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 December 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
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
YES x NO
----- -----
As of December 31, 2000, there were 17,351,719 shares of Common Stock, $0.025
par value, outstanding.
2
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 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, 2000, as filed with the Securities
and Exchange Commission.
3
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share data)
December 31, June 30,
2000 2000
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 21,652 $ 26,211
Accounts receivable, net of allowance for
doubtful accounts of $8,558 at December 31,
2000 and $7,791 at June 30, 2000 90,824 98,917
Inventories 32,322 34,292
Deferred income taxes 13,987 15,575
Prepaid expenses and other current assets 11,111 16,098
------ ------
Total current assets 169,896 191,093
Property, plant and equipment, net of accumulated
depreciation and amortization of $33,647 at
December 31, 2000 and $29,800 at June 30, 2000 26,857 24,332
Deferred income taxes, non-current 9,782 9,840
Goodwill and intangible assets, net of
accumulated amortization of $15,593 at
December 31, 2000 and $12,963 at June 30, 2000 30,165 26,750
Purchased and internally developed software costs,
net of accumulated amortization of $12,045 at
December 31, 2000 and $11,191 at June 30, 2000 28,357 24,604
Other assets 2,349 2,358
----- -----
Total assets $267,406 $278,977
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $ 4,750 $ 522
Current portion of long-term debt 2,557 397
Current portion of capital lease obligations 333 63
Accounts payable 20,080 21,145
Accrued expenses and other current liabilities 38,760 39,814
Income taxes payable 4,402 15,021
Deferred income taxes 467 475
Deferred service revenue 20,183 20,126
------ ------
Total current liabilities 91,532 97,563
Long-term debt, net of current portion 1,129 3,729
Capital lease obligations, net of current portion 298 330
Deferred income taxes, non-current 11,149 11,138
Commitments and contingencies
Minority interests 2,602 2,596
Shareholders' equity:
Common stock, $0.025 par; authorized 50,000
shares; issued and outstanding 17,352 at
December 31, 2000 and 17,336 at June 30, 2000 434 433
Capital in excess of par 54,528 54,225
Retained earnings 117,181 119,064
Accumulated other comprehensive income (11,447) (10,101)
------- -------
Total shareholders' equity 160,696 163,621
------- -------
Total liabilities and shareholders' equity $267,406 $278,977
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
4
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended December 31,
-------------------------------
2000 1999
---- ----
Revenue:
Hardware and software $42,803 $63,796
Service 37,294 38,953
--------- ---------
Total revenue 80,097 102,749
--------- ---------
Costs and expenses:
Cost of sales
Hardware and software 20,758 34,456
Service 19,004 18,789
--------- ---------
Total cost of sales 39,762 53,245
Selling, general and administrative
expenses 32,040 27,305
Research and development expenses 4,793 4,411
Depreciation and amortization 3,441 3,039
--------- ---------
Total costs and expenses 80,036 88,000
--------- ---------
Income from operations 61 14,749
Non-operating income (expense):
Interest income 224 258
Interest expense (235) (290)
Other income (expense), net (1,395) 220
--------- ---------
Income (loss) before taxes, minority interests
and equity in net earnings of affiliates (1,345) 14,937
Income tax expense (benefit) (544) 6,050
------- --------
Income (loss) before minority interests and
equity in net earnings of affiliates (801) 8,887
Minority interests and equity in net
earnings of affiliates (163) (317)
--------- ---------
Net income (loss) $ (964) $ 8,570
========= =========
Net income (loss) per common share:
Basic $ (0.06) $ 0.52
========= =========
Diluted $ (0.06) $ 0.48
========= =========
Weighted-average number of shares outstanding:
Basic 17,350 16,535
========= =========
Diluted 17,350 17,912
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
5
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Six Months Ended December 31,
----------------------------
2000 1999
---- ----
Revenue:
Hardware and software $82,054 $117,179
Service 72,052 72,997
------- -------
Total revenue 154,106 190,176
-------- --------
Costs and expenses:
Cost of sales
Hardware and software 40,752 63,901
Service 37,154 35,463
------- -------
Total cost of sales 77,906 99,364
