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, 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
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As of December 31, 2001, there were 17,506,376 shares of Common Stock, $0.025
par value, outstanding.
1
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 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, 2001, as filed with
the Securities and Exchange Commission.
2
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share data)
December 31, June 30,
2001 2001
------------ --------
ASSETS
Current assets:
Cash and cash equivalents $ 25,227 $ 26,456
Accounts receivable, net of allowance for doubtful
accounts of $8,638 at December 31, 2001 and
$7,508 at June 30, 2001 87,146 84,779
Inventories 31,345 28,547
Deferred income taxes 6,973 6,955
Prepaid expenses and other current assets 12,029 11,032
-------- -------
Total current assets 162,720 157,769
Property, plant and equipment, net of accumulated
depreciation and amortization of $38,683 at
December 31, 2001 and $35,366 at June 30, 2001 22,803 23,553
Deferred income taxes, non-current 23,746 23,573
Goodwill and intangible assets, net of accumulated
amortization of $22,770 at December 31, 2001 and
$18,483 at June 30, 2001 35,614 35,182
Purchased and internally developed software costs, net
of accumulated amortization of $15,010 at December
31, 2001 and $12,699 at June 30, 2001 31,531 31,529
Other assets 3,445 2,850
-------- -------
Total assets $279,859 $274,456
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $6,219 $4,659
Current portion of long-term debt 144 2,317
Current portion of capital lease obligations 131 131
Accounts payable 23,011 21,980
Accrued expenses and other current liabilities 36,615 35,417
Income taxes payable 3,559 5,200
Deferred income taxes 570 547
Deferred service revenue 25,498 26,874
-------- -------
Total current liabilities 95,747 97,125
Long-term debt, net of current portion 924 979
Capital lease obligations, net of current portion 300 252
Deferred income taxes, non-current 14,214 14,213
Other non-current liabilities 1,180 936
Commitments and contingencies
Minority interests 2,145 2,103
Shareholders' equity:
Common stock, $0.025 par; authorized 50,000 shares;
issued and outstanding 17,506 at December 31,
2001 and 17,475 at June 30, 2001 438 437
Capital in excess of par 56,968 56,515
Retained earnings 121,724 118,360
Accumulated other comprehensive loss (13,781) (16,464)
-------- -------
Total shareholders' equity 165,349 158,848
-------- -------
Total liabilities and shareholders' equity $279,859 $274,456
========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
3
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended December 31,
-------------------------------
2001 2000
---- ----
Revenue:
Hardware and software $47,497 $43,108
Service 43,402 37,294
------- -------
Total revenue 90,899 80,402
------- -------
Costs and expenses:
Cost of sales
Hardware and software 26,294 20,867
Service 21,531 19,200
------- -------
Total cost of sales 47,825 40,067
Selling, general and administrative
expenses 30,350 32,040
Research and development expenses 4,735 4,793
Depreciation and amortization 4,076 3,441
------- -------
Total costs and expenses 86,986 80,341
------- -------
Income from operations 3,913 61
Non-operating income (expense):
Interest income 277 224
Interest expense (139) (235)
Other income (expense), net 138 (1,395)
------- -------
Income (loss) before taxes, minority interests
and equity in net earnings of
affiliates 4,189 (1,345)
Income tax provision (benefit) 1,559 (544)
------- -------
Income (loss) before minority interests and
equity in net earnings of affiliates 2,630 (801)
Minority interests and equity in net earnings
of affiliates (145) (163)
------- -------
Net income (loss) $ 2,485 $ (964)
======== =======
Net income (loss) per common share:
Basic $0.14 $(0.06)
====== =======
Diluted $0.14 $(0.06)
====== =======
Weighted-average number of shares outstanding:
Basic 17,502 17,350
======= ======
Diluted 17,757 17,350
======= ======
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)
Six Months Ended December 31,
------------------------------
2001 2000
---- ----
Revenue:
Hardware and software $90,195 $82,696
Service 84,215 72,052
------- -------
Total revenue 174,410 154,748
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Costs and expenses:
Cost of sales
Hardware and software 50,547 41,181
Service 40,721 37,367
------- -------
Total cost of sales 91,268 78,548
Selling, general and administrative expenses 59,030 61,967
Research and development expenses 9,561 8,926
Depreciation and amortization 7,831 6,756
------- -------
Total costs and expenses 167,690 156,197
------- -------
Income (loss) from operations 6,720 (1,449)
Non-operating income (expense):
Interest income 513 483
Interest expense (427) (351)
Other expense, net (949) (1,560)
------- -------
Income (loss) before taxes, minority interests
and equity in net earnings of affiliates 5,857 (2,877)
Income tax provision (benefit) 2,226 (1,165)
------- -------
Income (loss) before minority interests and
equity in net earnings of affiliates 3,631 (1,712)
Minority interests and equity in net earnings
of affiliates (267) (171)
------- -------
Net income (loss) $ 3,364 $ (1,883)
======== =========
Net income (loss) per common share:
Basic $0.19 $(0.11)
====== =======
Diluted $0.19 $(0.11)
====== =======
Weighted-average number of shares outstanding:
Basic 17,497 17,347
======= ======
Diluted 17,741 17,347
======= ======
The accompanying notes are an integral part of the consolidated financial
statements.
