<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, 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
------------
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, 1998, there were 16,125,866 shares of Common Stock, $0.025
par value, outstanding.
1
<PAGE> 2
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 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>
December 31, June 30,
1998 1998
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $14,494 $13,592
Accounts receivable, net of allowance for
doubtful accounts of $2,964 at December 31,
1998 and $2,298 at June 30, 1998 92,916 85,436
Inventories 32,640 32,232
Deferred income taxes 4,767 4,715
Prepaid expenses and other current assets 7,600 7,136
------- -----
Total current assets 152,417 143,111
Property, plant and equipment, net of accumulated
depreciation and amortization of $22,879 at
December 31, 1998 and $19,893 at June 30, 1998 22,238 21,764
Deferred income taxes, non-current 5,039 4,644
Goodwill and intangible assets, net of
accumulated amortization of $10,593 at
December 31, 1998 and $8,883 at June 30, 1998 17,826 17,597
Purchased and internally developed software costs,
net of accumulated amortization of $7,964 at
December 31, 1998 and $6,654 at June 30, 1998 20,209 16,964
Other assets 406 531
----- ---
Total assets $218,135 $204,611
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $24,895 $26,830
Current portion of long-term debt 989 1,970
Current portion of capital lease obligations 255 280
Accounts payable 19,413 18,968
Accrued expenses and other current liabilities 27,620 29,350
Income taxes payable 10,254 9,158
Deferred income taxes 73 44
Deferred service revenue 12,336 11,112
-------- --------
Total current liabilities 95,835 97,712
Long-term debt, net of current portion 6,884 4,074
Capital lease obligations, net of current portion 3,429 3,466
Deferred income taxes, non-current 6,674 6,682
Minority interests 1,202 944
------- ---
Total liabilities 114,024 112,878
--------- -------
Commitments and contingencies
Shareholders' equity:
Common stock, $0.025 par; authorized shares
50,000 at December 31, 1998 and 30,000 at June
30, 1998; issued and outstanding 16,126 at
December 31, 1998 and 16,101 at June 30, 1998 403 403
Capital in excess of par 20,653 20,097
Retained earnings 85,287 75,566
Accumulated other comprehensive income (Note 5) (2,232) (4,333)
-------- -------
Total shareholders' equity 104,111 91,733
--------- ------
Total liabilities and shareholders' equity $218,135 $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 December 31,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenue:
Hardware and software $ 51,088 $ 42,186
Service 29,506 24,081
-------- --------
Total revenue 80,594 66,267
-------- --------
Costs and expenses:
Cost of sales
Hardware and software 26,690 19,261
Service 14,147 12,469
-------- --------
Total cost of sales 40,837 31,730
Selling, general and administrative
expenses 22,291 20,385
Research and development expenses 3,605 3,265
Depreciation and amortization 2,426 2,072
-------- --------
Total costs and expenses 69,159 57,452
-------- --------
Income from operations 11,435 8,815
Non-operating income (expense):
Interest income 115 131
Interest expense (574) (372)
Other income (expense), net (304) (71)
-------- --------
Income before taxes and minority
interest, equity in net earnings of
affiliates and cumulative effect of
accounting change 10,672 8,503
Income tax expense 4,269 3,398
-------- --------
Income before minority interest, equity in
net earnings of affiliates and
cumulative effect of accounting change 6,403 5,105
Minority interest and equity in net
earnings of affiliates (190) (77)
-------- --------
Net income before cumulative effect of
accounting change 6,213 5,028
Cumulative effect of change in accounting
principle, net of tax benefit of $274 -- (412)
-------- --------
Net income $ 6,213 $ 4,616
======== ========
Basic net income per common share:
Income before cumulative effect of
accounting change $ 0.39 $ 0.31
Cumulative effect of change in
accounting principle -- (0.02)
-------- --------
Basic net income per common share $ 0.39 $ 0.29
======== ========
Diluted net income per common share:
Income before cumulative effect of
accounting change $ 0.37 $ 0.30
Cumulative effect of change in
accounting principle -- (0.02)
-------- --------
Diluted net income per common share $ 0.37 $ 0.28
======== ========
Weighted-average number of shares outstanding:
Basic 16,123 16,016
======== ========
Diluted 16,855 16,585
======== ========
</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,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Revenue:
Hardware and software $ 92,555 $ 79,598
Service 54,678 46,257
--------- ---------
