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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 December 31, 1999
Commission file number 0-9993
MICROS SYSTEMS, INC.
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(Exact name of Registrant as specified in its charter)
MARYLAND 52-1101488
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(State of incorporation) (I.R.S. Employer
Identification Number)
12000 Baltimore Avenue, Beltsville, Maryland 20705-1291
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 301-210-6000
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
YES x NO
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As of December 31, 1999, there were 16,593,818 shares of Common Stock, $0.025
par value, outstanding.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1999
PART I - Financial Information
Item 1. Financial Statements
General
The information contained in this report is furnished for the
Registrant, MICROS Systems, Inc., and its subsidiaries (referred to collectively
herein as "MICROS" or the "Company"). In the opinion of management, the
information in this report contains all adjustments, consisting only of normal
recurring adjustments, which are necessary for a fair statement of the results
for the interim periods presented. The financial information presented herein
should be read in conjunction with the financial statements included in the
Registrant's Form 10-K for the fiscal year ended June 30, 1999, as filed with
the Securities and Exchange Commission.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share data)
December 31, June 30,
1999 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 33,256 $ 22,806
Accounts receivable, net of allowance for
doubtful accounts of $4,858 at December 31,
1999 and $3,618 at June 30, 1999 99,209 101,019
Inventories 34,809 32,605
Deferred income taxes 5,671 5,637
Prepaid expenses and other current assets 10,436 11,040
-------- --------
Total current assets 183,381 173,107
Property, plant and equipment, net of accumulated
depreciation and amortization of $27,615 at
December 31, 1999 and $23,720 at June 30, 1999 16,483 15,687
Deferred income taxes, non-current 4,159 4,186
Goodwill and intangible assets, net of
accumulated amortization of $10,780 at
December 31, 1999 and $8,946 at June 30, 1999 28,417 16,255
Purchased and internally developed software costs,
net of accumulated amortization of $10,704 at
December 31, 1999 and $9,258 at June 30, 1999 24,058 22,607
Other assets 364 288
-------- --------
Total assets $256,862 $232,130
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $ 0 $ 8
Current portion of long-term debt 199 357
Current portion of capital lease obligations 71 98
Accounts payable 26,074 28,041
Accrued expenses and other current liabilities 44,014 38,195
Income taxes payable 14,473 14,113
Deferred income taxes 806 754
Deferred service revenue 17,606 16,240
-------- --------
Total current liabilities 103,243 97,806
Other liabilities, non-current 5 --
Long-term debt, net of current portion 2,575 5,368
Capital lease obligations, net of current portion 360 325
Deferred income taxes, non-current 8,083 8,098
Minority interests 1,245 1,260
-------- --------
Total liabilities 115,511 112,857
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Commitments and contingencies
Shareholders' equity:
Common stock, $0.025 par; authorized 50,000
shares; issued and outstanding 16,594 at
December 31, 1999 and 16,207 at June 30, 1999 415 405
Capital in excess of par 31,320 22,298
Retained earnings 116,567 102,860
Accumulated other comprehensive income (6,951) (6,290)
-------- --------
Total shareholders' equity 141,351 119,273
-------- --------
Total liabilities and shareholders' equity $256,862 $232,130
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended December 31,
-------------------------------
1999 1998
-------- -------
Revenue:
Hardware and software $ 63,796 $51,088
Service 38,953 29,506
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Total revenue 102,749 80,594
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Costs and expenses:
Cost of sales
Hardware and software 34,456 26,690
Service 18,789 14,147
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Total cost of sales 53,245 40,837
Selling, general and administrative
expenses 27,305 22,291
Research and development expenses 4,411 3,605
Depreciation and amortization 3,039 2,426
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Total costs and expenses 88,000 69,159
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Income from operations 14,749 11,435
Non-operating income (expense):
Interest income 258 115
Interest expense (290) (574)
Other income (expense), net 220 (304)
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Income before taxes, minority interests and
equity in net earnings of affiliates 14,937 10,672
Income taxes 6,050 4,269
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Income before minority interests and
equity in net earnings of affiliates 8,887 6,403
