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, 2001
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 March 31, 2001, there were 17,400,769 shares of Common Stock, $0.025 par
value, outstanding.
2
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2001
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)
March 31, June 30,
2001 2000
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 25,687 $ 26,211
Accounts receivable, net of allowance for
doubtful accounts of $6,671 at March 31,
2001 and $7,791 at June 30, 2000 94,954 98,917
Inventories 31,026 34,292
Deferred income taxes 14,027 15,575
Prepaid expenses and other current assets 12,824 16,098
--------- ---------
Total current assets 178,518 191,093
Property, plant and equipment, net of accumulated
depreciation and amortization of $34,705 at
March 31, 2001 and $29,800 at June 30, 2000 25,097 24,332
Deferred income taxes, non-current 9,519 9,840
Goodwill and intangible assets, net of
accumulated amortization of $16,844 at
March 31, 2001 and $12,963 at June 30, 2000 32,471 26,750
Purchased and internally developed software costs, net of
accumulated amortization of $12,213 at
March 31, 2001 and $11,191 at June 30, 2000 30,035 24,604
Other assets 2,853 2,358
--------- ---------
Total assets $ 278,493 $ 278,977
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $ 13,507 $ 522
Current portion of long-term debt 2,387 397
Current portion of capital lease obligations 140 63
Accounts payable 17,633 21,145
Accrued expenses and other current liabilities 36,302 39,814
Income taxes payable 2,019 15,021
Deferred income taxes 454 475
Deferred service revenue 33,097 20,126
--------- ---------
Total current liabilities 105,539 97,563
Long-term debt, net of current portion 1,009 3,729
Capital lease obligations, net of current portion 330 330
Deferred income taxes, non-current 11,108 11,138
Commitments and contingencies
Minority interests 2,362 2,596
Shareholders' equity:
Common stock, $0.025 par; authorized 50,000
shares; issued and outstanding 17,401 at
March 31, 2001 and 17,336 at June 30, 2000 435 433
Capital in excess of par 55,403 54,225
Retained earnings 117,250 119,064
Accumulated other comprehensive loss (14,943) (10,101)
--------- ---------
Total shareholders' equity 158,145 163,621
--------- ---------
Total liabilities and shareholders' equity $ 278,493 $ 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 March 31,
----------------------------
2001 2000
---- ----
Revenue:
Hardware and software $ 42,488 $ 55,711
Service 38,646 36,242
-------- --------
Total revenue 81,134 91,953
-------- --------
Costs and expenses:
Cost of sales
Hardware and software 20,501 20,265
Service 19,640 19,726
-------- --------
Total cost of sales 40,141 39,991
Selling, general and administrative
expenses 31,622 27,325
Research and development expenses 5,473 4,491
Depreciation and amortization 3,626 3,167
-------- --------
Total costs and expenses 80,862 74,974
-------- --------
Income from operations 272 16,979
Non-operating income (expense):
Interest income 278 261
Interest expense (246) (43)
Other income, net 20 289
-------- --------
Income before taxes, minority interests and equity
in net earnings of affiliates 324 17,486
Income tax expense 131 7,081
-------- --------
Income before minority interests and equity
in net earnings of affiliates 193 10,405
Minority interests and equity in net
earnings of affiliates (124) (181)
-------- --------
Net income $ 69 $ 10,224
======== ========
Net income per common share:
Basic $ 0.00 $ 0.60
======== ========
Diluted $ 0.00 $ 0.56
======== ========
Weighted-average number of shares outstanding:
Basic 17,373 17,080
======== ========
Diluted 17,497 18,356
======== ========
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)
Nine Months Ended March 31,
---------------------------
2001 2000
---- ----
Revenue:
Hardware and software $ 124,542 $ 172,890
Service 110,698 109,239
--------- ---------
Total revenue 235,240 282,129
--------- ---------
Costs and expenses:
Cost of sales
Hardware and software 61,253 84,166
Service 56,794 55,189
--------- ---------
Total cost of sales 118,047 139,355
Selling, general and administrative
expenses 93,589 79,499
Research and development expenses 14,399 12,676
Depreciation and amortization 10,382 8,862
--------- ---------
Total costs and expenses 236,417 240,392
--------- ---------
Income (loss) from operations (1,177) 41,737
