As filed May 14, 2002
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, 2002
Commission file number 0-9993
MICROS SYSTEMS, INC.
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(Exact name of Registrant as specified in its charter)
MARYLAND 52-1101488
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(State of incorporation) (I.R.S. Employer
Identification Number)
7031 Columbia Gateway Drive, Columbia, Maryland 21046-2289
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 443-285-6000
------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
As of March 31, 2002, there were 17,525,688 shares of Common Stock, $0.025 par
value, outstanding.
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2002
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)
March 31, June 30,
2002 2001
--------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 39,822 $ 26,456
Accounts receivable, net of allowance for doubtful accounts
of $9,820 at March 31, 2002 and $7,508 at June 30, 2001 87,368 84,779
Inventories 31,765 28,547
Deferred income taxes 6,990 6,955
Prepaid expenses and other current assets 10,548 11,032
------ ------
Total current assets 176,493 157,769
Property, plant and equipment, net of accumulated depreciation and
amortization of $40,242 at March 31, 2002 and $35,366 at June
30, 2001 21,819 23,553
Deferred income taxes, non-current 23,662 23,573
Goodwill and intangible assets, net of accumulated amortization of
$24,731 at March 31, 2002 and $18,483 at June 30, 2001 33,475 35,182
Purchased and internally developed software costs, net of
accumulated amortization of $15,985 at March 31, 2002 and
$12,699 at June 30, 2001 31,091 31,529
Other assets 3,734 2,850
-------- --------
Total assets $290,274 $274,456
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $9,629 $4,659
Current portion of long-term debt 26 2,317
Current portion of capital lease obligations 121 131
Accounts payable 23,588 21,980
Accrued expenses and other current liabilities 32,918 35,417
Income taxes payable 2,060 5,200
Deferred income taxes 551 547
Deferred service revenue 36,757 26,874
------ ------
Total current liabilities 105,650 97,125
Long-term debt, net of current portion - 979
Capital lease obligations, net of current portion 278 252
Deferred income taxes, non-current 14,213 14,213
Other non-current liabilities 1,171 936
Commitments and contingencies
Minority interests 2,104 2,103
Shareholders' equity:
Common stock, $0.025 par; authorized 50,000 shares; issued and
outstanding 17,526 at March 31, 2002 and 17,475 at June 30, 2001 438 437
Capital in excess of par 57,385 56,515
Retained earnings 125,409 118,360
Accumulated other comprehensive loss (16,374) (16,464)
-------- --------
Total shareholders' equity 166,858 158,848
------- -------
Total liabilities and shareholders' equity $290,274 $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 March 31,
----------------------------
2002 2001
---- ----
Revenue:
Hardware and software $50,028 $42,958
Service 42,350 38,646
------ ------
Total revenue 92,378 81,604
------ ------
Costs and expenses:
Cost of sales
Hardware and software 27,720 20,932
Service 20,816 19,679
------ ------
Total cost of sales 48,536 40,611
Selling, general and administrative expenses 30,702 31,622
Research and development expenses 4,587 5,473
Depreciation and amortization 4,025 3,626
----- -----
Total costs and expenses 87,850 81,332
------ ------
Income from operations 4,528 272
Non-operating income (expense):
Interest income 165 278
Interest expense (106) (246)
Other income, net 991 20
--- --
Income before taxes, minority interests and equity in
net earnings of affiliates 5,578 324
Income tax provision 1,770 131
----- ---
Income before minority interests and equity in net
earnings of affiliates 3,808 193
Minority interests and equity in net earnings of
affiliates (123) (124)
----- -----
Net income $ 3,685 $ 69
======= ====
Net income per common share:
Basic $0.21 $0.00
===== =====
Diluted $0.21 $0.00
===== =====
Weighted-average number of shares outstanding:
Basic 17,516 17,373
====== ======
Diluted 17,888 17,497
====== ======
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)
Nine Months Ended March 31,
---------------------------
2002 2001
---- ----
Revenue:
Hardware and software $140,223 $125,654
Service 126,565 110,698
------- -------
Total revenue 266,788 236,352
------- -------
Costs and expenses:
Cost of sales
Hardware and software 78,475 62,113
Service 61,329 57,046
------ ------
Total cost of sales 139,804 119,159
Selling, general and administrative expenses 89,732 93,589
Research and development expenses 14,148 14,399
Depreciation and amortization 11,856 10,382
------ ------
Total costs and expenses 255,540 237,529
------- -------
Income (loss) from operations 11,248 (1,177)
Non-operating income (expense):
Interest income 678 762
Interest expense (533) (597)
Other income (expense), net 42 (1,541)
-- -------
Income (loss) before taxes, minority interests and
equity in net earnings of affiliates 11,435 (2,553)
