<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 March 31, 2000
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)
7031 Columbia Gateway Drive, Columbia, Maryland 21046-2289
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 443-285-6000
------------
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 March 31, 2000, there were 17,246,290 shares of Common Stock, $0.025 par
value, outstanding.
1
<PAGE> 2
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2000
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 and its Forms 10-Q for the
quarters ended September 30, 1999 and December 31, 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>
March 31, June 30,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 35,759 $ 22,806
Accounts receivable, net of allowance for doubtful
accounts of $4,482 at March 31,
2000 and $3,618 at June 30, 1999 106,601 101,019
Inventories 40,595 32,605
Deferred income taxes 5,633 5,637
Prepaid expenses and other current assets 12,440 11,040
--------- ---------
Total current assets 201,028 173,107
Property, plant and equipment, net of accumulated
depreciation and amortization of $29,131 at
March 31, 2000 and $23,720 at June 30, 1999 20,096 15,687
Deferred income taxes, non-current 3,942 4,186
Goodwill and intangible assets, net of accumulated
amortization of $11,729 at March 31, 2000
and $8,946 at June 30, 1999 28,131 16,255
Purchased and internally developed software costs,
net of accumulated amortization of $11,241 at
March 31, 2000 and $9,258 at June 30, 1999 25,618 22,607
Other assets 325 288
--------- ---------
Total assets $ 279,140 $ 232,130
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $ -- $ 8
Current portion of long-term debt 230 357
Current portion of capital lease obligations 21 98
Accounts payable 29,036 28,041
Accrued expenses and other current liabilities 37,577 38,195
Income taxes payable 7,914 14,113
Deferred income taxes 782 754
Deferred service revenue 22,594 16,240
--------- ---------
Total current liabilities 98,154 97,806
Other liabilities, non-current 5 --
Long-term debt, net of current portion 2,444 5,368
Capital lease obligations, net of current portion 400 325
Deferred income taxes, non-current 8,071 8,098
Minority interests 1,565 1,260
--------- ---------
Total liabilities 110,639 112,857
--------- ---------
Commitments and contingencies
Shareholders' equity:
Common stock, $0.025 par; authorized
50,000 shares; issued and outstanding 17,246
at March 31, 2000 and 16,207 at June 30, 1999 431 405
Capital in excess of par 50,670 22,298
Retained earnings 126,792 102,860
Accumulated other comprehensive income (9,392) (6,290)
--------- ---------
Total shareholders' equity 168,501 119,273
--------- ---------
Total liabilities and shareholders' equity $ 279,140 $ 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 March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Revenue:
Hardware and software $ 55,711 $ 54,962
Service 36,242 30,159
-------- --------
Total revenue 91,953 85,121
-------- --------
Costs and expenses:
Cost of sales
Hardware and software 20,265 27,986
Service 19,726 13,913
-------- --------
Total cost of sales 39,991 41,899
Selling, general and administrative
expenses 27,325 24,082
Research and development expenses 4,491 3,591
Depreciation and amortization 3,167 2,456
-------- --------
Total costs and expenses 74,974 72,028
-------- --------
Income from operations 16,979 13,093
Non-operating income (expense):
Interest income 261 144
Interest expense (43) (496)
Other income, net 289 519
-------- --------
Income before taxes, minority interests and
equity in net earnings of affiliates 17,486 13,260
Income taxes 7,081 5,303
-------- --------
Income before minority interests and equity in
net earnings of affiliates 10,405 7,957
Minority interest and equity in net
earnings of affiliates (181) (269)
-------- --------
Net income $ 10,224 $ 7,688
======== ========
Net income per common share:
Basic $ 0.60 $ 0.48
======== ========
Diluted $ 0.56 $ 0.45
======== ========
Weighted-average number of shares outstanding:
Basic 17,080 16,141
======== ========
Diluted 18,356 17,044
======== ========
</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>
Nine Months Ended March 31,
---------------------------
2000 1999
---- ----
<S> <C> <C>
Revenue:
Hardware and software $ 172,890 $ 147,517
Service 109,239 84,837
--------- ---------
Total revenue 282,129 232,354
--------- ---------
Costs and expenses:
Cost of sales
Hardware and software 84,166 75,277
Service 55,189 40,915
--------- ---------
Total cost of sales 139,355 116,192
Selling, general and administrative
expenses 79,499 66,184