Non-operating income (expense):
Interest income 762 682
Interest expense (598) (479)
Other expense, net (1,540) (480)
--------- ---------
Income (loss) before taxes, minority interests and
equity in net earnings of affiliates (2,553) 41,460
Income tax expense (benefit) (1,034) 16,787
--------- ---------
Income (loss) before minority interests and equity
in net earnings of affiliates (1,519) 24,673
Minority interests and equity in net
earnings of affiliates (295) (741)
--------- ---------
Net income (loss) $ (1,814) $ 23,932
========= =========
Net income (loss) per common share:
Basic $ (0.10) $ 1.44
========= =========
Diluted $ (0.10) $ 1.34
========= =========
Weighted-average number of shares outstanding:
Basic 17,356 16,635
========= =========
Diluted 17,356 17,880
========= =========
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 Nine Months Ended March 31, 2001
(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 -- -- -- (1,814) -- (1,814)
Foreign currency translation
adjustments -- -- -- -- (4,842) (4,842)
--------
Total comprehensive loss -- -- -- -- -- (6,656)
Stock issued upon exercise of options 21 1 350 -- -- 351
Stock issued to 3rd Party 44 1 799 800
Income tax benefit from stock
options exercised -- -- 29 -- -- 29
------ ---- ------- -------- --------- --------
Balance, March 31, 2001 17,401 $435 $55,403 $117,250 $(14,943) $158,145
====== ==== ======= ======== ========= ========
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)
Nine months ended March 31,
---------------------------
2001 2000
---- ----
Net cash flows provided by operating activities: $ 13,017 $ 27,989
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (6,745) (9,045)
Proceeds on dispositions of property,
plant and equipment -- 88
Internally developed software (7,214) (5,603)
Dividends paid to minority owners -- (103)
Purchase of net district assets -- (642)
Purchase of equity interest in investees (214) (2,000)
Net cash paid for acquisitions, minority
interests and contingent earn-out payments (11,691) (11,831)
-------- --------
Net cash used in investing activities (25,864) (29,136)
-------- --------
Cash flows from financing activities:
Principal payments on line of credit (4,160) (9,108)
Principal payments on long-term debt
and capital lease obligations (677) (3,021)
Proceeds from line of credit 17,021 9,100
Proceeds from issuance of stock 350 16,941
-------- --------
Net cash provided by financing activities 12,534 13,912
-------- --------
Effect of exchange rate changes on cash (211) 188
-------- --------
Net increase (decrease) in cash and cash equivalents (524) 12,953
Cash and cash equivalents at beginning of period 26,211 22,806
-------- --------
Cash and cash equivalents at end of period $ 25,687 $ 35,759
======== ========
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, net of amortization, related to this acquisition was
$4,900 at March 31, 2001, 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 February 2001, the Company purchased the outstanding stock of the minority
shareholder in hotelBANK, Inc. for total consideration in the amount of $800.
Simultaneous with the purchase of the stock in hotelBANK, Inc., the Company sold
to the minority shareholder, 44,216 shares (in whole shares) of restricted
MICROS common stock, for total consideration in the amount of $800.
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 March 31, 2001
(Unaudited, in thousands, except per share data)
1. Inventories
The components of inventories are as follows:
March 31, June 30,
2001 2000
------------------ -----------------
Raw materials $ 3,695 $ 4,573
Work-in-process 903 576
Finished goods 26,428 29,143
------------------ -----------------
$ 31,026 $ 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. On April 11, 2001, the Magistrate Judge
recommended that 4 of 5 of Budgetel's claims are subject to dismissal
on summary judgment. As a result of this favorable recommendation,
MICROS believes that the likelihood of any adverse effect on the
Company's results of operations or financial position has been further
reduced, and will accordingly no longer report on this matter.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 2001
(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 nine-month
period and does not include unexercised stock options since their
effect would be anti-dilutive due to the losses in the nine-month
periods ended March 31, 2001.