5
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended December 31, 2001
(Unaudited, in thousands)
Accumulated
Capital Other
Common Stock in Excess Retained Comprehensive
Shares Amount Of Par Earnings Loss Total
------ ------ ------ -------- ---- -----
Balance, June 30, 2001 17,475 $437 $56,515 $118,360 $(16,464) $158,848
Comprehensive income
Net income -- -- -- 3,364 -- 3,364
Foreign currency translation
adjustments -- -- -- -- 2,683 2,683
--------
Total comprehensive income -- -- -- -- -- 6,047
Stock issued upon exercise of
options 31 1 394 -- -- 395
Income tax benefit from stock
options exercised -- -- 59 -- -- 59
Balance, December 31, 2001 17,506 $438 $56,968 $121,724 $(13,781) $165,349
====== ==== ======= ======== ========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
6
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Condensed and unaudited, in thousands)
Six Months Ended December 31,
-----------------------------
2001 2000
---- ----
Net cash flows provided by operating activities: $6.609 $8,579
------ ------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,699) (5,943)
Proceeds on dispositions of property, plant and equipment 61 --
Internally developed software (1,784) (4,748)
Proceeds from settlement 200 --
Purchase of equity interest in investees (51) --
Net cash paid for acquisitions, minority interests and
contingent earn-out payments (3,571) (6,465)
------- -------
Net cash used in investing activities (7,844) (17,156)
------- --------
Cash flows from financing activities:
Principal payments on line of credit (8,346) (4,160)
Principal payments on long-term debt and capital lease
obligations (2,485) (446)
Proceeds from lines of credit 10,450 8,379
Proceeds from issuance of stock 395 286
------ ------
Net cash provided by financing activities 14 4,059
------ ------
Effect of exchange rate changes on cash (8) (41)
------ ------
Net increase (decrease) in cash and cash equivalents (1,229) (4,559)
Cash and cash equivalents at beginning of period 26,456 26,211
------ ------
Cash and cash equivalents at end of period $25,227 $21,652
======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
Supplemental schedule of non cash financing and investing activities (in
thousands):
In December 2001, Opus 2 Revenue Technologies, Inc. ("OPUS") settled a tax
dispute with the Department of Revenue Administration of the State of New
Hampshire for the tax year ending October 1999. In the settlement agreement,
OPUS agreed to pay $261 in full and complete settlement of taxes and interest.
This amount was accrued to goodwill in December 2001 and paid in January 2002.
The goodwill balance for OPUS at December 31, 2001 was $8,492 and is being
amortized over seven years.
7
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended December 31, 2001
(Unaudited, in thousands, except per share data)
1. Inventories
The components of inventories are as follows:
December 31, June 30,
2001 2001
--------------- --------------
Raw materials $ 6,097 $ 3,736
Work-in-process 1,457 445
Finished goods 23,791 24,366
--------------- --------------
$ 31,345 $ 28,547
=============== ==============
2. New accounting standards
In October 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS
144 supercedes FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." FAS 144
applies to all long-lived assets (including discontinued operations) and
consequently amends Accounting Principles Board Opinion No. 30,
"Reporting Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business." FAS 144 is effective for financial statements
issued for fiscal years beginning after December 15, 2001. Management is
currently determining what effect, if any, FAS 144 will have on its
financial position and results of operations.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations" ("FAS 141") and No. 142,
"Goodwill and Other Intangible Assets" ("FAS 142"). FAS No. 141 requires
that all business combinations be accounted for under the purchase
method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. FAS No. 142
requires that ratable amortization of goodwill be replaced with periodic
tests of the goodwill's impairment and that intangible assets other than
goodwill be amortized over their useful lives. FAS No. 141 is effective
for all business combinations initiated after June 30, 2001 and for all
business combinations accounted for by the purchase method for which the
date of acquisition is before June 30, 2001. The provisions of FAS No.