Income tax provision (benefit) 3,996 (1,034)
----- -------
Income (loss) before minority interests and equity in
net earnings of affiliates 7,439 (1,519)
Minority interests and equity in net earnings of
affiliates (390) (295)
------- ---------
Net income (loss) $ 7,049 $ (1,814)
======= =========
Net income (loss) per common share:
Basic $0.40 $(0.10)
===== =======
Diluted $0.40 $(0.10)
===== =======
Weighted-average number of shares outstanding:
Basic 17,504 17,356
====== ======
Diluted 17,785 17,356
====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
5
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(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 -- -- -- 7,049 -- 7,049
Foreign currency translation adjustments -- -- 90 90
--------
Total comprehensive income -- -- -- -- -- 7,139
Stock issued upon exercise of options 51 1 743 -- -- 744
Income tax benefit from stock options exercised -- -- 127 -- -- 127
-- -- --- -- -- ---
------ ---- ------- -------- --------- --------
Balance, March 31, 2002 17,526 $438 $57,385 $125,409 $(16,374) $166,858
====== ==== ======= ======== ========= ========
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)
Nine Months Ended March 31,
---------------------------
2002 2001
---- ----
Net cash flows provided by operating activities: $20,768 $13,017
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (3,950) (6,745)
Proceeds on dispositions of property, plant and equipment 66 --
Internally developed software (2,461) (7,214)
Proceeds from settlement 200 --
Purchase of equity interest in investees (51) (214)
Net cash paid for acquisitions, minority interests and contingent
earn-out payments (3,832) (11,691)
------- --------
Net cash used in investing activities (10,028) (25,864)
-------- --------
Cash flows from financing activities:
Principal payments on line of credit (10,346) (4,160)
Principal payments on long-term debt and capital lease obligations (3,602) (677)
Proceeds from lines of credit 15,807 17,021
Proceeds from issuance of stock 744 350
--- ---
Net cash provided by financing activities 2,603 12,534
----- ------
Effect of exchange rate changes on cash 23 (211)
-- -----
Net increase (decrease) in cash and cash equivalents 13,366 (524)
Cash and cash equivalents at beginning of period 26,456 26,211
------ ------
Cash and cash equivalents at end of period 39,822 $25,687
====== =======
The accompanying notes are an integral part of the consolidated financial
statements.
7
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 2002
(Unaudited, in thousands, except per share data)
1. Inventories
The components of inventories are as follows:
March 31, June 30,
2002 2001
------------------ -----------------
Raw materials $ 6,234 $ 3,736
Work-in-process 1,762 445
Finished goods 23,769 24,366
------------------ -----------------
$ 31,765 $ 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 supersedes 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 March 31, 2002
(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 March 31, Nine Months Ended March 31,
2002 2001 2002 2001
---- ---- ---- ----
Net income (loss) $ 3,685 $ 69 $7,049 $(1,814)
======= ==== ====== =======
Average common shares outstanding 17,516 17,373 17,504 17,356
Dilutive effect of outstanding stock options 372 124 281 --
------ ------ ------ ------
Average common shares outstanding assuming dilution
17,888 17,497 17,785 17,356
====== ====== ====== ======
Basic net income (loss) per share $ 0.21 $0.00 $ 0.40 $ (0.10)
====== ===== ====== ========
Diluted net income (loss) per share $ 0.21 $0.00 $ 0.40 $ (0.10)
====== ===== ====== ========
For the three and nine-month periods ended March 31, 2002, 1,562
options and 2,003 options, respectively, were excluded from the above
reconciliation as these options were anti-dilutive for these periods.
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.
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 March 31, Nine Months Ended March 31,
2002 2001 2002 2001
---- ---- ---- ----
Revenues (1):
United States $52,533 $45,895 $151,662 $131,218
International 50,464 44,779 151,190 136,917
Intersegment eliminations (10,619) (9,070) (36,064) (31,783)
-------- ------- -------- --------
Total revenues $92,378 $81,604 $266,788 $236,352
======= ======= ======== ========
Income (loss) before taxes, minority interests,
and equity in net earnings of affiliates (1):
United States $(1,185) $(3,969) $(8,432) $(15,466)
International 13,885 9,724 42,947 32,008
Intersegment eliminations (7,122) (5,431) (23,080) (19,095)
------- ------- -------- --------
Total income (loss) before taxes, minority
interests, and equity in net earnings of
affiliates $5,578 $324 $11,435 $(2,553)
====== ==== ======= ========
March 31, June 30,
2002 2001
---- ----
Identifiable assets (2):
United States $147,247 $145,568
International 143,027 128,888
Intersegment eliminations -- --
-------- --------
Total identifiable assets $290,274 $274,456
======== ========
(1) Amounts based on the location of the customer.