Selling, general and administrative
expenses 61,967 52,174
Research and development expenses 8,926 8,185
Depreciation and amortization 6,756 5,695
------ ------
Total costs and expenses 155,555 165,418
-------- --------
Income (loss) from operations (1,449) 24,758
Non-operating income (expense):
Interest income 483 421
Interest expense (351) (436)
Other expense, net (1,560) (769)
--------- ---------
Income (loss) before taxes, minority interests
and equity in net earnings of affiliates (2,877) 23,974
Income tax expense (benefit) (1,165) 9,706
--------- ---------
Income (loss) before minority interests and
equity in net earnings of affiliates (1,712) 14,268
Minority interests and equity in net
earnings of affiliates (171) (560)
------ ------
Net income (loss) $ (1,883) $ 13,708
========= =========
Net income (loss) per common share:
Basic $(0.11) $0.84
======= =======
Diluted $(0.11) $0.78
======= =======
Weighted-average number of shares outstanding:
Basic 17,347 16,412
======= =======
Diluted 17,347 17,642
======= =======
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, 2000
(Unaudited, in thousands)
Accumulated
Common Stock Capital Other
-------------- in Excess Retained Comprehensive
Shares Amount of Par Earnings Income Total
------ ------- --------- ---------- ------ -----
Balance, June 30, 2000 17,336 $433 $54,225 $119,064 $(10,101) $163,621
Comprehensive loss
Net loss -- -- -- (1,883) -- (1,883)
Foreign currency translation
adjustments -- -- -- -- (1,346) (1,346)
Total comprehensive loss -- -- -- -- -- (3,229)
Stock issued upon exercise of
options 16 1 286 -- -- 287
Income tax benefit from stock
options exercised -- -- 17 -- -- 17
------ ---- ------- -------- --------- --------
Balance, December 31, 2000 17,352 $434 $54,528 $117,181 $(11,447) $160,696
====== ==== ======= ======== ========= ========
The accompanying notes are an integral part of the consolidated
financial statements.
7
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Condensed and unaudited - in thousands)
Six months ended December 31,
-----------------------------
2000 1999
---- ----
Net cash flows provided by operating activities: $8,579 $24,588
------- -------
Cash flows from investing activities:
Purchases of property, plant and
equipment (5,943) (3,980)
Proceeds on dispositions of property,
plant and equipment -- 74
Internally developed software (4,748) (3,162)
Dividends paid to minority owners -- (230)
Purchase of net district assets -- (474)
Purchase of equity interest in investees -- (2,000)
Net cash paid for acquisitions, minority
interests and contingent earn-out payments (6,465) (6,975)
------ ------
Net cash used in investing activities (17,156) (16,747)
------- -------
Cash flows from financing activities:
Principal payments on line of credit (4,160) (7,608)
Principal payments on long-term debt
and capital lease obligations (446) (2,913)
Proceeds from line of credit 8,379 7,600
Proceeds from issuance of stock 286 5,610
--- -----
Net cash provided by financing
activities 4,059 2,689
------ ------
Effect of exchange rate changes on cash (41) (80)
---- ----
Net increase (decrease) in cash and cash
equivalents (4,559) 10,450
Cash and cash equivalents at beginning of period 26,211 22,806
------ ------
Cash and cash equivalents at end of period $21,652 $33,256
======== ========
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 $4,800 for OPUS consists of an up-front payment
of both cash of $3,800 and MICROS stock valued at approximately $1,000. The
Company issued 24,510 shares (in whole shares) of restricted common stock to the
former owners. An additional payment of $450 was paid in January 2000 for the
purchase of Opus. Goodwill related to this acquisition was $6,230 at December
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 (for which no earn-out payment
was due or paid), 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 ("MSF"). Hayman and MSF
are affiliate companies with substantially similar shareholders. The purchase
price for both companies combined was $5,000, which was accrued in December 1999
and paid in January 2000. An additional payment of $252 was paid in July 2000.
An earn-out payment for fiscal year 2000 of $248 was paid in December 2000.
Goodwill related to this acquisition was $4,560 as of December 31, 2000, and is
being amortized over seven years. The selling shareholders may be entitled to
earn additional earn-out payments determined by a formula that is based on
Hayman's and MSF's collective future financial performance.