142 will be effective for fiscal years beginning after December 15,
2001. The Company is currently reviewing the provisions of these
statements.
In September 2000, the Emerging Issues Task Force ("EITF") issued EITF
00-10, "Accounting for Shipping and Handling Fees and Costs" which
states that all amounts billed to a customer in a sale transaction
related to shipping and handling represents revenues earned and as such,
should be classified as revenue. The Company has adopted EITF 00-10 as
of July 2001. All comparative financial statements reflect the change in
classification.
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.
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.
8
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended December 31, 2001
(Unaudited, in thousands, except per share data)
4. Net income (loss) per share, continued:
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,
2001 2000 2001 2000
---- ---- ---- ----
Net income (loss) $ 2,485 $ (964) $3,364 $(1,883)
======= ======= ====== ========
Average common shares outstanding 17,502 17,350 17,497 17,347
Dilutive effect of outstanding stock
options 255 -- 244 --
---- ---- ---- ----
Average common shares outstanding assuming
dilution 17,757 17,350 17,741 17,347
====== ====== ====== ======
Basic net income (loss) per share $ 0.14 $(0.06) $ 0.19 $ (0.11)
====== ======= ====== ========
Diluted net income (loss) per share $ 0.14 $(0.06) $ 0.19 $ (0.11)
====== ======= ====== ========
For the three and six-month periods ended December 31, 2001, 1,992
options and 1,916 options, respectively, were excluded from the above
reconciliation as these options were anti-dilutive for these periods.
For the three and six-month periods ended December 31, 2000, 2,549
options and 2,460 options, respectively, were excluded from the above
reconciliation as these options were anti-dilutive for these periods.
5. Segment reporting data
The Company develops, manufactures, sells and services point-of-sale
computer systems, property management systems, central reservation and
central information systems products for the hospitality industry.
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:
Three Months Ended Six Months Ended
December 31, December 31,
2001 2000 2001 2000
---- ---- ---- ----
Revenues (1):
United States $52,724 $46,608 $99,129 $85,323
International 52,192 45,314 100,726 92,138
Intersegment eliminations (14,017) (11,520) (25,445) (22,713)
------- ------- -------- --------
Total revenues $90,899 $80,402 $174,410 $154,748
======= ======= ======== ========
Income (loss) before taxes, minority
interests, and equity in net
earnings of affiliates (1):
United States $(1,073) $(4,749) $(7,247) $(11,497)
International 14,331 10,531 29,061 22,284
Intersegment eliminations (9,069) (7,127) (15,957) (13,664)
------- ------- -------- --------
Total income (loss) before taxes,
minority interests, and equity in
net earnings of affiliates $4,189 $(1,345) $5,857 $(2,877)
====== ======== ====== ========
9
5. Segment reporting data, continued:
December 31, June 30,
2001 2001
---- ----
Identifiable assets (2):
United States $142,034 $145,568
International 137,825 128,888
Intersegment eliminations -- --
-------- --------
Total identifiable assets $279,859 $274,456
======== ========
(1) Amounts based on the location of the customer.
(2) Amounts based on the location of the selling entity.
10
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 2001
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 diluted net income of $0.14 per common share in
the second quarter of fiscal 2002, compared with a net loss of $0.06 per common
share in the second quarter of fiscal 2001. For the six-months ended December
31, 2001, diluted net income was $0.19 per common share compared with a net loss
of $0.11 per common share for the six-months ended December 31, 2000. The
quarter and year to date increase was mainly due to an increase in sales volume.
Revenue increased by $10.5 million or 13.1% to $90.9 million for the
second quarter of fiscal 2002 compared to the same period last year. For the
first six months of fiscal year 2002, revenue increased $19.7 million or 12.7%
to $174.4 million over the same period in fiscal year 2001. A comparison of the
sales mix for fiscal years 2002 and 2001 is as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2001 2000 2001 2000
---- ---- ---- ----
Hardware 36.0% 36.8% 35.6% 37.0%
Software 16.3% 16.8% 16.1% 16.4%
Service 47.7% 46.4% 48.3% 46.6%
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
In absolute dollars, combined hardware and software revenues for the
second quarter of fiscal 2002 increased $4.4 million, or 10.2%, and service
revenues increased $6.1 million, or 16.4%, over the same period a year earlier.