A reconciliation of the weighted-average number of common shares
outstanding assuming dilution is as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
---- ---- ---- ----
Net income (loss) $ 69 $10,224 $(1,814) $23,932
======= ======= ======= =======
Average common shares outstanding 17,373 17,080 17,356 16,635
Dilutive effect of outstanding stock options 124 1,276 -- 1,245
------- ------- ------- -------
Average common shares outstanding assuming dilution 17,497 18,356 17,356 17,880
======= ======= ======= =======
Basic net income (loss) per share $ 0.00 $ 0.60 $ (0.10) $ 1.44
======= ======= ======= =======
Diluted net income (loss) per share $ 0.00 $ 0.56 $ (0.10) $ 1.34
======= ======= ======= =======
For the three and nine-month periods ended March 31, 2001, 2,585
(thousand) options and 2,546 (thousand) options, respectively, were
excluded from the above reconciliation as these options were
anti-dilutive for these periods. 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.
5. Acquisitions
In December 2000, the Company acquired 4.5% of the issued and
outstanding shares of the preferred stock of Vivonet Incorporated
("Vivonet") for $500. MICROS also agreed to purchase $2,000 worth of
interest bearing convertible debentures, provided certain ongoing
financial and performance covenants are satisfied by Vivonet. The stock
purchase price is being paid over seven monthly installments. Stock
certificates are issued to the Company upon receipt of each installment
of the purchase price. The convertible debentures are being paid over
twenty-four monthly installments. Vivonet issues the debentures to the
Company upon receipt of each installment payment. The first installment
payments for both the stock and debentures were made in January 2001.
As of March 31, 2001, $464 has been paid to Vivonet.
In January 2001, the Company acquired the stock of Indatec GmbH and Co.
KG ("Indatec"). Based in Bernau am Chiemsee, Germany, Indatec is one of
Germany's top developers of point-of-sale solutions for the independent
restaurant industry. Indatec's products include a range of
point-of-sale terminals, peripherals and associated software for
independent restaurants and other catering facilities. The purchase
price of DM 10,706 (approximately $5,100 at the exchange rate as of the
date of acquisition) was paid in February 2001.
10
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 2001
(Unaudited, in thousands, except per share data)
5. Acquisitions, continued
Goodwill related to this acquisition was DM 9,700 (approximately $4,700
at the exchange rate in effect at the date of acquisition), and is
being amortized over seven years. The pro forma effects of this
acquisition are immaterial and are not presented.
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, the
Pacific Rim and Latin America. 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 Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
---- ---- ---- ----
Revenues (1):
United States $ 45,474 $ 41,746 $ 130,263 $ 140,470
International 44,730 63,092 136,759 178,974
Intersegment eliminations (9,070) (12,885) (31,782) (37,315)
--------- --------- --------- ---------
Total revenues $ 81,134 $ 91,953 $ 235,240 $ 282,129
========= ========= ========= =========
Income (loss) before taxes, minority interests,
and equity in net earnings of affiliates (1):
United States $ (3,969) $ 5,662 $ (15,027) $ 8,073
International 9,724 20,120 30,027 58,169
Intersegment eliminations (5,431) (8,296) (17,553) (24,782)
--------- --------- --------- ---------
Total income (loss) before taxes, minority
interests, and equity in net earnings of
affiliates $ 324 $ 17,486 $ (2,553) $ 41,460
========= ========= ========= =========
March June
31, 30,
2001 2000
-------- --------
Identifiable assets (2):
United States $148,935 $158,552
International 129,558 120,425
Intersegment eliminations -- --
-------- --------
Total identifiable assets $278,493 $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 March 31, 2001
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 a breakeven net income per common share in the third
quarter of fiscal 2001, compared with diluted net income of $0.56 per share in
the third quarter of fiscal 2000. Net loss for the nine months ended March 31,
2001, was $0.10 per share compared with diluted net income of $1.34 per common
share for the first nine months of fiscal 2000. For the quarter and
year-to-date, the decreased net income was primarily due to lower sales volumes
and higher operating expenses both in absolute dollars and as a percentage of
sales.
Revenue of $81.1 million for the third quarter of fiscal 2001 decreased
$10.8 million, or 11.8%, compared to the same period last year. For the first
nine months of fiscal 2001, revenue decreased $46.9 million to $235.2 million,
or 16.6%, 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 Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
---- ---- ---- ----
Hardware 33.1% 35.3% 35.5% 41.5%
Software 19.3% 25.3% 17.5% 19.8%
Service 47.6% 39.4% 47.0% 38.7%
----- ----- ----- -----
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 increased in absolute dollars for the third quarter in
comparison to the prior year primarily due to an increase in support revenues
earned on a larger customer base. On a year-to-date basis service sales
increased in absolute dollars primarily due to support revenues earned on a
larger customer base offset by a decreased volume of installation revenue.