Minority interest and equity in net
earnings of affiliates (317) (190)
-------- -------
Net income $ 8,570 $ 6,213
======== =======
Net income per common share:
Basic $ 0.52 $ 0.39
======== =======
Diluted $ 0.48 $ 0.37
======== =======
Weighted-average number of shares outstanding:
Basic 16,535 16,123
======== =======
Diluted 17,912 16,855
======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Six Months Ended December 31,
-----------------------------
1999 1998
Revenue:
Hardware and software $117,179 $ 92,555
Service 72,997 54,678
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Total revenue 190,176 147,233
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Costs and expenses:
Cost of sales
Hardware and software 63,901 47,291
Service 35,463 27,002
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Total cost of sales 99,364 74,293
Selling, general and administrative
expenses 52,174 42,102
Research and development expenses 8,185 7,308
Office closure costs -- 427
Depreciation and amortization 5,695 4,819
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Total costs and expenses 165,418 128,949
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Income from operations 24,758 18,284
Non-operating income (expense):
Interest income 421 186
Interest expense (436) (1,290)
Other expense, net (769) (487)
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Income before taxes, minority interests and
equity in net earnings of affiliates 23,974 16,693
Income taxes 9,706 6,677
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Income before minority interests and
equity in net earnings of affiliates 14,268 10,016
Minority interest and equity in net
earnings of affiliates (560) (295)
-------- --------
Net income $ 13,708 $ 9,721
======== ========
Net income per common share:
Basic $ 0.84 $ 0.60
======== ========
Diluted $ 0.78 $ 0.57
======== ========
Weighted-average number of shares outstanding:
Basic 16,412 16,119
======== ========
Diluted 17,642 16,951
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Six Months Ended December 31, 1999
(Unaudited, in thousands)
Accumulated
Common Stock Capital Other
----------------------- in Excess Retained Comprehensive
Shares Amount of Par Earnings Income Total
------ ------ -------- -------- ------- --------
Balance, June 30, 1999 16,207 $405 $22,298 $102,860 $(6,290) $119,273
Stock issued upon exercise of
options 362 9 5,601 -- -- 5,610
Stock issued for business
acquisition 25 1 997 -- -- 998
Income tax benefit from stock
options exercised -- -- 2,424 -- -- 2,424
Comprehensive income
Net income -- -- -- 13,707 -- --
Foreign currency translation
adjustments -- -- -- -- (661) --
Total comprehensive income -- -- -- -- -- 13,046
------ ---- ------- -------- ------- --------
Balance, December 31, 1999 16,594 $415 $31,320 $116,567 $(6,951) $141,351
====== ==== ======= ======== ======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Condensed and unaudited - in thousands)
Six months ended December 31,
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1999 1998
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Net cash flows provided by operating activities: $ 22,164 $10,170
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Cash flows from investing activities:
Purchases of property, plant and
equipment (3,980) (3,471)
Proceeds on dispositions of property,
plant and equipment 74 112
Internally developed software (3,162) (4,499)
Dividends to minority owners (230) (69)
Purchase of net district assets (474) --
Purchase of equity interest in investees (2,000) --
Net cash paid for acquisitions and
minority interests (6,975) (975)
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Net cash used in investing activities (16,747) (8,902)
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Cash flows from financing activities:
Principal payments on line of credit (7,608) (6,295)
Principal payments on long-term debt
and capital lease obligation (2,913) (1,588)
Proceeds from line of credit 7,600 3,898
Proceeds from issuance of long term debt -- 2,995
Proceeds from issuance of stock 5,610 452
Income tax benefit from stock options
exercised 2,424 105
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Net cash (used in) provided by
financing activities 5,113 (433)
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Effect of exchange rate changes on cash (80) 67
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Net increase (decrease) in cash and cash
equivalents 10,450 902
Cash and cash equivalents at beginning of period 22,806 13,592
-------- -------
Cash and cash equivalents at end of period $ 33,256 $14,494
======== =======
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 326 $ 1,057
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Income taxes $ 5,809 $ 4,226
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Supplemental schedule of noncash 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. 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 (See note 5 of Notes to Consolidated Financial Statements).