The accompanying notes are an integral part of the consolidated financial
statements.
8
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended December 31, 2000
(Unaudited, in thousands, except per share data)
1. Inventories
The components of inventories are as follows:
December 31, June 30,
2000 2000
------------------ -----------------
Raw materials $ 4,113 $ 4,573
Work-in-process 258 576
Finished goods 27,951 29,143
------------------ -----------------
$ 32,322 $ 34,292
================== =================
2. New accounting standards
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements" to provide guidance regarding the recognition, presentation
and disclosure of revenue in the financial statements. In March 2000,
the SEC released SAB 101A, which delayed the implementation date of SAB
101 for registrants with fiscal years that begin between December 16,
1999 and March 15, 2000. Subsequently, the SEC released SAB 101B which
further delays the implementation date of SAB 101 until no later than
the fourth fiscal quarter of fiscal years beginning after December 15,
1999. The Company is reviewing the provisions of the Bulletin.
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 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.
9
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended December 31, 2000
(Unaudited, in thousands, except per share data)
4. Net income (loss) 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.
Basic and diluted net loss per common share is computed using the
weighted-average number of shares outstanding during the period and
does not include unexercised stock options since their effect would be
anti-dilutive due to the losses in the three and six-month periods
ended December 31, 2000.
A reconciliation of the weighted-average number of common shares
outstanding assuming dilution is as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
---- ---- ---- ----
Net income (loss) $ (964) $ 8,570 $(1,883) $13,708
======= ======= ======= =======
Average common shares outstanding 17,350 16,535 17,347 16,412
Dilutive effect of outstanding
stock options -- 1,377 -- 1,230
--- ------ --- -------
Average common shares outstanding
assuming dilution 17,350 17,912 17,347 17,642
======= ======= ======= =======
Basic net income (loss) per share $ (0.06) $ 0.52 $ (0.11) $ 0.84
======= ======= ======= =======
Diluted net income (loss) per
share $ (0.06) $ 0.48 $ (0.11) $ 0.78
======= ======= ======= =======
For the three and six-month periods ended December 31, 2000, 2,549,000
options and 2,460,000 options, respectively, were excluded from the
above reconciliation as these options were anti-dilutive for these
periods. 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.
5. Acquisitions
In October 2000, the Company purchased the assets of the hospitality
division of Hospitality Solutions International, Inc. ("HSI"). Based in
Scottsdale, Arizona, HSI's hospitality division is a top developer of
technology solutions for the hospitality industry. HSI's products
include the point-of-service and enterprise systems for restaurants, as
well as hotel management software. The purchase price for the assets of
$3,900 was paid in November 2000. As part of the acquisition, certain
liabilities of HSI were assumed. Goodwill related to this acquisition
was $5,600 at December 31, 2000, and is being amortized over ten years.
The pro forma effects of this acquisition are immaterial and are not
presented.
10
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended December 31, 2000
(Unaudited, in thousands, except per share data)
6. 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.
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," management views
the U.S. and International segments separately in operating the
business, although the products and services are similar for each
segment. The following information is presented in accordance with the
requirements of SFAS No. 131.
A summary of the Company's operating segments is as follows (in
thousands):
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
---- ---- ---- ----
Revenues (1):
United States $46,343 $53,660 $84,790 $98,724
International 45,274 62,729 92,029 115,882
Intersegment eliminations (11,520) (13,640) (22,713) (24,430)
------- -------- -------- --------
Total revenues $80,097 $102,749 $154,106 $190,176
======= ======== ======== ========
Income (loss) before taxes,
minority interests, and equity in
net earnings of affiliates (1):
United States $(4,749) $3,314 $(11,058) $2,411
International 10,531 20,941 20,302 38,049
Intersegment eliminations (7,127) (9,318) (12,121) (16,486)
------- -------- -------- --------
Total income (loss) before
taxes, minority interests,
and equity in net earnings
of affiliates $(1,345) $14,937 $(2,877) $23,974
======== ======= ======== =======
December June
31, 30,
2000 2000
---- ----
Identifiable assets (2):
United States $150,422 $158,552
International 116,984 120,425
Intersegment eliminations -- --
--- ---
Total identifiable assets $267,406 $278,977
======== ========
(1) Amounts based on the location of the customer.