Combined hardware and software revenues for the third quarter of fiscal
2001 decreased $13.2 million, or 23.7%, while service revenues increased $2.4
million, or 6.6%, over the same period a year earlier. On a year-to-date basis,
hardware and software sales decreased $48.3 million, or 28.0%, while service
revenues increased $1.5 million, or 1.3%, over the same period a year earlier.
Cost of sales, as a percentage of revenue, increased to 49.5% for the third
quarter of fiscal 2001 from 43.5% for the third quarter of fiscal 2000. For the
first nine months of fiscal 2001 and 2000, cost of sales, as a percentage of
revenue, was 50.2% and 49.4% respectively. Cost of sales for hardware and
software products, as a percentage of related revenue, was 48.3% in the third
quarter of fiscal 2001 compared to 36.4% for the same quarter a year earlier and
49.2% compared to 48.7% for the first nine months of fiscal 2001 and 2000,
respectively. For the quarter and year-to-date, this increase was primarily due
to the increase of lower margin hardware sales as a percentage of total hardware
and software sales and a decrease in sales of high margin software contracts.
Service costs, as a percentage of service revenue, decreased to 50.8% in
the third quarter of fiscal 2001 compared to 54.4% in the same quarter in fiscal
2000. Service costs, as a percentage of service revenue, increased to 51.3% in
the first nine months of fiscal 2001 compared to 50.5% for the same period in
fiscal 2000. The third quarter decrease in comparison to the prior year was
primarily due to the
12
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. The
year-to-date increase in comparison to the prior year was primarily due to a
lower number of installations performed in fiscal 2001 resulting in lower labor
utilization rates for service personnel, partially offset by the continued
expansion of the Company's customer base.
Selling, general and administrative expenses increased $4.3 million, or
15.7%, in the third quarter of fiscal 2001 compared to the same period last
year. As a percentage of revenue, selling, general and administrative expenses
increased to 39.0% in the third quarter of fiscal 2001 compared to 29.7% in the
third quarter of fiscal 2000. For the first nine months of fiscal 2001, selling,
general and administrative expenses, as a percentage of revenue, was 39.8%
compared to 28.2% 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 acquisitions.
Research and development expenses (exclusive of capitalized software
development costs), which consist primarily of labor costs, increased $1.0
million, or 21.9%, in the third quarter of fiscal 2001 compared to the same
period a year earlier. Actual research and development expenditures, including
capitalized software development costs of $2.5 million in the third quarter of
fiscal 2001 and $2.4 million in the third quarter of fiscal 2000, increased $1.0
million, or 14.5%, compared to the same period a year earlier. For the first
nine months of fiscal 2001, research and development expenses (exclusive of
capitalized software development costs), which consist primarily of labor costs,
increased $1.7 million, or 13.6%, compared to the same period a year earlier.
Actual research and development expenditures, including capitalized software
development costs of $7.2 million for the first nine months of fiscal 2001 and
$5.6 million for the first nine months of fiscal 2000, increased $3.3 million,
or 18.2%, compared to the same period a year earlier. The increase in absolute
dollars for the three and nine-month periods is primarily due to increased
expenditures in the Company's hotel business.
Income from operations for the third quarter of fiscal 2001 was $0.3
million, or 0.3% of revenue, compared to income of $17.0 million, or 18.5% of
revenue, in the same period a year earlier. For the first nine months of fiscal
2001, income from operations was a loss of $1.2 million compared to income of
$41.7 million a year earlier. For both the third quarter and first nine 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 acquisitions.
Other income for the third quarter decreased $0.3 million in fiscal 2001
compared to the prior year. For the first nine months of fiscal 2001, other
expense was $1.5 million compared to an expense of $0.5 million a year earlier.
The year-to-date increase was primarily related to 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 was 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 third quarter of fiscal years 2001 and 2000
was 40.4% and 40.5%, respectively. The effective tax rate for year-to-date
fiscal years 2001 and 2000 was 40.5%.