Additionally, the selling shareholders may be entitled to earn certain earn-out
payments. The payment, if any, and the amount shall be determined by an earn-out
formula, based on OPUS' future financial performance.
In December 1999, the Company acquired all of the stock of Stanley Hayman and
Company, Inc ("Hayman") and MICROS of South Florida, Inc ("MSF"). Hayman and MSF
are affiliate companies with substantially similar shareholders. The purchase
price for both companies combined was $5.0 million, which was accrued in
December 1999 and paid in January 2000 (See note 5 of Notes to Consolidated
Financial Statements). Additionally, the selling shareholders may be entitled to
earn certain earn-out payments. The payment, if any, and the amount shall be
determined by an earn-out formula, based on Hayman's and MSF's collective future
financial performance.
The accompanying notes are an integral part of the consolidated financial
statements.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended December 31, 1999
(Unaudited, in thousands, except per share data)
1. Inventories
The components of inventories are as follows:
December 31, June 30,
1999 1999
------------------------ ------------------------
Raw materials $ 5,049 $ 4,784
Work-in-process 2,128 2,053
Finished goods 27,632 25,768
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$ 34,809 $ 32,605
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2. New accounting standards
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. The litigation is currently in the discovery phase.
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.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended December 31, 1999
(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:
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
Net income $8,570 $6,213 $13,708 $9,721
====== ====== ======= ======
Average common shares outstanding 16,535 16,123 16,412 16,119
Dilutive effect of outstanding
stock options 1,377 732 1,230 832
----- --- ----- ---
Average common shares outstanding
assuming dilution 17,912 16,855 17,642 16,951
====== ====== ====== ======
Basic net income per share $0.52 $0.39 $0.84 $0.60
===== ===== ===== =====
Diluted net income per share $0.48 $0.37 $0.78 $0.57
===== ===== ===== =====
For the three-month period ended December 31, 1999, no options were
excluded from the above reconciliation, as none were anti-dilutive. For
the six-month period ended December 31, 1999, 154,000 options were
excluded from the above reconciliation as these options were
anti-dilutive for this period. 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.
5. Acquisitions
During the quarter the Company acquired five companies. The combined
purchase price was $11.8 million, consisting of cash, MICROS stock, and
debt. The total goodwill value as of December 31, 1999, was $11.5
million.
In October 1999, the Company acquired all of the stock of OPUS 2 Revenue
Technologies, Inc. ("OPUS"), pursuant to the terms of a stock purchase
agreement. Based in Portsmouth, New Hampshire, OPUS engages in the
development, marketing and sale of yield and revenue management software
systems designed for the hospitality industry. The purchase price of
$4.8 million for OPUS consists of an up-front payment of both cash and
MICROS stock. An additional payment of $.5 million was paid in January
2000 for the purchase of Opus. Goodwill related to this acquisition was
$5.8 million at December 31, 1999, 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.
In December 1999, the Company acquired all of the stock of Stanley
Hayman and Company, Inc. ("Hayman") and Micros of South Florida, Inc.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended December 31, 1999
(Unaudited, in thousands, except per share data)
5. Acquisitions, continued
("MSF"). The purchase price for both companies was $5.0 million, which
was paid in January 2000. The goodwill related to this acquisition was
$3.9 million as of December 31, 1999, and is being amortized over seven
years. Additionally, the former shareholders have the right to earn six
additional earn-out payments based upon Hayman and MSF revenues. The pro
forma effects of this acquisition are immaterial are not presented.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1999
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations - Second Quarter and Six Month Comparisons
The Company recorded diluted net income of $0.48 per common share in the
second quarter of fiscal 2000, compared with diluted net income of $0.37 per
share in the second quarter of fiscal 1999. Net income for the six months ended
December 31, 1999, on a diluted basis, was $0.78 per share compared with $0.57
per common share for the first six months of fiscal 1999. For the quarter and
year-to-date, the increased net income was primarily due to higher sales volumes
generating a higher gross margin in absolute dollars and lower operating
expenses as a percentage of sales.