(2) Amounts based on the location of the selling entity.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 2000
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 a net loss of $0.06 per common share in the second
quarter of fiscal 2001, compared with diluted net income of $0.48 per share in
the second quarter of fiscal 2000. Net loss for the six months ended December
31, 2000, was $0.11 per share compared with diluted net income of $0.78 per
common share for the first six months of fiscal 2000. For the quarter and
year-to-date, the decreased net income was primarily due to lower sales volumes.
Revenue of $80.1 million for the second quarter of fiscal 2001 decreased
$22.7 million, or 22.0%, compared to the same period last year. For the first
six months of fiscal 2001, revenue decreased $36.1 million to $154.1 million, or
19.0%, over the same period in fiscal 2000. A comparison of the sales mix for
fiscal years 2001 and 2000 is as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
---- ---- ---- ----
Hardware 36.6% 45.3% 36.7% 44.5%
Software 16.9% 16.8% 16.5% 17.1%
Service 46.5% 37.9% 46.8% 38.4%
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
For the quarter and year-to-date, both hardware and software sales
decreased in absolute dollars in comparison to the prior year, primarily due to
the continued slowdown in information technology purchases by the hospitality
industry. Service sales decreased in absolute dollars for the second quarter in
comparison to the prior year, and also on a year-to-date basis, primarily due to
a decreased volume of installations offset by an increase in support revenues
earned on a larger customer base.
Combined hardware and software revenues for the second quarter of fiscal
2001 decreased $21.0 million, or 32.9%, while service revenues decreased $1.7
million, or 4.3%, over the same period a year earlier. On a year-to-date basis,
hardware and software sales decreased $35.1 million, or 30.0%, while service
revenues decreased $0.9 million, or 1.3%, over the same period a year earlier.
Cost of sales, as a percentage of revenue, decreased to 49.6% for the
second quarter of fiscal 2001 from 51.8% for the second quarter of fiscal 2000.
For the first six months of fiscal 2001 and 2000, cost of sales, as a percentage
of revenue, was 50.6% and 52.2% respectively. Cost of sales for hardware and
software products, as a percentage of related revenue, was 48.5% in the second
quarter of fiscal 2001 compared to 54.0% for the same quarter a year earlier and
49.7% compared to 54.5% for the first six months of fiscal 2001 and 2000,
respectively. For the quarter and year-to-date, this decrease was primarily due
to the decrease of lower margin hardware sales as a percentage of total hardware
and software sales.
Service costs, as a percentage of service revenue, increased to 51.0% in
the second quarter of fiscal 2001 compared to 48.2% in the same quarter in
fiscal 2000. Service costs, as a percentage of service revenue, increased to
51.6% in the first six months of fiscal 2001 compared to 48.6% for the same
period in fiscal 2000. The second quarter and year-to-date increase in
comparison to the prior year was due to a lower number of installations
performed in fiscal 2001 resulting in lower labor utilization rates for service
personnel.
12
Selling, general and administrative expenses increased $4.7 million, or
17.3%, in the second quarter of fiscal 2001 compared to the same period last
year. As a percentage of revenue, selling, general and administrative expenses
increased to 40.0% in the second quarter of fiscal 2001 compared to 26.6% in the
second quarter of fiscal 2000. For the first six months of fiscal 2001, selling,
general and administrative expenses, as a percentage of revenue, was 40.2%
compared to 27.4% for the same period a year earlier. For both the quarter and
year-to-date, these increases are primarily due to decreased revenue and
additional expenses related to the acquisition of direct sales offices.
Research and development expenses (exclusive of capitalized software
development costs), which consist primarily of labor costs, increased $0.4
million, or 8.7%, in the second quarter of fiscal 2001 compared to the same
period a year earlier. Actual research and development expenditures, including
capitalized software development costs of $2.2 million in the second quarter of
fiscal 2001 and $1.7 million in the second quarter of fiscal 2000, increased
$0.9 million, or 14.3%, compared to the same period a year earlier. For the
first six months of fiscal 2001, research and development expenses (exclusive of
capitalized software development costs), which consist primarily of labor costs,
increased $0.7 million, or 9.1%, compared to the same period a year earlier.