Research and development expenses 12,676 10,899
Office closure costs -- 427
Depreciation and amortization 8,862 7,275
--------- ---------
Total costs and expenses 240,392 200,977
--------- ---------
Income from operations 41,737 31,377
Non-operating income (expense):
Interest income 682 330
Interest expense (479) (1,786)
Other (expense) income, net (480) 32
--------- ---------
Income before taxes, minority interests and
equity in net earnings of affiliates 41,460 29,953
Income taxes 16,787 11,980
--------- ---------
Income before minority interests and equity in
net earnings of affiliates 24,673 17,973
Minority interest and equity in net
earnings of affiliates (741) (564)
--------- ---------
Net income $ 23,932 $ 17,409
========= =========
Net income per common share:
Basic $ 1.44 $ 1.08
========= =========
Diluted $ 1.34 $ 1.03
========= =========
Weighted-average number of shares outstanding:
Basic 16,635 16,127
========= =========
Diluted 17,880 16,982
========= =========
</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 Nine Months Ended March 31, 2000
(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 1,014 25 16,916 -- -- 16,941
Stock issued for business
acquisition 25 1 997 -- -- 998
Income tax benefit from stock
options exercised -- -- 10,459 -- -- 10,459
Comprehensive income
Net income -- -- -- 23,932 -- --
Foreign currency translation
adjustments -- -- -- -- (3,102) --
Total comprehensive income -- -- -- -- -- 20,830
-------- -------- -------- -------- -------- --------
Balance, March 31, 2000 17,246 $ 431 $ 50,670 $126,792 $ (9,392) $168,501
======== ======== ======== ======== ======== ========
</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>
Nine months ended March 31,
---------------------------
2000 1999
---- ----
<S> <C> <C>
Net cash flows provided by operating activities: $ 17,530 $ 29,767
-------- --------
Cash flows from investing activities:
Purchases of property, plant and
equipment (9,045) (4,812)
Proceeds on dispositions of property,
plant and equipment 88 757
Internally developed software (5,603) (6,029)
Dividends to minority owners (103) (69)
Purchase of net district assets (642) --
Purchase of equity interest in investees (2,000) --
Net cash paid for acquisitions, minority
interests and contingent earn-out payments (11,831) (1,675)
-------- --------
Net cash used in investing activities (29,136) (11,828)
-------- --------
Cash flows from financing activities:
Principal payments on line of credit (9,108) (17,894)
Principal payments on long-term debt
and capital lease obligation (3,021) (2,150)
Proceeds from line of credit 9,100 3,898
Proceeds from issuance of long term debt -- 2,995
Proceeds from issuance of stock 16,941 907
Income tax benefit from stock options
exercised 10,459 240
-------- --------
Net cash provided by (used in)
financing activities 24,371 (12,004)
-------- --------
Effect of exchange rate changes on cash 188 228
-------- --------
Net increase in cash and cash equivalents 12,953 6,163
Cash and cash equivalents at beginning of period 22,806 13,592
-------- --------
Cash and cash equivalents at end of period $ 35,759 $ 19,755
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 407 $ 1,741
======== ========
Income taxes $ 8,260 $ 6,232
======== ========
</TABLE>
Supplemental schedule of non-cash financing and investing activities (in
thousands):
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 of $3.8 million and MICROS stock valued at
$1.0 million. The Company issued 24,510 shares (in whole shares) of restricted
common stock to the former owners. An additional payment of $.5 million was paid
in January 2000 for the purchase of Opus. Goodwill related to this acquisition
was $6.2 million at March 31, 2000, and is being amortized over seven years.
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.
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 8
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 2000
(Unaudited, in thousands, except per share data)
1. Inventories
The components of inventories are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
--------- ---------
<S> <C> <C>
Raw materials $ 6,123 $ 4,784
Work-in-process 2,066 2,053
Finished goods 32,406 25,768
--------- ---------
$ 40,595 $ 32,605
========= =========
</TABLE>
2. New accounting standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
a new model for accounting for derivatives and hedging activities. The
Company is currently evaluating the impact, if any, of SFAS No. 133.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". This statement will not have an impact on the Company's
consolidated financial position, results of operations or cash flows.
