the same currency. Given the fact that
the Company transacts business in many different currencies, adverse declines in
certain currencies can be offset by favorable advances in other currencies.
While the Company has not to date invested in financial instruments designed to
protect against currency fluctuations, the Company will continue to evaluate the
need to do so in the future.
Additionally, the Company is subject to interest rate fluctuations in
foreign countries to the extent that the Company elects to borrow in the local
foreign currency. In the past, this has not been an issue of concern as the
Company has the capacity to elect to borrow in other currencies with more
favorable interest rates. While the Company has not to date invested in
financial instruments designed to protect against interest rate fluctuations,
the Company will continue to evaluate the need to do so in the future.
Finally, the Company is subject to political risk, especially in
developing countries with uncertain or unstable political structures or regimes.
The Company is also subject to the effects of, and changes in, laws and
regulations, other activities of governments, agencies and similar
organizations, especially in light of the current weak Asian economic
conditions, which may prompt certain legislative reform. The Company does not
believe at this time that it is exposed to unusual political risk that could
have a material adverse impact on the Company.
14
<PAGE> 15
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1998
Part II - Other Information
Item 1. 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. On June 22, 1998, the United States District Court Judge granted
MICROS' motion to dismiss four of the seven causes of action. As Budgetel's
motion for leave to file an amended complaint was granted, however, it is
expected that Budgetel will elect to file a first amended complaint. 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 resulting liability, if any, 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.
15
<PAGE> 16
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1998
Part II - Other Information, continued
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
</TABLE>
16
<PAGE> 17
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1998
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.
<TABLE>
<S> <C>
MICROS SYSTEMS, INC.
------------------------------
(Registrant)
November 16, 1998 /s/ Gary C. Kaufman
- ------------------ -------------------
Gary C. Kaufman
Senior Vice President, Finance and
Administration/Chief Financial Officer
November 16, 1998 /s/ Roberta J. Watson
- ------------------ ---------------------
Roberta J. Watson
Vice President and Controller
</TABLE>
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered Page
- ------- -------------
<C> <S> <C>
11. Computation of Earnings Per Share 19
27. Financial Data Schedule N/A
</TABLE>
18
<PAGE> 1
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
MICROS SYSTEMS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
Share and per share amounts shown for the three month period ending September
30, 1997 have been retroactively restated to reflect a two-for-one stock split,
effected in the form of a stock dividend, paid June 23, 1998:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Weighted-average number of common shares 16,115 15,998
Dilutive effect of outstanding stock options 933 492
--- ---
Weighted-average number of common and common
equivalent shares outstanding 17,048 16,490
------ ------
Net income $3,508 $3,015
====== ======
Basic net income per common share $0.22 $0.19
===== =====
Diluted net income per common share $0.21 $0.18
===== =====
</TABLE>
<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, 1998 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-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 14,196
<SECURITIES> 0
<RECEIVABLES> 88,842
<ALLOWANCES> 2,684
<INVENTORY> 35,518
<CURRENT-ASSETS> 150,630
<PP&E> 43,820
<DEPRECIATION> 21,381
<TOTAL-ASSETS> 216,162
<CURRENT-LIABILITIES> 100,657
<BONDS> 12,128
0
0
<COMMON> 403
<OTHER-SE> 96,946
<TOTAL-LIABILITY-AND-EQUITY> 216,162
<SALES> 41,467
<TOTAL-REVENUES> 66,639
<CGS> 20,601
<TOTAL-COSTS> 39,189
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 716
<INCOME-PRETAX> 6,021
<INCOME-TAX> 2,408
<INCOME-CONTINUING> 3,508
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,508
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.21
</TABLE>