Total revenue 147,233 125,855
--------- ---------
Costs and expenses:
Cost of sales
Hardware and software 47,291 37,683
Service 27,002 24,348
--------- ---------
Total cost of sales 74,293 62,031
Selling, general and administrative
expenses 42,102 39,245
Research and development expenses 7,308 6,423
Office closure costs 427 --
Depreciation and amortization 4,819 3,953
--------- ---------
Total costs and expenses 128,949 111,652
--------- ---------
Income from operations 18,284 14,203
Non-operating income (expense):
Interest income 186 199
Interest expense (1,290) (672)
Other income (expense), net (487) 7
--------- ---------
Income before taxes and minority
interest, equity in net earnings of
affiliates and cumulative effect of
accounting change 16,693 13,737
Income tax expense 6,677 5,494
--------- ---------
Income before minority interest, equity in
net earnings of affiliates and
cumulative effect of accounting change 10,016 8,243
Minority interest and equity in net
earnings of affiliates (295) (200)
--------- ---------
Net income before cumulative effect of
accounting change 9,721 8,043
Cumulative effect of change in accounting
principle, net of tax benefit of $274 -- (412)
--------- ---------
Net income $ 9,721 $ 7,631
========= =========
Basic net income per common share:
Income before cumulative effect of
accounting change $ 0.60 $ 0.50
Cumulative effect of change in
accounting principle -- (.02)
--------- ---------
Basic net income per common share $ 0.60 $ 0.48
========= =========
Diluted net income per common share:
Income before cumulative effect of
accounting change $ 0.57 $ 0.49
Cumulative effect of change in
accounting principle -- (.03)
--------- ---------
Diluted net income per common share $ 0.57 $ 0.46
========= =========
Weighted-average number of shares outstanding:
Basic 16,119 16,007
========= =========
Diluted 16,951 16,538
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Six Months Ended December 31, 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 25 -- 451 -- -- 451
Income tax benefit from stock
options exercised -- -- 105 -- -- 105
Comprehensive income (Note 5)
Net income -- -- -- 9,721 -- --
Foreign currency translation
adjustments -- -- -- -- 2,101 --
Total comprehensive income -- -- -- -- -- 11,822
------ ---- ------- ------- -------- --------
Balance, December 31, 1998 16,126 $403 $20,653 $85,287 $(2,232) $104,111
====== ==== ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 7
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Condensed and unaudited - in thousands)
<TABLE>
<CAPTION>
Six months ended December 31,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Net cash flows provided by (used in) operating
activities: $ 10,170 $ (2,714)
-------- --------
Cash flows from investing activities:
Purchases of property, plant and
equipment (3,471) (3,843)
Proceeds on dispositions of property,
plant and equipment 112 83
Internally developed software (4,499) (3,693)
Dividends to minority owners (69) (351)
Net cash paid for acquisitions and
minority interests (975) (238)
-------- --------
Net cash used in investing activities (8,902) (8,042)
-------- --------
Cash flows from financing activities:
Principal payments on line of credit (6,295) (3,397)
Principal payments on long-term debt
and capital lease obligation (1,588) (1,808)
Proceeds from line of credit 3,898 10,500
Proceeds from issuance of long term debt 2,995 2,870
Proceeds from issuance of stock 452 372
Income tax benefit from stock options
exercised 105 64
-------- --------
Net cash (used in) provided by
financing activities (433) 8,601
-------- --------
Effect of exchange rate changes on cash 67 (83)
-------- --------
Net increase (decrease) in cash and cash
equivalents 902 (2,238)
Cash and cash equivalents at beginning of period 13,592 10,864
-------- --------
Cash and cash equivalents at end of period $ 14,494 $ 8,626
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 1,057 $ 714
======== ========
Income taxes $ 4,226 $ 928
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE> 8
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended December 31, 1998
(Unaudited, in thousands, except per share data)
1. Inventories
The components of inventories are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------------ -----------------
<S> <C> <C>
Raw materials $ 4,773 $ 5,415
Work-in-process 2,832 1,762
Finished goods 25,035 25,055
------------------ -----------------
$ 32,640 $ 32,232
================== =================
</TABLE>
2. Common Stock
On November 20, 1998, the Company's shareholders approved an amendment
to the Company's Articles of Incorporation which increased the
Company's authorized shares of Common Stock from 30,000 to 50,000
shares.