On a year to date basis, combined hardware and software revenues increased $7.5
million, or 9.1%, and service revenues increased $12.2 million, or 16.9%, over
the same period a year earlier.
For the quarter and year to date, combined hardware and software sales
increased primarily due to the increase in sales volume for MICROS PC
Workstations, other computer equipment and Opera software, and partly due to the
acquisition of Indatec GmbH & Co. KG in January 2001. For the quarter and year
to date, service revenues increased primarily due to support revenues earned on
a larger customer base.
Cost of sales, as a percentage of revenue, increased to 52.6% for the
second quarter of fiscal year 2002 from 49.8% for the second quarter of fiscal
2001. For the first six months of fiscal year 2002 and 2001, cost of sales, as a
percentage of revenue, was 52.3% and 50.8%, respectively. Cost of sales for
hardware and software products, as a percentage of related revenue, was 55.4% in
the second quarter of fiscal 2002 compared to 48.4% for the same quarter a year
earlier, and 56.0% compared to 49.8% for the first six months of fiscal year
2002 and 2001, respectively. For the quarter, the increase, as a percentage of
revenue, was primarily due to the increased volume of hardware sales, which
generate lower margins. Similarly, the year to date increase was mainly due to
increased hardware sales as well as the increase of third party software, which
generate lower margins.
Service costs, as a percentage of service revenue, decreased to 49.6% in
the second quarter of fiscal 2002 compared to 51.5% in the same quarter in
fiscal 2001. In the first six months of fiscal year 2002, service costs, as a
percentage of service revenue, decreased to 48.3% compared to 51.9% in the same
period of fiscal year 2001. The quarter and year to date decreases were
primarily due to the 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 decreased $1.7 million, or
5.3%, in the second quarter of fiscal 2002 compared to the same period last
year. As a percentage of revenue, selling, general and administrative expenses
decreased to 33.4% in the second quarter of fiscal 2002 compared to 39.9% in the
second quarter of fiscal 2001. For the six months ended December 31, 2001,
selling, general and administrative expenses, as a percentage of revenue, was
33.9% compared to 40.0% for the same period last year. The quarter and year to
date decreases were primarily due to strategic cost reductions, including cost
savings from reduction of headcount in the first and second quarters of fiscal
2002, partially offset by the operating expenses related to the acquisitions of
fiscal year 2001.
11
Research and development expenses (exclusive of capitalized software
development costs), which consist primarily of labor costs, decreased $0.1
million, or 1.2%, in the second quarter of fiscal 2002 compared to the same
period a year earlier. Total research and development expenditures, including
capitalized software development costs of $0.8 million in the second quarter of
fiscal 2002 and $2.2 million in the second quarter of fiscal 2001, decreased
$1.5 million, or 21.2%, compared to the same period a year earlier. For the
first six months of fiscal year 2002, research and development expenses
(exclusive of capitalized software development costs), which consist primarily
of labor costs, increased $0.6 million, or 7.1% compared to the same period a
year earlier. Total research and development expenditures, including capitalized
software development costs of $1.8 million in the first six months of fiscal
2002 and $4.7 million in the first six months of fiscal 2001, decreased $2.3
million, or 17.0%, compared to the same period a year earlier. The quarter and
year to date decreases in total research and development costs were mainly due
to the reduction of outside consultants partially offset by the release of the
Opera software in June 2001. Upon release of the product, all future costs are
expensed instead of capitalized.
Income from operations for the second quarter of fiscal 2002 was $3.9
million, or 4.3% of revenue, compared to income of $0.1 million, or 0.1% of
revenue, in the second quarter of fiscal 2001. For the first six months of
fiscal year 2002, income from operations was $6.7 million compared to a loss of
$1.4 million a year earlier. The increase in the second quarter and year to date
is primarily due to higher sales volume and a reduction of operating expenses.
Non-operating expense decreased from $1.4 million for the second quarter
of fiscal 2001 to other income of $0.3 million in the second quarter of fiscal
2002. For the first six months of fiscal year 2002, non-operating expense was
$0.9 million compared to $1.4 million in the prior year. The Company experienced
foreign currency translation gain of $0.2 million in the second quarter of
fiscal 2002 compared to a loss of $1.1 million in the second quarter of fiscal
2001. On a year to date basis, the Company experienced foreign currency
translation loss of $0.8 million in fiscal 2002 compared to a loss of $1.3
million in fiscal 2001.