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.
MICROS filed its answer to the complaint in September of 1999. MICROS
also filed a counterclaim against Budgetel, alleging breach of contract
and defamation. Although the discovery phase of the litigation has been
substantially completed, no trial date has been scheduled. 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.
8
<PAGE> 9
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 2000
(Unaudited, in thousands, except per share data)
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.
A reconciliation of weighted average of common shares outstanding
assuming dilution is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $10,224 $ 7,688 $23,932 $17,409
======= ======= ======= =======
Average common shares outstanding 17,080 16,141 16,635 16,127
Dilutive effect of outstanding
stock options 1,276 903 1,245 855
------- ------- ------- -------
Average common shares outstanding
assuming dilution 18,356 17,044 17,880 16,982
======= ======= ======= =======
Basic net income per share $ 0.60 $ 0.48 $ 1.44 $ 1.08
======= ======= ======= =======
Diluted net income per share $ 0.56 $ 0.45 $ 1.34 $ 1.03
======= ======= ======= =======
</TABLE>
For the three-month period ended March 31, 2000, no options were excluded
from the above reconciliation, as none were anti-dilutive. For the
nine-month period ended March 31, 2000, 325 (thousand) options were
excluded from the above reconciliation as these options were
anti-dilutive for this period. For the three and nine-month periods ended
March 31, 1999, 9 (thousand) options and 5 (thousand) options,
respectively, were excluded from the above reconciliation as these
options were anti-dilutive for these periods.
5. Segment reporting data
The Company develops, manufactures, sells and services point-of-sale
computer systems, property management systems, central reservation and
central information systems products for the hospitality industry. The
Company's principal customers are lodging and food service-related
businesses. MICROS is organized and operates in two segments: U.S. and
International. The international segment is primarily in Europe and the
Pacific Rim. For purposes of applying SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," we consider the U.S.
and International products and services to be similar; however,
management views them separately in operating the business. The following
information is presented in accordance with the requirements of SFAS No.
131. Prior period amounts have been restated in accordance with the
requirements of the new standard.
9
<PAGE> 10
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 2000
(Unaudited, in thousands, except per share data)
5. Segment reporting data, continued
A summary of the Company's operating segments is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues (1):
United States $ 41,746 $ 46,167 $ 140,470 $ 117,074
International 63,092 49,486 178,974 146,838
Intersegment eliminations (12,885) (10,533) (37,315) (31,558)
--------- --------- --------- ---------
Total revenues $ 91,953 $ 85,121 $ 282,129 $ 232,354
========= ========= ========= =========
Income before taxes, minority
interests, and equity in net
earnings of affiliates (1):
United States $ 5,662 $ 4,675 $ 8,073 $ 5,068
International 20,120 15,619 58,169 45,725
Intersegment eliminations (8,296) (7,034) (24,782) (20,840)
--------- --------- --------- ---------
Total income before taxes,
minority interests, and
equity in net earnings of
affiliates $ 17,486 $ 13,260 $ 41,460 $ 29,953
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Mar 31, Jun 30,
2000 1999
---- ----
<S> <C> <C>
Identifiable assets (2):
United States $148,258 $122,588
International 130,882 109,542
Intersegment eliminations -- --
-------- --------
Total identifiable assets $279,140 $232,130
======== ========
</TABLE>
(1) Amounts based on the location of the customer.
(2) Amounts based on the location of the selling entity.
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<PAGE> 11
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations - Third Quarter and Nine Month Comparisons
The Company recorded diluted net income of $0.56 per common share in the
third quarter of fiscal 2000, compared with diluted net income of $0.45 per
common share in the third quarter of fiscal 1999. Net income for the nine months
ended March 31, 2000, on a diluted basis, was $1.34 per share compared with
$1.03 per common share for the first nine months of fiscal 1999. For the
quarter, the increased net income was primarily due to higher sales volumes and
lower cost of sales as a percentage of revenue, partially offset by higher
operating expenses as a percentage of sales. The year-to-date increase in net
income was primarily due to higher sales volumes along with lower operating
expenses as a percentage of sales.