(2) Amounts based on the location of the selling entity.
9
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2002
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 diluted net income of $0.21 per common share in the
third quarter of fiscal 2002, compared with a breakeven net income per common
share in the third quarter of fiscal 2001. For the nine-months ended March 31,
2002, diluted net income was $0.40 per common share compared with a net loss of
$0.10 per common share for the nine-months ended March 31, 2001. The quarter and
year to date increase was mainly due to increased sales volume and a decrease in
operating expenses.
Revenue increased by $10.8 million or 13.2% to $92.4 million for the third
quarter of fiscal 2002 compared to the same period last year. For the first nine
months of fiscal year 2002, revenue increased $30.4 million or 12.9% to $266.8
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 Nine Months Ended
March 31, March 31,
2002 2001 2002 2001
---- ---- ---- ----
Hardware 37.6% 33.4% 36.3% 35.8%
Software 16.5% 19.2% 16.3% 17.4%
Service 45.9% 47.4% 47.4% 46.8%
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
In absolute dollars, combined hardware and software revenues for the third
quarter of fiscal 2002 increased $7.1 million, or 16.5%, and service revenues
increased $3.7 million, or 9.6%, over the same period a year earlier. On a year
to date basis, combined hardware and software revenues increased $14.6 million,
or 11.6%, and service revenues increased $15.9 million, or 14.3%, 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. The year to date increase is also attributed to software sales for
Opera, which was released in June 2001. Part of the volume increase for PC
Workstations is related to a large roll-out program. As the roll-out is
completed, the sales volume in PC Workstations may decrease. 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 52.5% for the third
quarter of fiscal year 2002 from 49.8% for the third quarter of fiscal 2001. For
the first nine months of fiscal year 2002 and 2001, cost of sales, as a
percentage of revenue, was 52.4% and 50.4%, respectively.
Cost of sales for hardware and software products, as a percentage of
related revenue, was 55.4% in the third quarter of fiscal 2002 compared to 48.7%
for the same quarter a year earlier, and 56.0% compared to 49.4% for the first
nine months of fiscal year 2002 and 2001, respectively. For the quarter and year
to date, the increase, as a percentage of revenue, was primarily due to the
increased volume of hardware sales (PC Workstations), which generate lower
margins. The year to date increase is also attributable to the increase in
software amortization from the release of Opera in June 2001.
Service costs, as a percentage of service revenue, decreased to 49.2% in
the third quarter of fiscal 2002 compared to 50.9% in the same quarter in fiscal
2001. In the first nine months of fiscal year 2002, service costs, as a
percentage of service revenue, decreased to 48.5% compared to 51.5% 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 productivity by increasing service revenues
at a rate in excess of service costs.
Selling, general and administrative expenses decreased $0.9 million, or
2.9%, in the third quarter of fiscal 2002 compared to the same period last year.
As a percentage of revenue, selling, general and administrative expenses
decreased to 33.2% in the third quarter of fiscal 2002 compared to 38.8% in the
third quarter of fiscal 2001. For the nine months ended March 31, 2002, selling,
general and administrative expenses, as a percentage of revenue, was 33.6%
compared to 39.6% for the same
10
period last year. The quarter and year to date decreases were primarily due to
strategic cost reductions, including cost savings from the reduction of
headcount in fiscal 2002.
Research and development expenses (exclusive of capitalized software
development costs), which consist primarily of labor costs, decreased $0.9
million, or 16.2%, in the third quarter of fiscal 2002 compared to the same
period a year earlier. Total research and development expenditures, including
capitalized software development costs of $0.7 million in the third quarter of
fiscal 2002 and $2.5 million in the third quarter of fiscal 2001, decreased $2.7
million, or 33.7%, compared to the same period a year earlier. For the first
nine months of fiscal year 2002, research and development expenses (exclusive of
capitalized software development costs), which consist primarily of labor costs,
decreased $0.3 million, or 1.7% compared to the same period a year earlier.
Total research and development expenditures, including capitalized software
development costs of $2.5 million in the first nine months of fiscal 2002 and
$7.2 million in the first nine months of fiscal 2001, decreased $5.0 million, or
23.1%, compared to the same period a year earlier. Total research and
development expenditures (including capitalized software development) decreased
for both the quarter and year to date primarily due to the reduction of
headcount and outside consultants used to develop Opera.