The effective tax rate for the second quarter of fiscal year 2002 and
2001 was 37.2% and 40.5%, respectively, while the effective tax rate for year to
date of fiscal year 2002 and fiscal 2001 was 38.0% and 40.5%, respectively. The
decrease in the effective tax rate is primarily due to a decrease in the German
tax rates.
The European Union ("EU") filed a challenge against the U.S. Foreign
Sales corporation ("FSC") tax provisions with the World Trade Organization
("WTO"). On July 23, 2001, the WTO issued a final decision upholding this
challenge. In January 2002, the Appellate Body confirmed the WTO dispute
settlement panel findings. 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, 2002, certain member nations of the European Economic and
Monetary Union ("EMU") adopted a common currency, the Euro. During a 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, 2001, of the twelve countries currently admitted to the EMU, the
Company has subsidiary operations in seven of those countries and distributor
relationships in the remaining five countries.
MICROS continues to address 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. All costs incurred to date in connection with the adoption of
the Euro have been expensed as incurred and all future costs 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
In December 2001, the Company renewed its $45.0 million multi-currency
committed line of credit expiring on December 31, 2002. The financing agreement
includes 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
December 31, 2001, there are balances outstanding of US $4.0 million, AUD 0.5
million (approximately $0.3
12
million at the December 31, 2001 rate), ZAR 10.6 million (approximately $0.9
million at the December 31, 2001 exchange rate), and JPY 140.0 million
(approximately $1.1 million at the December 31, 2001 exchange rate) under this
line of credit.
The Company also has a credit relationship with a European bank in the
amount of DM 15.0 million (approximately $6.8 million at the December 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. As of December 31, 2001, the
Company had no borrowings under this credit facility.
Net cash provided by operating activities for fiscal 2002 was $6.6
million. The Company used $7.8 million for investing activities in fiscal 2002,
including $4.4 million for the purchase of property, plant, and equipment and
internally developed software and $3.6 million for earn-out payments. The cash
position of the Company at December 31, 2001 was $25.2 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 rate of property,
plant and equipment expenditures for fiscal 2002 will be approximately $6.0
million.
Summary
Until the first quarter of calendar year 2000, the Company had
experienced rapid revenue growth at a rate that it believes had 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 weaker
market conditions, the Company's growth rate declined. Currently, given the weak
worldwide economic conditions, and the general financial uncertainty triggered
in part by the terrorist attacks on September 11, 2001, 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 increase sufficiently sales 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 and hospitality companies in particular continue to
experience 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: political and world
instability created by actual and threatened terrorism, which gravely impacts
the travel and tourism industries; 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;
unexpected currency fluctuations; political instability, including that recently
experienced in Argentina; impact of competitive products and pricing on margins;
product development delays; technological difficulties associated with new
product releases; 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, 2001.
13
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 2001
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Until calendar year 2000, the Company had experienced rapid growth
internationally. MICROS's 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 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 foreign 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, as most recently
demonstrated by the terrorist attacks of September 11, 2001, and the political
and economic instability in Argentina. Political and economic instability and
uncertainty caused by terrorism, the resultant conflicts designed to thwart
terrorism, and political unrest, adversely impact the travel, tourism and
hospitality industries, which the Company serves. The Company is also subject to
the effects of, and changes in, laws and regulations, other activities of
governments, agencies and similar organizations.
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.
14
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 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.
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, 2001. 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:
Vote Withheld
-------------
Nominee For (Abstain)
------- --- ---------
A.L. Giannopoulos 16,325,282 250,969
Louis M. Brown, Jr. 16,404,714 171,537
F. Suzanne Jenniches 16,329,195 247,056
John G. Puente 16,404,809 171,442
Dwight S. Taylor 16,402,174 174,077
William S. Watson 16,404,024 172,227
The entire slate of directors nominated was elected by a plurality of the shares
present in person or represented by proxy and entitled to vote.
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, 2002. 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 16,535,648 shares voted in the affirmative; a
total of 33,960 shares voted in the negative; and a total of 6,643 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 approved the proposed
amendment to the 1991 Stock Option Plan, with 11,037,685 shares in the
affirmative, 5,519,654 shares in the negative, and 18,912 shares abstained.