Revenue of $102.7 million for the second quarter of fiscal 2000
increased $22.2 million, or 27.5%, compared to the same period last year. For
the first six months of fiscal 2000, revenue increased $42.9 million to $190.2
million, or 29.2%, over the same period in fiscal 1999. A comparison of the
sales mix for fiscal years 2000 and 1999 is as follows:
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
Hardware 45.3% 45.8% 44.5% 43.4%
Software 16.8% 17.6% 17.1% 19.5%
Service 37.9% 36.6% 38.4% 37.1%
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
For the quarter, both 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 percentage of total sales for the second quarter in
comparison to the prior year primarily due to increased installation revenue. On
a year-to-date basis, hardware sales increased as a percentage of total sales
while software sales decreased. Hardware sales increased primarily due to
increased sales of the Company's own PCWS ("PC Workstation"). Service sales
increased in absolute dollars and as a percentage of total sales on a
year-to-date basis primarily due to increased installation and support revenues.
Combined hardware and software revenues for the second quarter of fiscal
2000 increased $12.7 million, or 24.9%, while service revenues increased $9.4
million, or 32.0%, over the same period a year earlier. On a year-to-date basis,
hardware and software sales increased $24.6 million, or 26.6%, while service
revenues increased $18.3 million, or 33.5%, over the same period a year earlier.
Cost of sales, as a percentage of revenue, increased to 51.8% for the
second quarter of fiscal 2000 from 50.7% for the second quarter of fiscal 1999.
For the first six months of fiscal 2000 and 1999, cost of sales, as a percentage
of revenue, was 52.3% and 50.5% respectively. Cost of sales for hardware and
software products, as a percentage of related revenue, was 54.0% in the second
quarter of fiscal 2000 compared to 52.2% for the same quarter a
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1999
Results of Operations - Second Quarter and Six Month Comparisons, continued
year earlier and 54.5% compared to 51.1% for the first six months of fiscal 2000
and 1999, respectively. For the quarter, this increase was the result of
increased sales of lower margin third party software. The year to date increase
is primarily due to the increase of hardware sales as a percentage of total
hardware and software sales.
Service costs, as a percentage of service revenue, increased to 48.2% in
the second quarter of fiscal 2000 compared to 47.9% in the same quarter in
fiscal 1999. Service costs, as a percentage of service revenue, decreased to
48.6% in the first six months of fiscal 2000 compared to 49.4% for the same
period in fiscal 1999. The second quarter increase in comparison to the prior
year was due to additional expenses incurred to resolve potential Year 2000
issues. The 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.
Selling, general and administrative expenses increased $5.0 million, or
22.5%, in the second quarter of fiscal 2000 compared to the same period last
year. As a percentage of revenue, selling, general and administrative expenses
decreased to 26.6% in the second quarter of fiscal 2000 compared to 27.7% in the
second quarter of fiscal 1999. For the first six months of fiscal 2000, selling,
general and administrative expenses, as a percentage of revenue, were 27.4%
compared to 28.6% 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 internal and sub-contracted labor
costs, increased $0.8 million, or 22.4%, in the second quarter of fiscal 2000
compared to the same period a year earlier. Actual research and development
expenditures, including capitalized software development costs of $1.7 million
in the second quarter of fiscal 2000 and $2.1 million in the second quarter of
fiscal 1999, increased $0.4 million, or 7.1%, compared to the same period a year
earlier. This increase in absolute dollars for the three-month period is
primarily due to increased expenditures for the Company's restaurant business.
For the first six months of fiscal 2000, 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 12.0%,
compared to the same period a year earlier. Actual research and development
expenditures for the first six months of fiscal 2000, including capitalized
software development costs of $3.2 million, decreased $.5 million, or 3.9%,
compared to the same period a year earlier. The decrease in absolute dollars for
the six-month period is primarily due to decreased expenditures in the Company's
hotel business during the second quarter of fiscal 2000.
