<PAGE> 1
Form 10-Q
UNITED STATES
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, 1999
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, 1999, there were 16,420,209 shares of Common Stock, $0.025
par value, outstanding.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1999
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, 1999, 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,
1999 1999
------------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,264 $ 22,806
Accounts receivable, net of allowance
for doubtful accounts of $4,004 at September 30,
1999 and $3,618 at June 30, 1999 89,882 101,019
Inventories 29,805 32,605
Deferred income taxes 5,636 5,637
Prepaid expenses and other current assets 12,123 11,040
------- -------
Total current assets 170,710 173,107
Property, plant and equipment, net of accumulated
depreciation and amortization of $25,506 at
September 30, 1999 and $23,720 at June 30, 1999 16,115 15,687
Deferred income taxes, non-current 4,329 4,186
Goodwill and intangible assets, net of
accumulated amortization of $13,119 at
September 30, 1999 and $12,277 at June 30, 1999 16,435 16,255
Purchased and internally developed software costs,
net of accumulated amortization of $10,097 at
September 30, 1999 and $9,258 at June 30, 1999 23,487 22,607
Other assets 319 288
------- -------
Total assets $231,395 $232,130
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $ -- $ 8
Current portion of long-term debt 594 357
Current portion of capital lease obligations 73 98
Accounts payable 21,231 28,041
Accrued expenses and other current liabilities 31,876 38,195
Income taxes payable 13,173 14,113
Deferred income taxes 750 754
Deferred service revenue 18,018 16,240
------- -------
Total current liabilities 85,715 97,806
Long-term debt, net of current portion 5,546 5,368
Capital lease obligations, net of current portion 336 325
Deferred income taxes, non-current 8,120 8,098
Minority interests 1,378 1,260
------- -------
Total liabilities 101,095 112,857
--------- ---------
Commitments and contingencies
Shareholders' equity:
Common stock, $0.025 par; authorized 50,000
shares; issued and outstanding 16,420 at
September 30, 1999 and 16,207 at June 30, 1999 410 405
Capital in excess of par 26,589 22,298
Retained earnings 107,998 102,860
Accumulated other comprehensive income (4,697) (6,290)
------- -------
Total shareholders' equity 130,300 119,273
------- -------
Total liabilities and shareholders' equity $231,395 $232,130
========= =========
</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,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenue:
Hardware and software $53,383 $41,467
Service 34,044 25,172
------- -------
Total revenue 87,427 66,639
------- -------
Costs and expenses:
Cost of sales
Hardware and software 29,445 20,601
Service 16,674 12,855
------- -------
Total cost of sales 46,119 33,456
Selling, general and administrative expenses 24,869 19,811
Research and development expenses 3,774 3,703
Office closure costs -- 427
Depreciation and amortization 2,656 2,393
------- -------
Total costs and expenses 77,418 59,790
------- -------
Income from operations 10,009 6,849
Non-operating income (expense):
Interest income 163 71
Interest expense (146) (716)
Other expense, net (989) (183)
------- -------
Income before taxes, minority interests and
equity in net earnings of affiliates 9,037 6,021
Income taxes 3,656 2,408
------- -------
Income before minority interests and
equity in net earnings of affiliates 5,381 3,613
Minority interests and equity in net
earnings of affiliates (243) (105)
------- -------
Net income $ 5,138 $ 3,508
========= =========
Net income per common share:
Basic $0.32 $0.22
========= =========
Diluted $0.30 $0.21
========= =========
Weighted-average number shares outstanding:
Basic 16,290 16,115
========= =========
Diluted 17,373 17,048
========= =========
</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, 1999
(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, 1999 16,207 $405 $22,298 $102,860 $(6,290) $119,273
Stock issued upon exercise of
options 213 5 3,325 -- -- 3,330
Income tax benefit from stock
options exercised -- -- 966 -- -- 966
Comprehensive income
Net income -- -- -- 5,138 -- --
Foreign currency translation
adjustments -- -- -- -- 1,593 --
Total comprehensive income -- -- -- -- -- 6,731
------ ---- ------- -------- -------- --------
Balance, September 30, 1999 16,420 $410 $26,589 $107,998 $(4,697) $130,300
====== ==== ======= ======== ======== ========
</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,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