In response to an adverse World Trade Organization ("WTO") finding relative
to the U.S. Foreign Sales corporation ("FSC") tax provisions, the U.S. repealed
the FSC tax provision and enacted a replacement act, the Extraterritorial Income
Exclusion Act of 2000. The European Union ("EU") has filed a challenge with the
WTO regarding the new tax provision. It is currently not possible to predict
what impact, if any, this issue will have on future earnings pending final
resolution of the EU challenge.
13
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, 2001, of the twelve countries currently
admitted to the EMU, the Company has subsidiary operations in six of those
countries and distributor relationships in the remaining six 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 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 financing agreement was
amended on April 30, 2001, to include a security interest in inventory and
receivables located in the United States. 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 March 31, 2001, there is a balance outstanding of
US $9.8 million, SEK 3.5 million (approximately $0.3 million at the March 31,
2001 exchange rate) and ZAR 10.6 million (approximately $1.3 million at the
March 31, 2001 exchange rate) under this line of credit.
In addition, the Company has a credit arrangement from a European bank
which provides for financing in an amount not to exceed DM 15.0 million
(approximately $6.7 million at the March 31, 2001 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 $2.2 million at the March 31, 2001 exchange rate) in
the form of balloon debt and has a balance of DM 4.0 million (approximately $1.8
million at the March 31, 2001 exchange rate) in line of credit borrowings. The
balloon debt matures in September 2001. 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 January 2001, the Company has a line of
credit from several European banks in the amount of DM 1.6 million
(approximately $0.7 million at the March 31, 2001 exchange rate). As of March
31, 2001, there is a balance outstanding of DM 0.7 (approximately $0.3 million
at the March 31, 2001 exchange rate) on the lines of credit.
Net cash provided by operating activities for the nine-months ended March
31, 2001, was $13.0 million versus $28.0 million for the nine-months ended March
31, 2000. 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-
14
based technologies; and (iii) European currency weakness relative to the dollar.
The Company used $25.9 million for investing activities in fiscal 2001,
including $14.0 million for the purchase of property, plant, and equipment and
internally developed software and $11.7 million for business acquisitions and
contingent earn-out payments. Net financing activities for fiscal 2001 provided
$12.5 million, primarily from proceeds of $17.0 million on the line of credit
during fiscal 2001 which was offset by $4.8 million in repayments on the lines
of credit, long term debt and capital lease obligations. The cash position of
the Company at March 31, 2001 was $25.7 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 $8.0 million.
Summary
Until calendar year 2000, the Company had 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
15
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.
16
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2001
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Until calendar year 2000, 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 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.
17
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2001
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. On April 11, 2001,
the Magistrate Judge recommended that 4 of 5 of Budgetel's claims are subject to
dismissal on summary judgment. As a result of this favorable recommendation,
MICROS believes that the likelihood of any adverse effect on the Company's
results of operations or financial position has been further reduced, and will
accordingly no longer report on this matter.
Items 2 through 4.
No events occurred during the quarter covered by the report that would
require a response to this item.
Item 5. Other Information
On April 25, 2001, the Board of Directors at a scheduled Board meeting
unanimously approved (with Mr. Brown abstaining from the vote) the Second
Amendment of the Consulting Agreement between Louis M. Brown, Jr. and the
Company, dated June 30, 1995. The amendment extends the term of the original
Consulting Agreement, dated June 30, 1995, as amended by the First Amendment,
dated January 27, 1999, for three more years until June 30, 2005.
Additionally, at a scheduled meeting on April 25, 2001, with Mr.
Giannopoulos abstaining, the Board of Directors unanimously approved the
appointment of Mr. Giannopoulos to the position of Chairman of the Board of
Directors, adding to his current position of President and Chief Executive
Officer. Further, with Mr. Brown abstaining, the Board of Directors unanimously
approved the appointment of Mr. Brown to the position of Vice Chairman of the
Board of Directors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10a - Second Amendment to Consulting Agreement between
the Company and Louis M. Brown Jr., dated April 26, 2001
(b) Reports on Form 8-K - None
18
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2001
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 14, 2001 /s/ Gary C. Kaufman
- ------------ -------------------
Gary C. Kaufman
Executive Vice President,
Finance and Administration/
Chief Financial/Accounting Officer