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.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1999
Results of Operations - Second Quarter and Six Month Comparisons, continued
Income from operations for the second quarter of fiscal 2000 was $14.7
million, or 14.4% of revenue, compared to income of $11.4 million, or 14.2% of
revenue, in the same period a year earlier. For the first six months of fiscal
2000, income from operations was $24.8 million compared to income of $18.3
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 volumes generating a higher gross margin in absolute dollars.
Interest expense decreased $0.3 million to $0.3 million, or 49.5%, for
the second quarter of fiscal 2000 from $0.6 million for the same period a year
ago. Interest expense for the first six months in fiscal 2000 was $0.4 million
compared to $1.3 million, a decrease of 66.2%, for the comparable period in
fiscal 1999. The quarter and year-to-date decrease was primarily due to the
Company's lower overall debt level during the first six months of fiscal 2000 in
comparison to the same period a year ago.
The effective tax rate for the second quarter and year-to-date of fiscal
year 2000 was 40.5% compared to 40.0% for the second 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 a
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 has been disbanded, and 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.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1999
Results of Operations - Second Quarter and Six Month Comparisons, continued
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 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 $2.0 million in expenditures related to the
Year 2000 issue. Costs capitalized to date to implement the Company's new Year
2000 compliant internal management information systems, which address a large
variety of informational and processing needs, are approximately $7.4 million.
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 December 31, 1999, of the eleven countries currently
admitted to the EMU, the Company has subsidiary operations in six of those
countries and distributor relationships in the remaining five countries.
MICROS is currently addressing Euro related issues and its impact on
information systems, currency exchange rate risk, taxation, contracts,
competition and pricing. Action plans currently being implemented are expected
to result in compliance with all laws and regulations; however, there can be no
certainty that such plans will be successfully implemented or that external
factors will not have an adverse effect on the Company's operations. Moreover,
there is still some uncertainty with respect to the interpretation of certain
Euro regulations, and the impact of the regulations on the Company's Euro
implementation. Any costs associated with the adoption of the Euro will be
expensed as incurred 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
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15
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1999
Results of Operations - Second Quarter and Six Month Comparisons, continued
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 $7.7 million at the December 31, 1999 exchange rate). Under the
terms of this facility, the Company may, at its option, borrow in the form of a
line of credit or in the form of term debt.
As of December 31, 1999, the Company had borrowed approximately $2.6
million and has approximately $50.1 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 $2.6 million at the
December 31, 1999 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, 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, 1999 was $22.2 million. The Company used $16.7 million in investing
activities, primarily for the purchase of acquisitions, purchase of an equity
interest and the purchase of property, plant and equipment. Net financing
activities for the first six months of fiscal 2000 provided $5.1 million,
primarily for 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 $6.0 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 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.
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16
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1999
Results of Operations - Second Quarter and Six Month Comparisons, continued
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 3400 QSR systems;
implementation of a cost-effective service structure capable of servicing
increasingly complex software systems in increasingly more remote locations;
achieving increased sales of higher margin software products; hiring and
retention of qualified employees with sufficient technical expertise; adverse
economic or political conditions; unexpected currency fluctuations; impact of
competitive products and pricing on margins; product development delays;
technological difficulties associated with new product releases, including those
with respect to the Fidelio next generation integrated property management and
central reservation system technologies; and controlling expenses. These and
other risks are disclosed in the Company's releases and SEC filings, including
in the section titled "Business and Investment Risks; Information Relating to
Forward-Looking Statements", in the Company's Annual Report on Form 10-K for the
Fiscal Year ended June 30, 1999.
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17
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1999
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has experienced rapid growth internationally. MICROS'
significant international business and presence does expose the Company to
certain market risks, such as currency, interest rate and political risks. With
respect to currency risk, the Company transacts business in over 26 different
currencies through its foreign subsidiaries. The fluctuation of currencies
impacts sales and profitability. Frequently, sales and the costs associated with
such sales are not always denominated in the same currency. Given the fact that
the Company transacts business in many different currencies, adverse declines in
certain currencies can be offset by favorable advances in other currencies.