Income from operations for the third quarter of fiscal 2002 was $4.5
million, or 4.9% of revenue, compared to income of $0.3 million, or 0.3% of
revenue, in the third quarter of fiscal 2001. For the first nine months of
fiscal year 2002, income from operations was $11.2 million compared to a loss of
$1.2 million a year earlier. The increase in the third quarter and year to date
is primarily due to higher sales volume, increased service margins and a
reduction of operating expenses.
Non-operating income increased from $0.1 million for the third quarter of
fiscal 2001 to $1.1 million in the third quarter of fiscal 2002. For the first
nine months of fiscal year 2002, non-operating income was $0.2 million compared
to non-operating expense of $1.4 million in the prior year. The Company
experienced foreign currency translation gain of $0.9 million in the third
quarter of fiscal 2002 compared to a loss of $0.4 million in the third quarter
of fiscal 2001. On a year to date basis, the Company experienced foreign
currency translation gain of $0.1 million in fiscal 2002 compared to a loss of
$1.7 million in fiscal 2001.
The effective tax rate for the third quarter of fiscal year 2002 and 2001
was 31.7% and 40.4%, respectively, while the effective tax rate for year to date
of fiscal year 2002 and fiscal 2001 was 34.9% and 40.5%, respectively. The
decrease in the effective tax rate is primarily due to the utilization of
foreign net operating losses, tax savings due to the creation of Micros-Fidelio
Ireland and a decrease in foreign tax rates. The Company anticipates the
effective tax rate to remain in the mid 30s percentile by fiscal year-end.
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 adverse 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
March 31, 2002, 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 has and, to the extent legally required, will continue to address
Euro related issues and its impact on information systems, currency exchange
rate risk, taxation, contracts, competition, and pricing. To the best knowledge
of the Company, action plans implemented to date result in compliance with
current 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.
11
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 March
31, 2002, there are balances outstanding of US $7.0 million, AUD (Australian
Dollar) 0.5 million (approximately US$0.3 million at the March 31, 2002 rate),
ZAR (South African Rand) 14.6 million (approximately US$1.3 million at the March
31, 2002 exchange rate), and JPY (Japanese Yen) 140.0 million (approximately
US$1.1 million at the March 31, 2002 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 $6.7 million at the March 31, 2002
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 March 31, 2002, the Company
had no borrowings under this credit facility.
Net cash provided by operating activities for fiscal 2002 was $20.8 million.
The Company used $10.0 million for investing activities in fiscal 2002,
including $6.4 million for the purchase of property, plant, and equipment and
internally developed software and $3.8 million for earn-out payments and
acquisition-related costs. Net cash provided by financing activities for fiscal
2002 was $2.6 million. The cash position of the Company at March 31, 2002 was
$39.8 million. All cash is being held for the operation and expansion of the
business and the repurchase of the Company's stock.
The Company anticipates that its cash flow from operations along with
available lines of credit, in conjunction with other lines of credit for which
the Company may be eligible or lines of credit to be renewed 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 $5.0
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. As a result 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. This is
especially true given the disproportionately adverse impact terrorism has had on
the hospitality industries that the Company serves. 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
Exchange 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 those
recently experienced in Argentina and Venezuela; 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.
12
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2002
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 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 26 different currencies through its foreign subsidiaries. The fluctuation of
currencies impacts sales and profitability. Frequently, sales and the costs
associated with such sales are not always denominated in the same currency.
Given the fact that the Company transacts business in many different currencies,
adverse declines in certain currencies can be offset by favorable advances in
other currencies.
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 and Venezuela. 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.
13
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2002
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 through 4
No events occurred during the quarter covered by the report that would
require a response to these items.
Item 5. Other Information
On April 25, 2002, by unanimous consent, the Company's Board of
Directors approved the repurchase of Company common shares in the open market,
from time to time, in accordance with applicable law. Specifically, the Board
authorized the Company to purchase no more than 1,000,000 shares in the
aggregate, over a 3-year period commencing April 25, 2002. The timing, volume
and pricing of all such stock purchases shall be made at the discretion of the
Company as market and business conditions may warrant.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K - None
14
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2002
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, 2002 /s/ Gary C. Kaufman
- ------------ ---------------
Executive Vice President,
Finance and Administration/
Chief Financial Officer
May 14, 2002 /s/ Cynthia A. Russo
- ------------ ----------------
Cynthia A. Russo
Vice President and Corporate Controller
15