Revenue of $92.0 million for the third quarter of fiscal 2000 increased
$6.8 million, or 8.0%, compared to the same period last year. For the first nine
months of fiscal 2000, revenue increased $49.8 million to $282.1 million, or
21.4%, over the same period in fiscal 1999. A comparison of the sales mix for
fiscal years 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Hardware 35.3% 44.3% 41.5% 43.7%
Software 25.3% 20.3% 19.8% 19.8%
Service 39.4% 35.4% 38.7% 36.5%
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
For the quarter, hardware sales decreased in absolute dollars and as a
percentage of total revenue over the prior year primarily due to decreased
demand for the Company's 8700 series and computer equipment. Software sales
increased in absolute dollars and as a percentage of total revenue primarily due
to the sale of large hotel software contracts in the third quarter of fiscal
2000 compared to fiscal 1999. Service sales increased in absolute dollars and as
a percentage of total sales for the third quarter in comparison to the prior
year primarily due to increased maintenance revenues associated with new and
existing customers. On a year-to-date basis, hardware sales decreased as a
percentage of total sales while software sales remained constant as a percentage
of total sales. Hardware sales increased in absolute dollars, however decreased
as a percentage of total sales primarily due to the hardware growth rate being
lower than the growth rate of the service business. Service sales increased in
absolute dollars and as a percentage of total sales on a year-to-date basis
primarily due to increased installation and support revenues.
Combined hardware and software revenues for the third quarter of fiscal
2000 increased $0.7 million, or 1.4%, while service revenues increased $6.1
million, or 20.2%, over the same period a year earlier. On a year-to-date basis,
hardware and software sales increased $25.4 million, or 17.2%, while service
revenues increased $24.4 million, or 28.8%, over the same period a year earlier.
Cost of sales, as a percentage of revenue, decreased to 43.5% for the
third quarter of fiscal 2000 from 49.2% for the third quarter of fiscal 1999.
For the first nine months of fiscal 2000 and 1999, cost of sales, as a
percentage of revenue, was 49.4% and 50.0%, respectively. Cost of sales for
hardware and software products, as a percentage of related revenue, was 36.4% in
the third quarter of fiscal 2000 compared to 51.0% for the same quarter a year
earlier and 48.7% compared to 51.0%
11
<PAGE> 12
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2000
Results of Operations - Third Quarter and Nine Month Comparisons, continued
for the first nine months of fiscal 2000 and 1999, respectively. For the quarter
and year-to-date this decrease was primarily due to the third quarter sales
distribution mix of decreased sales in the lower margin point-of-sale major
account channel and increased sales in the higher margin international
subsidiaries and dealer channels. The decrease in cost of sales is also due to
higher software sales as a percentage of revenue as compared to prior fiscal
year.
Service costs, as a percentage of service revenue, increased to 54.4% in
the third quarter of fiscal 2000 compared to 46.1% in the same quarter in fiscal
1999. Service costs, as a percentage of service revenue, increased to 50.5% in
the first nine months of fiscal 2000 compared to 48.2% for the same period in
fiscal 1999. The third quarter increase in comparison to the prior year was due
primarily to the decrease of the installation revenue of hardware. The
year-to-date increase in comparison to the prior year was due to additional
expenses incurred to resolve potential Year 2000 issues in the second quarter
and the decrease of installation revenue in the third quarter.
Selling, general and administrative expenses increased $3.2 million, or
13.5%, in the third quarter of fiscal 2000 compared to the same period last
year. As a percentage of revenue, selling, general and administrative expenses
increased to 29.7% in the third quarter of fiscal 2000 compared to 28.3% in the
third quarter of fiscal 1999 due primarily to increased personnel costs required
to meet current and anticipated sales growth. For the first nine months of
fiscal 2000, selling, general and administrative expenses, as a percentage of
revenue, were 28.2% compared to 28.5% for the same period a year earlier. The
year-to-date decrease is 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 internal and sub-contracted labor
costs, increased $0.9 million, or 25.1%, in the third quarter of fiscal 2000
compared to the same period a year earlier. Actual research and development
expenditures, including capitalized software development costs of $2.4 million
in the third quarter of fiscal 2000 and $1.5 million in the third quarter of
fiscal 1999, increased $1.8 million, or 35.4%, compared to the same period a
year earlier. This increase in absolute dollars for the three-month period is
primarily due to increased expenditures in the Company's restaurant business.