Net cash flows from operating activities: $10,687 $4,927
------- -------
Cash flows from investing activities:
Purchases of property, plant and
equipment (2,077) (2,278)
Proceeds from dispositions of
property, plant and equipment 74 --
Internally developed software (1,439) (2,377)
Dividends paid to minority
shareholders (8) --
Net cash paid for acquisitions,
minority interests and contingent
earn-out payments (803) (975)
------- -------
Net cash used in investing
activities (4,253) (5,630)
------- -------
Cash flows from financing activities:
Principal payments on line of credit (8) (4,295)
Principal payments on long-term debt
and capital lease obligations (297) (960)
Proceeds from lines of credit -- 3,000
Proceeds from issuance of debt -- 2,995
Proceeds from issuance of stock 3,330 339
Income tax benefit from stock options
exercised 966 84
------- -------
Net cash provided by
financing activities 3,991 1,163
------- -------
Effect of exchange rate changes on cash 33 144
------- -------
Net increase in cash and cash equivalents 10,458 604
Cash and cash equivalents at beginning of
period 22,806 13,592
------- -------
Cash and cash equivalents at end of period $33,264 $14,196
========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $90 $990
===== ======
Income taxes $3,575 $2,205
======== ========
</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, 1999
(Unaudited, in thousands, except per share data)
1. Inventories
The components of inventories are as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- -------------
<S> <C> <C>
Raw materials $ 5,217 $ 4,784
Work-in-process 2,234 2,053
Finished goods 22,354 25,768
------------- -------------
$ 29,805 $ 32,605
============= =============
</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 filed its answer to the complaint in September of 1999.
MICROS also filed a counterclaim against Budgetel, alleging breach of
contract and defamation. 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 the weighted average number of common shares
outstanding assuming dilution is as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
Net income $ 5,138 $ 3,508
======== ========
Average common shares outstanding 16,290 16,115
Dilutive effect of outstanding
stock options 1,083 933
-------- --------
Average common shares outstanding
assuming dilution 17,373 17,048
======== ========
Basic net income per share $0.32 $0.22
======== ========
Diluted net income per share $0.30 $0.21
======== ========
</TABLE>
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<PAGE> 8
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended September 30, 1999
(Unaudited, in thousands, except per share data)
3. Net income per share, continued
For the three month periods ended September 30, 1999 and 1998, 593
options and 1,000 options, respectively, were excluded from the above
reconciliation as these options were anti-dilutive for these periods.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations - First Quarter Comparison
The Company recorded diluted net income of $0.30 per common share in the
first quarter of fiscal 2000, compared with diluted net income of $0.21 per
common share in the first quarter of fiscal 1999. For the quarter, the increased
net income was primarily due to higher sales volumes generating a higher gross
margin in absolute dollars and lower operating expenses as a percentage of
sales.
Revenue of $87.4 million for the first quarter of fiscal 2000 increased $20.8
million, or 31.2%, compared to the same period last year. A comparison of the
sales mix for fiscal years 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
Hardware 43.6% 40.4%
Software 17.5% 21.8%
Service 38.9% 37.8%
------- -------
100.0% 100.0%
======= =======
</TABLE>
Both hardware and software sales increased in absolute dollars in fiscal 2000
in comparison to the prior year. Software sales declined as a percentage of
total sales primarily due to the lack of large hotel software contracts in the
first quarter of fiscal 2000 compared to fiscal 1999. Hardware sales increased
primarily due to increased sales of the Company's own PCWS ("PC Workstation").
Service sales increased in absolute dollars and as a percentage of total sales
for the first quarter in comparison to the prior year primarily due to increased
installation and support revenues.
Combined hardware and software revenues for the first quarter of fiscal 2000
increased $11.9 million, or 28.7%, while service revenues increased $8.9
million, or 35.3%, over the same period a year earlier.