Actual research and development expenditures, including capitalized software
development costs of $4.7 million for the first six months of fiscal 2001 and
$3.2 million for the first six months of fiscal 2000, increased $2.3 million, or
20.5%, compared to the same period a year earlier. The increase in absolute
dollars for the three and six-month periods is primarily due to increased
expenditures in the Company's hotel business.
Income from operations for the second quarter of fiscal 2001 was $0.1
million, or 0.1% of revenue, compared to income of $14.7 million, or 14.4% of
revenue, in the same period a year earlier. For the first six months of fiscal
2001, income from operations was a loss of $1.4 million compared to income of
$24.8 million a year earlier. For both the second quarter and first six months
of fiscal 2001, the Company's lower dollar income from operations is primarily
due to a lower volume of sales in fiscal 2001 and higher operating expenses due
to the acquisition of additional direct sales offices.
Other expense for the second quarter increased $1.6 million from income of
$0.2 million in fiscal 2000 to an expense of $1.4 million in fiscal 2001. For
the first six month of fiscal 2001, other expense was $1.6 million compared to
an expense of $0.8 million a year earlier. The Company experienced translation
loss of $1.1 million in the second quarter of fiscal 2001 compared to a gain of
$0.3 million in the second quarter of fiscal 2000. The translation loss is
primarily due to changes in exchange rates between the German mark and the U.S.
dollar and between the South African rand and the U.S. dollar.
The effective tax rate for the second quarter and year-to-date of fiscal
years 2001 and 2000 was 40.5%.
The European Union ("EU") filed a challenge against the U.S. Foreign Sales
corporation ("FSC") tax provisions with the World Trade Organization ("WTO").
On February 25, 2000, the WTO issued a final decision upholding this challenge.
Officials representing the United States on trade issues continue to seek
resolution through a negotiated settlement. It is currently not possible to
predict what impact, if any, this issue will have on future earnings pending
final resolution of the matter with the WTO, EU, and the United States.
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
13
and the existing national currency during the transition period. As of December
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. 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 2001 for an
additional one-year period, expiring on December 31, 2001. 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. As of December 31, 2000, there is
$4.8 million outstanding under this line of credit.
In addition, the Company has a credit relationship from a European bank in
the amount of DM 15.0 million (approximately $7.2 million at the December 31,
2000 exchange rate). Under the terms of this facility, the Company may borrow in
the form of either a line of credit or term debt. Under the credit facility, the
Company has a balance of DM 5.0 million (approximately $2.4 million at the
December 31, 2000 exchange rate) in the form of balloon debt and has no line of
credit borrowings. 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.
Also, due to an acquisition in June 2000, the Company had a line of credit
and a line for term loans of $0.7 million. The term loans were paid in full in
October 2000 and the lines were cancelled with the bank.
Net cash provided by operating activities for the six-months ended December
31, 2000, was $8.6 million versus $24.6 million for the six-months ended
December 31, 1999. The reduction in net cash for fiscal 2001 relative to fiscal
2000 was caused, by among other factors: (i) slowdown in information technology
purchases due to Year 2000 driven purchases in calendar 1999 and also the
reduction of new restaurant openings and the continued consolidation of hotels;
(ii) longer and delayed sales cycles due to the introduction of new and/or
untested technologies, such as Internet-based technologies; and (iii) European
currency weakness relative to the dollar. The Company used $17.2 million for
investing activities in fiscal 2001, including $10.7 million for the purchase of
property, plant, and equipment and internally developed software and $6.5
million for business acquisitions and contingent earn-out payments. Net
financing activities for fiscal 2001 provided $4.1 million, primarily from
proceeds of $8.4 million on the line of credit during fiscal 2001 which was
offset by $4.6 million in repayments on the lines of credit, long term debt and
capital lease obligations. The cash position of the Company at December 31, 2000
was $21.7 million. All cash is being held for the operation and expansion of the
business.
