UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended June 30, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From ____________to__________
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 or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.025 per share
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(Title of Class)
Indicate by a 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 reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K /X/
At the close of business on August 31, 2002, there were issued and
outstanding 17,453,164 shares of Registrant's Common Stock at $.025 par value.
At such time the aggregate market value of the Registrant's Common Stock held by
nonaffiliates of the Registrant was $426,031,733.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2002 Annual Meeting of
Shareholders, currently scheduled to be held on November 15, 2002, and to be
filed with the Commission pursuant to Regulation 14A of the Securities Exchange
Act of 1934, are incorporated by reference in Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
INTRODUCTION
MICROS Systems, Inc. was incorporated in the State of Maryland in 1977 as
Picos Manufacturing, Inc. and, in 1978, changed its name to MICROS Systems, Inc.
(References to "MICROS" or the "Company" herein include the operations of MICROS
Systems, Inc. and its subsidiaries on a consolidated basis). MICROS is a leading
worldwide designer, manufacturer, marketer and servicer of enterprise
information solutions for the global hospitality industry. The information
solutions consist of application specific software and hardware systems,
supplemented by a wide range of services. The hospitality industry includes
numerous defined market segments such as lodging (including individual hotel
sites, hotel central reservation systems and customer information systems),
table service restaurants, quick service restaurants, entertainment venues such
as stadiums and arenas, business foodservice operations, casinos, transportation
foodservice, government operations and cruise ships.
MICROS's enterprise solutions comprise two major areas: (1) hotel
information systems and (2) restaurant information systems. In addition to its
software enterprise solutions and hardware products, MICROS offers an extensive
array of support services and products for its hotel and restaurant information
systems. The hotel information systems consist of software encompassing property
management systems ("PMS"), sales and catering systems ("S&C"), central
reservation systems ("CRS"), and customer information systems ("CIS"). The
restaurant information systems consist of hardware and software for
point-of-sale ("POS") and operational applications, and a suite of back office
applications, including inventory, labor, and finance management.
The Company's PMS are installed worldwide in leading hotel chains such as
Marriott International, Six Continents (formerly Bass Hotels), Radisson, Hilton
International (United Kingdom), Hyatt International, Wyndham, Starwood, Four
Seasons (Canada), Concorde (France), Thistle (United Kingdom), Federal
(Australia), Kempinski (Germany), Mandarin Oriental (Hong Kong), Movenpick
(Switzerland), Peninsula (Hong Kong), Ramada Europe, Shangri-La International
(Hong Kong), Swissotel (Switzerland) and Steigenberger (Germany). Worldwide,
there are currently over 11,350 MICROS PMS installations.
The MICROS CRS is installed in numerous hotel chains such as Best Western
International, Four Seasons, Wyndham, Concorde, Equatorial (Malaysia),
MacDonalds (United Kingdom), Oberoi (India), Pan Pacific (Singapore), Rydges
(Australia), Sokos (Finland), Starhotels (Italy), Sun International (South
Africa), Thistle, Tourast (Australia) and Vagabond Inns.
The MICROS CIS is installed in numerous hotel chains such as Four Seasons,
Wyndham, Concorde, Equatorial, First, Scandic (Sweden), Peninsula, Hilton
International, Rydges, Shangri-La, Sokos, Sorat (Germany), Starhotels, Sun
International, Tourast, Taj (India), Oberoi and Pan Pacific.
MICROS's restaurant POS systems are installed worldwide. Major table
service restaurant chain customers include T.G.I. Friday's, Cracker Barrel,
Metromedia Restaurant Group, Brinker International, International House of
Pancakes, Bertucci's, Perkins, Don Pablo's, La Madeleine, El Torito, Eat 'N
Park, Host Services, Six Continents Retail, Hooters, Ruby Tuesday's, Hard Rock
Cafe, Corporacion Mexicana de Restaurantes (Mexico), and Whitbread PLC (United
Kingdom). Major quick service chain restaurant ("QSR") customers include
numerous franchisees of Burger King, Arby's, El Pollo Loco, El Pollo Campero
(Guatemala), various franchisees of Yum! Brands (Pizza Hut, KFC International,
and Taco Bell), Atlanta Bread, Baja Fresh, Grandy's, Red Rooster (Australia),
Panera Bread, Subway, and Wendy's. Most of MICROS's QSR installations are with
franchisees.
MICROS's restaurant POS systems are also installed in hotel restaurants in
chains such as Marriott International, Hilton International, Starwood, Hyatt,
Six Continents, Hilton, Swissotel, Mandarin Oriental, Radisson, Fairmont
(Canada), and Ritz-Carlton. Additional significant markets for the Company's POS
systems include complex foodservice environments such as casinos, cruise ships,
sports arenas, airport concourses, theme parks, recreational centers,
institutional food service organizations and specialty retail shops. Users
include Aramark,
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Anton's, Host Marriott, various government entities, and Delaware North. The
Company has installed large POS systems in the Foxwood Hotel and Casino
(Ledyard, CT), Grand Casino (Australia), Atlantis (Bahamas), Sun City (South
Africa), Harrah's Casinos, Luxor Hotel and Casino, MGM Grand Hotel Casino and
Theme Park, Mirage Casino, Bellagio and The Venetian, the latter five casinos
being located in Las Vegas, Nevada.