3. 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. As the United States District Court Judge granted
MICROS' motion to dismiss four of the seven causes of action on June
22, 1998, with leave to amend, Budgetel filed a first amended complaint
on November 12, 1998. MICROS filed a motion to dismiss the amended
complaint on December 7, 1998. 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.
4. 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.
8
<PAGE> 9
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended December 31, 1998
(Unaudited, in thousands, except per share data)
4. Net Income per Share, continued
A reconciliation of weighted average of common shares outstanding
assuming dilution is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 6,213 $ 4,616 $ 9,721 $ 7,631
======= ======= ======= =======
Average common shares outstanding 16,123 16,016 16,119 16,007
Dilutive effect of outstanding
stock options 732 569 832 531
------- ------- ------- -------
Average common shares outstanding
assuming dilution 16,855 16,585 16,951 16,538
======= ======= ======= =======
Basic Net Income per Share $ 0.39 $ 0.29 $ 0.60 $ 0.48
======= ======= ======= =======
Diluted Net Income per Share $ 0.37 $ 0.28 $ 0.57 $ 0.46
======= ======= ======= =======
</TABLE>
For the three and six-month periods ended December 31, 1998, 6,000
options and 4,000 options, respectively, were excluded from the above
reconciliation as these options were anti-dilutive for these periods.
For the three and six-month periods ended December 31, 1997, no options
were excluded from the above reconciliation for these periods.
5. 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.
6. Subsequent event
In anticipation of its move to new corporate headquarters in the Spring
of 2000, MICROS entered into an amendment to a capital lease for one of
the corporate headquarters buildings located at 12050 Baltimore Avenue,
Beltsville, Maryland. As part of a comprehensive agreement, MICROS
agreed to waive certain purchase rights of the facility embodied in the
original capital lease, including the right to purchase the facility in
2009 for $10.00. MICROS also entered into a standard operating lease
with the owner of the facility pursuant to which MICROS agreed to
continue to rent portions of the facility until March 31, 2000. In
consideration of MICROS' entering into the agreements, MICROS received
a one-time cash payment from the owner of the facility. As of December
31, 1998, the Company's carrying values of the combined land and
building along with the capital lease obligation were $3.5 million and
$3.2 million, respectively. During the third quarter of fiscal 1999,
the Company will remove these items from its balance sheet at a small
gain, after consideration of proceeds and transaction costs.
9
<PAGE> 10
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The Company now has a $45.0 million unsecured committed multi-currency line
of credit, which was renewed and increased from $35.0 million during the second
quarter of fiscal 1999 for an additional one-year period, expiring on December
31, 1999. Such line is convertible, at the Company's option, to three-year term
debt. 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 December 31, 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 December 31, 1998, the Company had
borrowed approximately $31.4 million and has approximately $22.6 million
available. Of the $31.4 million outstanding as of December 31, 1998, $24.9
million represents line of credit borrowings and $6.5 million represents term
debt. As of December 31, 1998, the Company's DM-denominated borrowings under
these credit facilities amounted to DM 17.3 million (approximately $10.4 million
at the December 31, 1998 exchange rate). The increase of $0.4 million 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 accounts receivable and inventory. The Company believes it can operate
at a lower inventory level and believes it can further reduce inventory during
the rest of 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.
Net cash provided by operating activities for the six months ended December
31, 1998 was $10.2 million. The Company used $8.9 million in investing
activities, primarily for the purchase of property, plant and equipment and
internally developed software. Net financing activities for the first six months
of fiscal 1999 used $0.4 million, primarily for the repayment of line of credit
borrowings.
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 - Second Quarter Comparison
The Company recorded diluted net income of $0.37 per common share in the
second quarter of fiscal 1999, compared with diluted net income of $0.28 per
common share in the second quarter of fiscal 1998. Net income for the six months
ended December 31, 1998, on a diluted basis, was $0.57 per share compared with
$0.46 per common share for the first six months of fiscal 1998. For the quarter
and year-to-date, the increased net income was primarily due to higher sales
volumes along with lower operating expenses as a percentage of sales, partially
offset by lower gross margins. Fiscal 1998's second quarter and year-to-date
results include an after-tax charge of $0.4 million, or $0.02 per share for the
quarter and $0.03 per share for the year-to-date, relating to an accounting
charge associated with a change in the treatment of capitalized business process
re-engineering costs.