The Company anticipates that its cash flow from operations along with
available lines of credit, in conjunction with other lines of credit for which
the Company may be eligible or lines of credit to be renewed or converted into
term debt, are sufficient to provide the working capital needs of the Company
for the foreseeable future. The Company anticipates that its property, plant and
equipment expenditures for fiscal 2001 will be approximately $9.0 million.
14
Summary
Until calendar year 2000, the Company had recently experienced rapid
revenue growth at a rate that it believes had significantly exceeded that of the
global market for point-of-sale computer systems and property management
information systems products for the hospitality industry. In light of current
market conditions, the Company does not expect to maintain growth at historic
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. There can be no assurance that the Company will be able to continue
to increase sales sufficiently of its higher margin products, including
software, to prevent future declines in the Company's overall gross margin.
Moreover, MICROS's financial results in any single quarter are dependent
upon the timing and size of customer orders and the shipment of products for
large orders. Large software orders from customers may account for more than an
insignificant portion of earnings in any quarter. The customers with whom MICROS
does the largest amount of business are expected to vary from year to year as a
result of the timing for the roll-out of each customer's system. Furthermore, if
a customer delays or accelerates its delivery requirements or a product's
completion is delayed or accelerated, revenues expected in a given quarter may
be deferred or accelerated into subsequent or earlier quarters.
The market price of MICROS Common Stock is volatile, and may be subject to
significant fluctuations in response to variations in MICROS's quarterly
operating results and other factors such as announcements of technological
developments or new products by MICROS, customer roll-outs, technological
advances by existing and new competitors, and general market conditions in the
hospitality industry. In addition, conditions in the stock market in general and
shares of technology companies in particular have experienced significant price
and volume fluctuations which have at times been unrelated to the operating
performance of companies.
Moreover, some of the statements contained herein not based on historic
facts are forward looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, and Section 27A of the Securities
Act of 1933, as amended, that involve risks and uncertainties. Past performance
is not necessarily a strong or reliable indicator of future performance. Actual
results could differ materially from past results, estimates or projections.
Some of the additional risks and uncertainties are: product demand and market
acceptance, including demand and acceptance for the new OPERA products and the
newest versions of the 3700 RES; 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, 2000.
15
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 2000
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 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 can be offset by favorable advances in other currencies.
Recent weakness in certain European currencies has, however, adversely impacted
the financial performance of the Company.
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. 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
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 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 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 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 17, 2000. 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. 15,387,639 298,810
A.L. Giannopoulos 13,992,357 1,694,092
F. Suzanne Jenniches 15,413,622 272,827
John G. Puente 15,417,767 268,682
Dwight S. Taylor 15,411,192 275,257
William S. Watson 15,416,947 269,502
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.
17
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 2000
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, 2001. 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 15,576,159 shares voted in the affirmative; a
total of 28,419 shares voted in the negative; and a total of 81,871 shares
abstained from the vote.
3. Approval of Amendment to Stock Option Plan to Increase Shares
The Board of Directors proposed an amendment to the 1991 Stock Option Plan which
served to increase the number of shares available under the 1991 Stock Option
Plan by 600,000, thereby increasing the aggregate number of shares that can be
issued under the plan to 6,100,000. The shareholders voted 5,207,986 shares in
the affirmative and 7,280,345 shares in the negative with respect to this
amendment to the 1991 Stock Option Plan. A total of 84,529 shares abstained from
the vote, and there were 3,113,589 broker non-votes. As the requisite number of
shares required for approval was not obtained, the amendment was not approved.
4. Approval of Amendment to Stock Option Plan to Extend Term
The Board of Directors proposed an amendment to the 1991 Stock Option Plan which
served to extend the term of the plan for an additional two years. The
shareholders voted 10,006,259 shares in the affirmative and 2,483,771 shares in
the negative with respect to an amendment to the 1991 Stock Option Plan. A total
of 82,031 shares abstained from the vote, and there were 3,114,388 broker
non-votes. 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 - None
(b) Reports on Form 8-K - None
18
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 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)
February 14, 2001 /s/ Gary C. Kaufman
- ------------------ ---------------
Gary C. Kaufman
Executive Vice President,
Finance and Administration/
Chief Financial Officer
February 14, 2001 /s/ Roberta J. Watson
- ------------------ -----------------
Roberta J. Watson
Senior Vice President and
Controller