For the first nine months of fiscal 2000 compared to fiscal 1999, research and
development expenses (exclusive of capitalized software development costs),
which consist primarily of internal and sub-contracted labor costs, increased
$1.8 million, or 16.3%, compared to the same period a year earlier. Actual
research and development expenditures for the first nine months of fiscal 2000,
including capitalized software development costs of $5.6 million in 2000 and
$6.0 million in 1999, increased $1.4 million, or 8.0%, compared to the same
period a year earlier. The increase in absolute dollars for the nine-month
period is primarily due to increased expenditures for the Company's restaurant
business.
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 third quarter of fiscal 2000 was $17.0
million, or 18.5% of revenue, compared to income of $13.1 million, or 15.4% of
revenue, in the same period a year earlier. For the first nine months of fiscal
2000, income from
12
<PAGE> 13
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31,2000
Results of Operations - Third Quarter and Nine Month Comparisons, continued
operations was $41.7 million compared to income of $31.4 million a year earlier.
The third quarter income from operations increased over the prior year's
comparable period due to higher sales and increased gross margins, partially
offset by higher operating expenses as a percentage of sales. For the first nine
months of fiscal 2000, the Company's higher dollar income from operations is
primarily due to higher sales and lower operating expenses as a percentage of
sales.
Interest expense decreased $0.5 million, or 91.3%, for the third quarter
of fiscal 2000 compared to the same period a year ago. Interest expense for the
first nine months in fiscal 2000 was $0.5 million compared to $1.8 million, a
decrease of 73.2%, for the comparable period in fiscal 1999. The quarter and
year-to-date decrease was primarily due to the Company's lower average debt
level during fiscal 2000 in comparison to the same period a year ago. Interest
income increased $0.1 million for the third quarter of fiscal 2000 compared to
the same period a year ago. Interest income for the first nine months in fiscal
2000 was $0.7 million compared to $0.3 million, an increase of 106.7%, for the
comparable period in fiscal 1999. The quarter and year-to-date increase is due
primarily to the Company's higher average cash balance during fiscal year 2000
compared to fiscal year 1999.
The effective tax rate for the third quarter and year-to-date of fiscal
year 2000 was 40.5% compared to 40.0% for the third quarter and year-to-date of
fiscal year 1999. The increase is due to a shift in the mix of earnings towards
countries with higher tax rates.
Year 2000
In 1997, the Company created a corporate-wide Year 2000 project team
representing all business units of the Company. 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. 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.
On the basis of information currently available, MICROS believes that it
did not experience any material problems relating to the Year 2000 issues. While
MICROS did uncover certain minor issues relating to date dependent data, none
were material and all were promptly addressed. Accordingly, the Year 2000 task
force had been disbanded in February 2000. Any remaining issues that may surface
will be handled through the Company's customer service organization.
Nonetheless, the Company will continue to monitor products to attempt to assure
that there are no uncorrected problems. While the Company believes it has
diligently addressed the Year 2000 issues and that it has satisfactorily
resolved any Year 2000 problems, it is possible hitherto undetected problems
could be uncovered in the future.
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 have been
charged to expense as
13
<PAGE> 14
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31,2000
Results of Operations - Third Quarter and Nine Month Comparisons, continued
incurred. All of these costs were 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. To date, not including the costs incurred to
upgrade the Company's internal management information systems, the Company has
incurred approximately $2.2 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 $8.8 million.
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 March 31, 2000, 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.
Liquidity and Capital Resources
The Company has a $45.0 million multi-currency unsecured committed line
of credit, which was renewed during the second quarter of fiscal 2000 for an
additional one-year period, expiring on December 31, 2000. The line of credit
was increased from $35.0 million to $45.0 million 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 $7.3 million at the March 31, 2000 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 March 31, 2000, the Company had borrowed approximately $2.4 million
and has approximately $49.9 million available. There were no borrowings under
the line of credit. The Company's DM-denominated borrowings under these credit
facilities amounted to DM 5.0 million (approximately $2.4 million at the March
31, 2000 exchange rate).