10
<PAGE> 11
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1998
Results of Operations - Second Quarter Comparison, Continued
Revenue of $80.6 million for the second quarter of fiscal 1999 increased
$14.3 million, or 21.6%, compared to the same period last year. For the first
six months of fiscal 1999, revenue increased $21.4 million to $147.2 million, or
17.0%, over the same period in fiscal 1998. A comparison of the sales mix for
fiscal years 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Hardware 45.8% 42.6% 43.4% 43.6%
Software 17.6% 21.1% 19.5% 19.7%
Service 36.6% 36.3% 37.1% 36.7%
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
</TABLE>
Both hardware and software sales increased in absolute dollars in fiscal
1999 in comparison to the prior year. For the quarter, hardware sales increased
as a percentage of total sales while software sales decreased primarily due to
strong hardware demand coinciding with the absence of significant hotel system
deliveries during the second quarter of fiscal 1999. On a year-to-date basis,
hardware and software sales continued to increase in absolute dollars, but
declined as a percentage of sales, primarily due to the continued growth of the
Company's service business. Service sales increased in absolute dollars and as a
proportion of total sales for the second quarter in comparison to the prior year
primarily due to increased installation and support revenues.
Combined hardware and software revenues for the second quarter of fiscal
1999 increased $8.9 million, or 21.1%, while service revenues increased $5.4
million, or 22.5%, over the same period a year earlier. On a year-to-date basis,
hardware and software sales increased $13.0 million, or 16.3%, while service
revenues increased $8.4 million, or 18.2%, over the same period a year earlier.
Cost of sales, as a percentage of revenue, increased to 50.7% for the
second quarter of fiscal 1999 from 47.9% for the second quarter of fiscal 1998.
For the first six months of fiscal 1999 and 1998, cost of sales, as a percentage
of revenue, was 50.5% and 49.3% respectively. Cost of sales for hardware and
software products, as a percentage of related revenue, was 52.2% in the second
quarter of fiscal 1999 compared to 45.7% for the same quarter a year earlier and
51.1% compared to 47.3% for the first six months of fiscal 1999 and 1998,
respectively. For the quarter and year-to-date, 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 47.9% in
the second quarter of fiscal 1999 compared to 51.8% in the same quarter in
fiscal 1998. Service costs, as a percentage of service revenue, decreased to
49.4% in the first six months of fiscal 1999 compared to 52.6% for the same
period in fiscal 1998. The second quarter and year-to-date 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. During the third quarter of fiscal 1998, the
Company entered into a Service Contractor Agreement with Vanstar Corporation
("Vanstar"), a California-based company, which is in the business of providing
certain installation, repair and maintenance services for certain MICROS major
account and district customers. MICROS and Vanstar continue to work together in
an effort to better coordinate and address customer needs in the deployment of
Vanstar services. In
11
<PAGE> 12
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1998
Results of Operations - Second Quarter Comparison, Continued
those regions where the Vanstar services have not been deployed, MICROS is
currently servicing its customer base through its existing network of MICROS
dealers and MICROS district offices.
Selling, general and administrative expenses increased $1.9 million, or
9.3%, in the second quarter of fiscal 1999 compared to the same period last
year. As a percentage of revenue, selling, general and administrative expenses
decreased to 27.7% in the second quarter of fiscal 1999 compared to 30.8% in the
second quarter of fiscal 1998. For the first six months of fiscal 1999, selling,
general and administrative expenses, as a percentage of revenue, were 28.6%
compared to 31.2% for the same period a year earlier. For both the quarter and
year-to-date, these decreases are due to 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 $0.3
million, or 10.4%, in the second quarter of fiscal 1999 compared to the same
period a year earlier. Actual research and development expenditures, including
capitalized software development costs of $2.1 million in the second quarter of
fiscal 1999 and $2.5 million in the second quarter of fiscal 1998, decreased
$0.1 million, or 1.5%, compared to the same period a year earlier. This decrease
in absolute dollars for the three-month period is primarily due to decreased
expenditures in the Company's hotel business. For the first six months of fiscal
1999, research and development expenses (exclusive of capitalized software
development costs),which consist primarily of internal and sub-contracted labor
costs, increased $0.9 million, or 13.8%, compared to the same period a year
earlier. Actual research and development expenditures for the first six months
of fiscal 1999, including capitalized software development costs of $4.5
million, increased $1.7 million, or 16.7%, compared to the same period a year
earlier. The increase in absolute dollars for the six-month period is primarily
due to increased expenditures in the Company's hotel business during the first
quarter of fiscal 1999 and to a lesser extent, increased expenditures in the
Company's POS business throughout fiscal 1999.