Item 5. Other Information
On November 19, 2001, the Board of Directors, with Mr. Giannopoulos
recusing himself, approved the Fourth Amendment to the Employment Agreement
between the Company and Mr. Giannopoulos. The amendment serves to extend the
exercise period of Mr. Giannopoulos' options in the event of his death,
disability or retirement; the amendment does not increase the term of the option
or the number of options granted.
15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10a - Fourth Amendment to Employment Agreement
between the Company and A.L. Giannopoulos, dated November
19, 2001.
(b) Reports on Form 8-K - None
16
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 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)
February 14, 2002 /s/ Gary C. Kaufman
- ----------------- ---------------
Executive Vice President,
Finance and Administration/
Chief Financial Officer
February 14, 2002 /s/ Cynthia A. Russo
- ----------------- ----------------
Cynthia A. Russo
Vice President and
Corporate Controller
17
Exhibit 10a - Fourth Amendment to the Employment Agreement between the Company
and A.L. Giannopoulos
FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT
This Fourth Amendment to the Employment Agreement is effective the 19th
day of November 2001 (the "Fourth Amendment"), by and between MICROS SYSTEMS,
INC., a Maryland corporation, with offices located at 7031 Columbia Gateway
Drive, Columbia, Maryland 21046-2289 (hereinafter referred to as the "Company"),
and A. L. GIANNOPOULOS, whose address is 6125 Wooded Run Drive, Columbia,
Maryland 21044 (hereinafter referred to as the "Executive").
WHEREAS, the Executive and the Company entered into an Employment
Agreement dated June 1, 1995, as amended by the First Amendment dated February
6, 1997, the Second Amendment dated February 1, 1998, and the Third amendment
dated September 8, 1999 (the agreement as amended hereinafter referred to as the
"Agreement"); and
WHEREAS, the parties hereto would like to amend the Agreement pursuant
to this Fourth Amendment in an effort to: (i) induce the Executive to continue
to render services to the Company for the full term of the Agreement; and (ii)
assist the Executive in retirement and estate planning.
NOW, THEREFORE, the Company and the Executive, for good and valuable
consideration, and pursuant to the terms, conditions, and covenants contained
herein, hereby agree as follows:
1. The following new paragraph shall be added immediately at the end of the
existing Section 6 of the Agreement, as follows:
"Notwithstanding anything to the contrary herein, or anything to the
contrary in any option agreements issued pursuant to the MICROS Systems,
Inc. 1991 Stock Option Plan (the "Option Plan"), the exercise period for
all option agreements issued to the Executive under the Option Plan, and
the exercise period for any additional options agreements prospectively
issued to the Executive, whether under the Option Plan, under another
plan or not under any plan, shall be (or shall be amended to be, as the
case may be) as follows: (i) in the case the Executive's employment is
terminated on account of total and permanent disability (pursuant to the
Company's long-term disability plan for executives who are employees,
or, if there is no such long-term disability plan, as defined in Section
22(e)(3) of the Internal Revenue Code), all options may be exercised by
the Executive (or by the Executive's estate if the Executive dies after
termination) at any time prior to the expiration of the 10-year term of
the option; (ii) in the case the Executive's employment is terminated by
death, the Executive's estate shall have the right following the date of
such death to exercise the option at any time prior to the expiration of
the 10-year term of the option; and (iii) in the case the Executive's
employment with the Company or its subsidiaries terminates for any
reason after the Executive attains age 62, all options may be exercised
by the Executive (or by the Executive's estate if the Executive dies
after termination after attaining age 62) at any time prior to the
expiration of the 10-year term of the option. For purposes of this
provision, the Executive's "estate" shall mean the Executive's legal
representative or any person who acquires the right to exercise an
option by reason of the Executive's death. Nothing herein shall serve to
modify or extend: (i) the 10-year term of the options issued to
Executive under the Option Plan; or (ii) the vesting schedule of the
options issued to Executive under the Option Plan.
2. All other provisions of the Agreement and any option agreements issued to the
Executive in accordance with the terms of the Option Plan shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Fourth Amendment as
of the dates indicated below, the effective date of this Fourth Amendment being
the 19th day of November, 2001.
COMPANY:
ATTEST: MICROS SYSTEMS, INC.
By: (SEAL)
- ----------------- ---------------------
Gary C. Kaufman
Executive Vice President,
Finance and Administration, and Chief
Financial Officer
[Corporate Seal]
EXECUTIVE:
WITNESS:
- ------------------ -------------------------
A. L. GIANNOPOULOS
18