As the Company has significant international operations, its
DM-denominated borrowings do not represent a significant foreign exchange risk.
On an overall basis,
14
<PAGE> 15
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31,2000
Results of Operations - Third Quarter and Nine Month Comparisons, continued
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 nine months ended March
31, 2000 was $17.5 million. The Company used $29.1 million in investing
activities, primarily for acquisitions, the purchase of property, plant and
equipment and internally developed software. Net financing activities for the
first nine months of fiscal 2000 provided $24.4 million, primarily from 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, 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 2000 will continue to increase approximately $8.0 million over fiscal
1999 expenditures, of which, approximately $4.7 million will be for the purchase
of furniture and fixtures and leasehold improvements 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, property management information systems and
related 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 OPERA
products and the newest versions of the 3700 POS and 8700 systems; introduction
by competitors of less costly hardware products; 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, especially in light of tightened
labor markets; adverse economic or political conditions; unexpected currency
fluctuations and devaluation of those currencies in which the Company conducts
its business; impact of competitive products, including new Internet based
products; product development delays; technological difficulties associated with
new product releases, including those with respect to the next generation
Internet 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.
15
<PAGE> 16
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2000
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has experienced rapid growth internationally. MICROS'
significant international business and presence exposes 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 28 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 may at times be offset by favorable advances in other currencies.
Recent weakness in certain European currencies has, however, adversely impacted
the financial performance of the Company. Such weakness may have a continued
adverse effect on the financial performance of the Company. 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 recent weak Asian economic conditions.
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.
16
<PAGE> 17
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2000
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. Although the discovery
phase of the litigation has been substantially completed, no trial date has been
scheduled. 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 March 2000, MICROS commenced the relocation of its corporate
headquarters from Beltsville, Maryland to Columbia, Maryland. In accordance with
the terms of the lease agreement (the "Lease Agreement") between MICROS and Orix
Columbia, Inc., a wholly-owned subsidiary of Orix USA Corporation, MICROS shall
lease for a ten-year term the full 250,000 square foot building located on a
twenty acre parcel in Columbia, Maryland.
The annual amount of the lease liabilities under the Lease Agreement
shall exceed the former corporate headquarters lease liabilities by
approximately $1.5 million per year, which represents an additional 73,000
square feet at $21.00 per square foot to accommodate recent and planned growth.
Moreover, MICROS has incurred and anticipates incurring certain additional
one-time expenses associated with the relocation to the new facility. These
one-time relocation expenses are approximately $0.6 million.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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 March 31, 2000
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)
May 15, 2000 /s/ Gary C. Kaufman
- --------------------- ---------------
Gary C. Kaufman
Executive Vice President, Finance and
Administration/Chief Financial Officer
May 15, 2000 /s/ Roberta J. Watson
- --------------------- -----------------
Roberta J. Watson
Senior Vice President and Controller
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered Page
- ------- -------------
<S> <C> <C>
27. Financial Data Schedule N/A
</TABLE>
19
<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 MARCH
31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 35,759
<SECURITIES> 0
<RECEIVABLES> 111,083
<ALLOWANCES> 4,482
<INVENTORY> 40,595
<CURRENT-ASSETS> 201,028
<PP&E> 49,227
<DEPRECIATION> 29,131
<TOTAL-ASSETS> 279,140
<CURRENT-LIABILITIES> 98,154
<BONDS> 2,844
0
0
<COMMON> 431
<OTHER-SE> 168,070
<TOTAL-LIABILITY-AND-EQUITY> 279,140
<SALES> 172,890
<TOTAL-REVENUES> 282,129
<CGS> 84,166
<TOTAL-COSTS> 240,392
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 479
<INCOME-PRETAX> 41,460
<INCOME-TAX> 16,787
<INCOME-CONTINUING> 23,932
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,932
<EPS-BASIC> 1.44
<EPS-DILUTED> 1.34
</TABLE>