Office closure costs relate to follow-on costs incurred in the first
quarter of fiscal 1999 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 second quarter of fiscal 1999 was $11.4
million, or 14.2% of revenue, compared to income of $8.8 million, or 13.3% of
revenue, in the same period a year earlier. For the first six months of fiscal
1999, income from operations was $18.3 million compared to income of $14.2
million a year earlier. For both the second quarter and first six months of
fiscal 1999, the Company's higher dollar income from operations is primarily due
to higher sales and lower operating expenses as a percentage of sales, partially
offset by lower gross margins.
Interest expense increased $0.2 million to $0.6 million, or 54.7%, for the
second quarter of fiscal 1999 from $0.4 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. Interest
expense for the first six months in fiscal 1999 was $1.3 million compared to
$0.7 million, an increase of 92.0%, for the comparable period in fiscal 1998
primarily due to the Company's higher overall debt level during the first six
months of fiscal 1999 in comparison to the same period a year ago.
12
<PAGE> 13
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1998
Results of Operations - Second Quarter Comparison, Continued
The effective tax rate for the second quarter and year-to-date 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.
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
implement appropriate alternative solutions to existing systems by September 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.
13
<PAGE> 14
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1998
Results of Operations - Second 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 approximately every four weeks. The last update was on
February 11, 1999.
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. 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 $0.7
million in expenditures related to the Year 2000 issue. Costs capitalized to
date to implement the Company's new internal management information systems,
which addressed not only the Year 2000 issues, but also a large variety of other
required and desired informational and processing needs, are approximately $6.1
million.
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 third 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.
Contingency Plans
The Company is currently developing a contingency plan for its products.
This plan includes having an independent company test and verify that certain
products are Year 2000 compliant, 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. With respect to internal information systems, MICROS does not
intend to develop a full contingency plan. Given the complexity of the
Company's Oracle enterprise resource planning system, it is neither practical
nor cost effective to develop a back-up contingency approach. For this reason,
and as noted above, MICROS is thoroughly testing and certifying the current
internal systems so as to assure that any problems are fully addressed prior to
January 1, 2000. 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
14
<PAGE> 15
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1998
Results of Operations - Second 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
December 31, 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.
15
<PAGE> 16
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 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.
16
<PAGE> 17
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 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. As the United States District Court Judge granted MICROS' motion to
dismiss four of the seven causes of action on June 22, 1998, with leave to
amend, Budgetel filed a first amended complaint on November 12, 1998. MICROS
filed a motion to dismiss the amended complaint on December 7, 1998. 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.
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
30,000,000 to 50,000,000 shares was approved by the Company's shareholders at
the annual meeting held on November 20, 1998. Articles of Amendment were filed
with the Maryland State Department of Assessments and Taxation on November 24,
1998.
Item 3. Defaults upon Senior Securities
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 20, 1998. A quorum
was present and shareholders voted on the following matters:
1. Approval of an Amendment to the Articles of Incorporation
The shareholders voted 12,854,129 shares in the affirmative and 717,691 shares
in the negative with respect to a proposal to adopt an amendment to the
Company's Articles of Incorporation. A total of 61,470 shares abstained from the
vote. There were no broker non-votes. The amendment increases the number of
shares of common stock that the Company is authorized to issue from 30,000,000
to 50,000,000 shares. 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 November 24,
1998.
17
<PAGE> 18
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1998
Part II - Other Information, continued
2. Election of Directors
The management of the Company nominated a slate of six persons to serve on the
Board of Directors. No other nominations were made. The nominees received the
following votes:
<TABLE>
<CAPTION>
Nominee For Vote Withheld(Abstain)
------- --- -------------
<S> <C> <C>
Louis M. Brown, Jr. 13,504,991 128,299
Daniel Cohen 13,603,785 29,505
A.L. Giannopoulos 13,604,545 28,745
F. Suzanne Jenniches 13,611,095 22,245
John G. Puente 13,619,125 14,165
Dwight S. Taylor 13,606,875 26,415
</TABLE>
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 PricewaterhouseCoopers LLP as the
independent public accountants for the Company for the fiscal year ending June
30, 1999. A proposal to approve the selection of PricewaterhouseCoopers LLP was
approved by a majority of the shares present in person or represented by proxy
and entitled to vote. A total of 13,614,020 shares voted in the affirmative; a
total of 6,640 shares voted in the negative; and a total of 12,630 shares
abstained from the vote.