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<PAGE> 9
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1999
Results of Operations - First Quarter Comparison, continued
Cost of sales, as a percentage of revenue, increased to 52.8% for the first
quarter of fiscal 2000 from 50.2% for the first quarter of fiscal 1999. Cost of
sales for hardware and software products, as a percentage of related revenue,
was 55.2% in the first quarter of fiscal 2000 compared to 49.7% for the same
quarter a year earlier. This increase as a percentage of revenue is primarily
due to the increase of hardware sales as a percentage of total hardware and
software sales.
Service costs, as a percentage of service revenue, decreased to 49.0% in the
first quarter of fiscal 2000 compared to 51.1% in the same quarter in fiscal
1999. 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 $5.0 million, or
18.9%, in the first quarter of fiscal 2000 compared to the same period last
year. As a percentage of revenue, selling, general and administrative expenses
decreased to 35.8% in the first quarter of fiscal 2000 compared to 39.5% in the
first quarter of fiscal 1999 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 $0.1
million, or 1.9%, in the first quarter of fiscal 2000 compared to the same
period a year earlier. Actual research and development expenditures, including
capitalized software development costs of $1.4 million in the first quarter of
fiscal 2000 and $2.4 million in the first quarter of fiscal 1999, decreased $0.9
million, or 14.3%, compared to the same period a year earlier. The decrease in
absolute dollars for the three-month period is primarily due to decreased
expenditures in the Company's restaurant business, largely as a result of
eliminating high-cost outside software consultants/developers, or replacing such
with lower-cost software development employees.
Office closure costs in fiscal 1999 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 2000 was $10.0
million, or 11.5% of revenue, compared to income of $6.8 million, or 10.3% of
revenue, in the same period a year earlier. For the first quarter of fiscal
2000, the Company's higher dollar income from operations is primarily due to
higher sales volumes generating a higher gross margin in absolute dollars.
Interest expense decreased $0.6 million to $0.1 million, or 79.6%, for the
first quarter of fiscal 2000 from $0.7 million for the same period a year ago as
the Company repaid most of its debt obligations during the fourth quarter of
fiscal 1999. Other expense increased from $0.2 million for the first quarter of
fiscal 1999 to $1.0 million in the first quarter of fiscal 2000. The Company
experienced translation loss of $0.9 million in the first quarter of fiscal 2000
compared to a loss of $0.1 million in the first quarter of fiscal 1999. The
translation loss is primarily due to changes in exchange rates between the
German mark and the U.S. dollar and between the Australian dollar and the U.S.
dollar.
The effective tax rate for the first quarter of fiscal 2000 was 40.5%
compared to 40.0% for fiscal 1999. The increase is due to a shift in the mix of
earnings towards countries with higher tax rates.
9
<PAGE> 10
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1999
Results of Operations - First Quarter Comparison, continued
Year 2000
The Company has substantially completed the process of reviewing its business
systems, and 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 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 ("ERP") 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. On March 1,
1999, Micros upgraded the Oracle ERP systems to Release 11.0, Oracle's latest
release. This upgrade assured that all critical ERP systems are fully Year 2000
compliant. Moreover, the Company has completed testing of all of the key
components of the hardware operating the ERP. The tests did not uncover any Year
2000 related issues. Internationally, the Company is in the process of
implementing Year 2000 compliant Oracle applications at certain central
locations.
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. The Company continues to elicit information where a vendor fails to
provide responses, or fails to provide complete responses. 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, or fail to disclose
problems in their applications or support systems. The Company believes that its
current and future actions with suppliers will minimize these risks.
10
<PAGE> 11
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1999
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 has completed testing of its existing standard product
offerings. The testing entailed performing an analysis of standard products
using testing protocols developed internally. While testing was not performed on
each of the individual customized products (defined as special products
developed for individual customers, as opposed to "off the shelf" products
offered as standard products) distributed, testing was performed on defined
classes of customized products. The testing was not performed with respect to
any legacy products that the Company does not currently sell or support. Where
testing determined that a product had Year 2000 related issues, the Company
developed a fix, or provided the customer with a migration path to a product
that is Year 2000 compliant. As part of the testing effort, MICROS engaged
Oracle Corporation ("Oracle") to examine and test certain proprietary
time-sensitive software modules. Oracle has completed its examination, having
determined that, while there were several immaterial non-compliant items, the
code examined was Year 2000 compliant. MICROS has evaluated and, if appropriate,
addressed the issues identified by Oracle. 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 approximately
every four weeks. The last update was on October 27, 1999.