While the Company has not to date invested in financial instruments designed to
protect against currency fluctuations, the Company will continue to evaluate the
need to do so in the future.
Additionally, the Company is subject to interest rate fluctuations in
foreign countries to the extent that the Company elects to borrow in the local
foreign currency. In the past, this has not been an issue of concern as the
Company has the capacity to elect to borrow in other currencies with more
favorable interest rates. While the Company has not to date invested in
financial instruments designed to protect against interest rate fluctuations,
the Company will continue to evaluate the need to do so in the future.
Further, the Company is subject to political risk, especially in
developing countries with uncertain or unstable political structures or regimes.
The Company is also subject to the effects of, and changes in, laws and
regulations, other activities of governments, agencies and similar
organizations, especially in light of the current weak Asian economic
conditions, which may prompt certain legislative reform. The Company does not
believe at this time that it is exposed to unusual political risk that could
have a material adverse impact on the Company.
Finally, the Company's unsecured committed line of credit bears interest
at a floating rate of interest. It does not invest in financial instruments
designed to protect against interest rate fluctuations, although it will
continue to evaluate the need to do so in the future.
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18
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1999
Part II - Other Information
Item 1. Legal Proceedings
MICROS is and has been involved in legal proceedings arising in the
normal course of business. The Company is of the opinion, based upon presently
available information and the advice of counsel concerning pertinent legal
matters, that any resulting liability should not have a material adverse effect
on the Company's results of operations or financial position.
On March 25, 1997, Budgetel Inns, Inc. ("Budgetel") filed suit against
MICROS in the United States Federal District Court in the Eastern District of
Wisconsin. Budgetel alleges, among other things, that MICROS breached a March
1993 software support agreement by failing to provide full support to this
software package licensed to Budgetel in 1993. MICROS filed its answer to the
complaint in September of 1999. MICROS also filed a counterclaim against
Budgetel, alleging breach of contract and defamation. The litigation is
currently in the discovery phase. 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 and 3. Changes in Securities and Use of Proceeds
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 19, 1999. A
quorum was present and shareholders voted on the following matters:
1. 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:
Nominee For Vote Witheld(Abstain)
------- --- ------------
Louis M. Brown, Jr. 12,881,666 265,439
Daniel Cohen 12,881,656 265,449
A.L. Giannopoulos 12,880,156 266,949
F. Suzanne Jenniches 12,881,261 265,844
John G. Puente 12,879,321 267,784
Dwight S. Taylor 12,873,361 273,744
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.
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19
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1999
Part II - Other Information, continued
2. 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, 2000. 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 13,104,115 shares voted in the affirmative; a
total of 12,080 shares voted in the negative; and a total of 30,910 shares
abstained from the vote.
3. Approval of Amendment to Stock Option Plan
The shareholders voted 8,938,958 shares in the affirmative and 2,432,042 shares
in the negative with respect to an amendment to the 1991 Stock Option Plan. A
total of 60,227 shares abstained from the vote, and there were 1,715,878 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
5,500,000. As the requisite number of shares required for approval was obtained,
the amendment was approved.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10. - hotelBANK, Inc. 1999 Omnibus Stock
Incentive Plan, with Restricted Stock Award Agreement.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
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20
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICROS SYSTEMS, INC.
------------------------
(Registrant)
February 14, 2000 /s/ Gary C. Kaufman
- ------------------------ ---------------
Gary C. Kaufman
Executive Vice President,
Finance and Administration/
Chief Financial Officer
February 14, 2000 /s/ Roberta J. Watson
- ------------------------ -----------------
Roberta J. Watson
Senior Vice President and
Controller
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21
EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
- ------- -------------
10. hotelBANK, Inc. 1999 Omnibus Stock Incentive Plan, 22
with Restricted Stock Award Agreement.
27. Financial Data Schedule N/A
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