4. Approval of Amendment to Stock Option Plan
The shareholders voted 8,986,380 shares in the affirmative and 3,307,678 shares
in the negative with respect to an amendment to the 1991 Stock Option Plan. A
total of 76,684 shares abstained from the vote, and there were 1,262,548 broker
non-votes. The amendment modifies the 1991 Stock Option Plan by increasing the
number of shares available under the 1991 Stock Option Plan by 1,000,000, with
the aggregate number of shares that can be issued under the plan being
4,500,000. As the requisite number of shares required for approval was obtained,
the amendment was approved.
Item 5. Other Information
On January 27, 1999, the Board of Directors at a scheduled Board meeting
unanimously approved (with Mr. Brown abstaining from the vote) the First
Amendment of the Consulting Agreement between Louis M. Brown, Jr. and the
Company dated June 30, 1995. The amendment extends the term of the Consulting
Agreement for two more years until June 30, 2002, and provides for compensation
for the extended term.
Additionally, on September 11, 1998, the Compensation Committee of the
Board of Directors at a scheduled Compensation Committee meeting unanimously
approved the amendment of the Employment Agreement between Gary C. Kaufman and
the Company dated May 28, 1997. The First Amendment extends the term of the
Employment Agreement for a three year period commencing on October 1, 1998, and
such period may automatically be extended for additional three year rolling
periods unless either
18
<PAGE> 19
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1998
Part II - Other Information, continued
Item 5. Other Information, continued
party elects otherwise.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3(i) - Articles of Amendment to Articles of
Incorporation
Exhibit 10a - First Amendment to Consulting Agreement between
the Company and Louis M. Brown Jr., dated February 1, 1999
Exhibit 10b - First Amendment to Employment Agreement between
the Company and Gary C. Kaufman, dated October 1, 1998
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
19
<PAGE> 20
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 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.
MICROS SYSTEMS, INC.
------------------------
(Registrant)
February 16, 1999 /s/ Gary C. Kaufman
- ------------------ -------------------
Gary C. Kaufman
Senior Vice President, Finance and
Administration/Chief Financial Officer
February 16, 1999 /s/ Roberta J. Watson
- ------------------ ---------------------
Roberta J. Watson
Vice President and Controller
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered Page
- ------- -------------
<S> <C>
3(i) Articles of Amendment to Articles of Incorporation 22
10a First Amendment to Consulting Agreement between the
Company and Louis M. Brown, Jr.,dated February 1, 1999 25
10b First Amendment to Employment Agreement between the
Company and Gary C. Kaufman, dated October 1, 1998 27
11. Computation of Earnings Per Share 29
27. Financial Data Schedule N/A
</TABLE>
21
<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 50,000,000, 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 Board of Directors of the Corporation at a meeting duly
convened and held on September 24, 1998, adopted a resolution in which was set
forth the foregoing amendment to the Articles of Incorporation of the
Corporation, declaring that said amendment was advisable and directing that such
amendment be submitted for action thereon at the next annual meeting of the
stockholders of the Corporation.
THIRD: The amendment 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 20, 1998, in accordance with the provisions of
Article SEVENTH, subsection (f), of the Articles of Incorporation of the
Corporation.
FOURTH: (a) Prior to the amendment, the Corporation had
authority to issue 30,000,000 shares of common stock with a par value of $.025
per share.
(b) After amendment the Corporation has authority to
issue 50,000,000 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 $1,250,000.
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,
1998.
ATTEST MICROS SYSTEMS, INC.
/s/Judith F. Wilbert /s/A.L. Giannopoulos
- ---------------------- --------------------
Judith F. Wilbert By: A.L. Giannopoulos
Secretary Its: President and Chief Executive Officer
22
<PAGE> 2
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.
/s/A.L. Giannopoulos
--------------------
A.L. Giannopoulos
President and Chief Executive Officer
STATE OF MARYLAND, COUNTY OF PRINCE GEORGES, To wit:
I HEREBY CERTIFY that on this __ day of November, 1998, 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: /s/Judith F. Wilbert
--------------------
Judith F. Wilbert
Notary Public
23
<PAGE> 1
EXHIBIT 10 - MATERIAL CONTRACTS
FIRST AMENDMENT TO CONSULTING AGREEMENT
This First Amendment to the Consulting Agreement is effective the first
day of February, 1999 (the "First Amendment"), by and between MICROS SYSTEMS,
INC., a Maryland corporation, with offices located at 12000 Baltimore Avenue,
Beltsville, Maryland 20705 (hereinafter referred to as the "Company"), and Louis
M. Brown, Jr., whose address is 1665 Kenwood Avenue, Alexandria, Virginia 22312
(hereinafter referred to as the "Consultant").