Year 2000 Compliance Costs
To date, 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.
Management's current estimate (including the Year 2000 issues identified to
date) is that the costs associated with the Year 2000 issue should not have a
material adverse effect on the results of operations or financial position of
the Company in any given quarter. However, the Company is not certain that it
has fully identified such impact or whether the Company can resolve it without
disruption of its business or incurring significant expense. To date, not
including the costs incurred to upgrade the Company's internal management
information systems, the Company has incurred approximately $1.5 million in
expenditures related to the Year 2000 issue. Costs capitalized to date to
implement the Company's new Year 2000 compliant internal management information
systems, which address a large variety of informational and processing needs,
are approximately $7.4 million.
The Company believes it has diligently addressed the Year 2000 issues and
that it has satisfactorily resolved any significant Year 2000 problems. The
status of all of these efforts has been provided on the Company's Year 2000
Internet web page, which is updated monthly. In the remaining months of 1999,
the Company will continue to pursue the following three efforts: (i) testing
and, if necessary, correcting certain customized products that have been
offered; (ii) responding to any new issues that may be identified, whether those
in the Company's products, or in third party products on which the operation of
the Company's products are dependent; and (iii) finalizing the customer support
plans worldwide for the anticipated increase in calls and questions during the
three month period commencing December 1, 1999.
11
<PAGE> 12
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1999
Results of Operations - First Quarter Comparison, continued
Contingency Plans
The Company is currently developing a contingency plan for its products. This
plan includes having had Oracle test and verify certain products, and increasing
current staffing levels in customer service functions for the three month period
commencing December 1, 1999. While the Company believes that its current product
set will not have any material Year 2000 issues, the Company anticipates
increased call volume during this period. Additionally, certain items that were
undetected in the testing and review process may surface, which may require
remediation. With respect to internal information systems, MICROS does not
intend to develop a full contingency plan involving implementation of an actual
back-up enterprise resource planning system. Given the complexity of the
Company's Oracle enterprise resource planning system, it is neither practical
nor cost effective to develop such a back-up contingency approach. For this
reason, and as noted above, MICROS has thoroughly tested and certified the
current internal systems so as to reduce the risk that problems have not been
identified and addressed prior to January 1, 2000. Additionally, in order to
test further the internal systems, MICROS scheduled and now has completed a "dry
run" test in August of 1999, during which the dates contained in the enterprise
resource planning system were scrolled forward to January 1, 2000. These tests
did not uncover any Year 2000 related issues, and the systems performed without
any failures or inaccuracies. However, Year 2000 issues in the Company's
enterprise resource planning system, if gone undetected or uncorrected, could
have a material adverse impact on the Company's results of operations or
financial condition.
Euro Conversion
On January 1, 1999, certain member nations of the European Economic and
Monetary Union ("EMU") adopted 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 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 June 30, 1999, 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. The Company currently does not expect these costs to be
material to its results of operations, financial condition or liquidity.
12
<PAGE> 13
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1999
Results of Operations - First Quarter Comparison, continued
Liquidity and Capital Resources
The Company has a $45.0 million multi-currency unsecured committed line of
credit expiring on December 31, 1999. Prior to the upcoming expiration date, the
Company anticipates that it will renew this line of credit for an additional
one-year period. This line of credit was increased from $35,000 to $45,000
pursuant to an amendment entered into during the second quarter of fiscal 1999.
The Company has the one-time option to convert the line of credit into a
three-year secured term loan upon expiration of the line of credit. In addition,
the Company has a credit facility from a European bank in the amount of DM 15.0
million (approximately $8.2 million at the September 30, 1999 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.