WHEREAS, the Consultant and the Company entered into a Consulting
Agreement dated June 30, 1995 (the "Agreement"); and
WHEREAS, the parties hereto would like to amend the Agreement pursuant
to this First Amendment in an effort: (i) to reflect the rapid growth
experienced by the Company, and the current status of the Company and the
Consultant relative to other similarly positioned entities; (ii) to reward the
Consultant for achieving financial objectives; and (iii) to solidify the
long-term management structure of the Company.
NOW, THEREFORE, the Company and the Consultant, 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 "Compensation", is amended by deleting
the compensation chart contained therein in its entirety and inserting the
following in lieu thereof:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Period Compensation
---------------------------------------------------------------------------
<S> <C>
July 1, 1995 through June 30, 1996 $150,000
---------------------------------------------------------------------------
July 1, 1996 through June 30, 1997 $160,000
---------------------------------------------------------------------------
July 1, 1997 through June 30, 1998 $170,000
---------------------------------------------------------------------------
July 1, 1998 through June 30, 1999 $180,000
---------------------------------------------------------------------------
July 1, 1999 through June 30, 2000 $190,000
---------------------------------------------------------------------------
July 1, 2000 through June 30, 2001 $210,000
---------------------------------------------------------------------------
July 1, 2001 through June 30, 2002 $230,000
---------------------------------------------------------------------------
</TABLE>
3. Section 5 of the Agreement, captioned "Bonuses", is amended by deleting the
target bonus chart contained therein in its entirety, and inserting the
following in lieu thereof:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Fiscal Year Ending Target Bonus
---------------------------------------------------------------------------
<S> <C>
June 30, 1996 $70,000
---------------------------------------------------------------------------
June 30, 1997 $80,000
---------------------------------------------------------------------------
June 30, 1998 $90,000
---------------------------------------------------------------------------
June 30, 1999 $100,000
---------------------------------------------------------------------------
</TABLE>
24
<PAGE> 2
<TABLE>
---------------------------------------------------------------------------
<S> <C>
June 30, 2000 $110,000
---------------------------------------------------------------------------
June 30, 2001 $130,000
---------------------------------------------------------------------------
June 30, 2002 $150,000
---------------------------------------------------------------------------
</TABLE>
4. The first paragraph of Section 13(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
this Agreement for any reason other than Good Cause, the Consultant
shall be entitled to receive from the Company and the Company shall pay
to the Consultant in one lump sum, within fifteen (15) days following
the termination of this Agreement, all of the compensation and Target
Bonus payments provided for in Sections 4 and 5 of this Agreement for
the period beginning on the date of the termination of the Agreement
and ending on June 30, 2002."
5. The first paragraph of Section 13(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 Consultant. If the Consultant
terminates this Agreement for Good Reason, other than Good Reason
described in Section 13(a)(3)a), he shall be entitled to receive from
the Company and the Company shall pay to the Consultant in one lump
sum, within fifteen (15) days following the date of the Consultant's
termination of this Agreement, all of the compensation and Target Bonus
payments provided for in Sections 4 and 5 of this Agreement for the
period beginning on the date of the Consultant's termination of this
Agreement and ending on June 30, 2002. If the Consultant terminates
this Agreement for the Good Reason described in Section 13(a)(3)a),
then and in such event, he shall be entitled to receive from the
Company and the Company shall pay to the Consultant in one lump sum,
within fifteen (15) days following the date of the Consultant's
termination of this Agreement, an amount equal to the lesser of (i) all
of the compensation and Target Bonus payments provided for in Sections
4 and 5 of this Agreement for the period beginning on the date of the
Consultant's termination and ending on June 30, 2002, or (ii) all of
the compensation and Target Bonus payments provided for in Sections 4
and 5 of this Agreement for the period commencing on the date of the
Consultant's termination and ending on the third anniversary of the
date of the Consultant's termination."
6. All other provisions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment as
of the dates indicated below, the effective date of this First Amendment being
the first day of February, 1999.
COMPANY:
ATTEST: MICROS SYSTEMS, INC.
- ----------------- By: (SEAL)
----------------------
A. L. Giannopoulos
President and Chief
Executive Officer
[Corporate Seal]
CONSULTANT:
WITNESS:
- ---------------- ------------------------- (SEAL)
Louis M. Brown, Jr.
25
<PAGE> 1
EXHIBIT 10 - MATERIAL CONTRACTS
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to the Employment Agreement is effective the first
day of October, 1998 (the "First Amendment"), by and between MICROS SYSTEMS,
INC., a Maryland corporation, with offices located at 12000 Baltimore Avenue,
Beltsville, Maryland 20705 (hereinafter referred to as the "Company"), and Gary
C. Kaufman, whose address is 10203 Castle Hill Court, Ellicott City, MD 21042
(hereinafter referred to as the "Executive").
WHEREAS, the Executive and the Company entered into an Employment
Agreement dated May 28, 1997 (the "Agreement"); and
WHEREAS, the parties hereto would like to amend the Agreement pursuant
to this First Amendment in an effort both: (i) to reflect the rapid growth
experienced by the Company, and the current status of the Company and the
Executive relative to other similarly positioned entities; and (ii) to 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:
"Term. The term of this Agreement shall commence upon October 1, 1998,
and shall be for a period of three years. The term of this Agreement
shall be automatically renewed on October 1 of each year for successive
three-year renewal terms thereafter, unless written notice is given by
either party to the other party, pursuant to which a party states that
it elects not to renew automatically the Agreement for an additional
three-year renewal term. Such written notice of non-renewal must be
provided to the other party not less than 120 days prior to the
automatic renewal date. In the event a notice of non-renewal is
tendered in accordance with the terms hereof, the Agreement shall
continue until the end of the then existing three-year term, unless
otherwise terminated as provided hereinbelow."
2. All other provisions of the Agreement shall remain in full force and effect.
26
<PAGE> 2
IN WITNESS WHEREOF, the parties have executed this First Amendment as
of the dates indicated below, the effective date of this First Amendment being
the first day of October, 1998.
COMPANY:
ATTEST: MICROS SYSTEMS, INC.
- ----------------- By:
----------------------- (SEAL)
A.L. Giannopoulos
President and Chief Executive Officer
[Corporate Seal]
EXECUTIVE:
WITNESS: GARY C. KAUFMAN
- ----------------- -------------------------
27
<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 and six month periods
ending December 31, 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
December 31,
1998 1997
--------- ----------
<S> <C> <C>
Weighted-average number of common shares 16,123 16,016
Dilutive effect of outstanding stock options 732 569
------- -------
Weighted-average number of common and common
equivalent shares outstanding 16,855 16,585
======= =======
Net income $ 6,213 $ 4,616
======= =======
Basic net income per common share $ 0.39 $ 0.29
======= =======
Diluted net income per common share $ 0.37 $ 0.28
======= =======
</TABLE>
<TABLE>
<CAPTION>
Six months ended
December 31,
1998 1997
-------- -------
<S> <C> <C>
Weighted-average number of common shares 16,119 16,007
Dilutive effect of outstanding stock options 832 531
------- -------
Weighted-average number of common and common
equivalent shares outstanding 16,951 16,538
======= =======
Net income $ 9,721 $ 7,631
======= =======
Basic net income per common share $ 0.60 $ 0.48
======= =======
Diluted net income per common share $ 0.57 $ 0.46
======= =======
</TABLE>
28
<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, 1998 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-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 14,494
<SECURITIES> 0
<RECEIVABLES> 95,880
<ALLOWANCES> 2,964
<INVENTORY> 32,640
<CURRENT-ASSETS> 152,417
<PP&E> 45,117
<DEPRECIATION> 22,879
<TOTAL-ASSETS> 218,135
<CURRENT-LIABILITIES> 95,835
<BONDS> 11,557
0
0
<COMMON> 403
<OTHER-SE> 103,708
<TOTAL-LIABILITY-AND-EQUITY> 218,135
<SALES> 92,555
<TOTAL-REVENUES> 147,233
<CGS> 47,291
<TOTAL-COSTS> 81,658
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,290
<INCOME-PRETAX> 16,693
<INCOME-TAX> 6,677
<INCOME-CONTINUING> 9,721
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,721
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.57
</TABLE>