As of September 30, 1999, there were no borrowings under the line of credit
and DM 10.0 million (approximately $5.5 million at the September 30, 1999
exchange rate) in term debt under the European bank credit facility. There was
approximately $47.7 million in credit available under both credit agreements as
of that date.
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.
Net cash provided by operating activities for the three months ended
September 30, 1999 was $10.7 million. The Company used $4.3 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 $4.0 million, primarily through the issuance of
common stock.
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 or converted into
term debt, are sufficient to provide the working capital needs of the Company
for the foreseeable future. The Company anticipates that its rate of property,
plant and equipment expenditures for fiscal 2000 will increase approximately
$5.0 million over fiscal 1999 expenditures, of which $4.0 million will be for
the purchase of furniture and fixtures for its new headquarters building.
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.
13
<PAGE> 14
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1999
Results of Operations - First Quarter Comparison, continued
Moreover, some of the statements contained herein not based on historic facts
are forward looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, and Section 27A of the Securities
Act of 1933, as amended, 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 OPERA products and the
newest versions of the 3700 POS and 3400 QSR 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, 1999.
14
<PAGE> 15
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1999
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 24 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.
Further, 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.
Finally, the Company's unsecured committed line of credit bears interest at a
floating rate of interest. It does not invest in financial instruments designed
to protect against interest rate fluctuations, although it will continue to
evaluate the need to do so in the future.
15
<PAGE> 16
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1999
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. MICROS filed its answer to the
complaint in September of 1999. MICROS also filed a counterclaim against
Budgetel, alleging breach of contract and defamation. 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
In October 1999, the Company acquired all of the stock of OPUS 2 Revenue
Technologies, Inc. ("OPUS"), pursuant to the terms of a stock purchase
agreement. Based in Portsmouth, New Hampshire, OPUS engages in the development,
marketing and sale of yield and revenue management software systems designed
for the hospitality industry. The purchase price of $4.8 million for OPUS
consists of an up-front payment of both cash and MICROS stock. Additionally,
the former shareholders have the right to earn: (i) three earn-out payments
based on OPUS revenues, for the three periods ending 9 months, 21 months, and
33 months after the closing of the transaction; and (ii) a performance payment
based on the completion of the development of certain new software. The pro
forma effects of this acquisition are immaterial and are not presented.
16
<PAGE> 17
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1999
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
17
<PAGE> 18
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1999
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 15, 1999 /s/ Gary C. Kaufman
- ------------------- ---------------
Gary C. Kaufman
Executive Vice President, Finance and
Administration/Chief Financial Officer
November 15, 1999 /s/ Roberta J. Watson
- ------------------- -----------------
Roberta J. Watson
Vice President and Controller
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered Page
- ------- -------------
<S> <C> <C>
11. Computation of Earnings Per Share 20
27. Financial Data Schedule N/A
</TABLE>
19
<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)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
Weighted-average number of common shares 16,290 16,115
Dilutive effect of outstanding stock options 1,083 933
------ ------
Weighted-average number of common and common
equivalent shares outstanding 17,373 17,048
====== ======
Net income $5,138 $3,508
====== ======
Basic net income per common share $0.32 $0.22
====== ======
Diluted net income per common share $0.30 $0.21
====== ======
</TABLE>
20
<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, 1999 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-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 33,264
<SECURITIES> 0
<RECEIVABLES> 93,886
<ALLOWANCES> 4,004
<INVENTORY> 29,805
<CURRENT-ASSETS> 170,710
<PP&E> 41,621
<DEPRECIATION> 25,506
<TOTAL-ASSETS> 231,395
<CURRENT-LIABILITIES> 85,715
<BONDS> 5,882
0
0
<COMMON> 410
<OTHER-SE> 129,890
<TOTAL-LIABILITY-AND-EQUITY> 231,395
<SALES> 53,383
<TOTAL-REVENUES> 87,427
<CGS> 29,445
<TOTAL-COSTS> 77,418
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> 9,037
<INCOME-TAX> 3,656
<INCOME-CONTINUING> 5,138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,138
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.30
</TABLE>