MICROS also markets both hotel and restaurant POS systems that it acquired
as part of the acquisition of assets of Hospitality Solutions International,
Inc. ("HSI") in October 2000. The HSI hotel and restaurant systems products are
both Windows(R) based software products that run on personal computers ("PCs").
Additionally, MICROS is marketing and further developing a POS product that it
acquired via the stock purchase of Indatec GmbH and Co. KG ("Indatec") in
January 2001. The Indatec product is a proprietary based POS system with
embedded software. Currently, the Indatec product is sold exclusively in Europe
and is targeted to small restaurants and hotels.
PRODUCTS AND SERVICES
Hotel Information Systems
For the hotel marketplace, MICROS develops, markets and distributes a
complete line of hotel software products and services. The hotel information
systems include property management systems, sales and catering systems, central
reservation systems, customer information systems, revenue management systems
("RMS"), an Internet based hotel reservation service called myfidelio.net
(formerly named hotelBANK), and installation and support services associated
with the various product sets. The PMS software provides for reservations, guest
accounting, sales and catering applications, travel agent accounting,
engineering management, and interfaces to central reservation and global
distribution systems. The S&C software enables hotel sales staff to evaluate,
reserve and invoice meetings and related events for a property. The CRS software
allows hotels to coordinate, process, track, and analyze hotel room reservations
at a central facility for electronic distribution to the appropriate lodging
site. The CIS software allows hotels to efficiently capture and track relevant
information of guests. The RMS software allows hotels to manage room rates,
occupancy, and the mix of business between corporate and transient customers.
The software systems run on PCs. MICROS also offers an Internet based hotel
reservation service through its subsidiary called myfidelio.net. This
subsidiary's service enables corporations, tourist representation services and
consumers to create room reservations directly with designated hotels, thereby
bypassing third party reservation systems.
MICROS markets its hotel products under the MICROS-Fidelio brand name. The
systems run on industry standard Intel(R)-based PCs. In June 1997,
MICROS-Fidelio introduced a version of the MICROS-Fidelio Suite, called Version
7.0, which utilizes the Microsoft Windows(R) graphical user interface and an
Oracle database. To date, over 2,800 sites are installed with Version 7.0. A
DOS-based version of the Fidelio Front Office, Version 6.0, is still marketed
and has over 7,000 sites installed. For smaller properties, MICROS markets a
system called FidelioXpress that is designed for smaller lodging sites. To date,
over 550 sites are installed with FidelioXpress. MICROS has over 11,350
installations worldwide of all versions of its PMS in both international hotel
chains and independent hotel/resort properties. The Front Office PMS product is
closely integrated with MICROS POS systems for hotel table service restaurants.
MICROS markets a specialized version of its Fidelio PMS product to the
cruise industry via its subsidiary Fidelio Cruise. The Fidelio Cruise PMS
enables cruise ships to manage their reservations and on-board operational needs
including check-in and check-out, point-of-sale, passenger and crew
administration, invoicing, maintenance tracking and passport document
management. Over 100 cruise ships are installed by Fidelio Cruise. Customers
include Radisson Seven Seas, Princess Cruises, P. & O. Cruises, Holland America
and Norwegian Cruise Lines.
MICROS introduced a new complete hotel software suite in fiscal 2001
called Opera. The Opera suite development started in 1996. Opera includes
modules for property management, central reservations, customer information
systems, sales and catering, revenue management, and quality management. Opera
is designed to run on PCs and large PC based servers. All the products are
designed to share a common Oracle database. Opera will run under these three
operating systems: Microsoft Windows(R) (NT, 2000 and XP), IBM AIX, and Sun
Solaris. The Opera software suite is deemed an important product line for
MICROS's continued growth in the hotel information systems market. As of June
30, 2002, various modules of Opera were installed in over 325 hotel sites.
The next generation product for European users of Fidelio Version 6.0 and
7.0 users, named Version 8.0, is being developed in Hamburg, Germany. This
product will contain certain Internet based features and utilize the Windows(R)
operating system with an Oracle database. The product is targeted for release in
fiscal 2003, and designed to meet the needs of independent hotel operators based
in Europe. The product's feature set is positioned
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for smaller to mid-size hotels.
Additionally, MICROS has entered into a partnership with Systems Union
Group Plc, headquartered in London. This partnership involves the joint product
development and marketing of application software based on Systems Union's back
office accounting applications. The purpose of the relationship is to enable
MICROS to offer a hotel customer a complete suite of integrated software
solutions that encompasses operational needs and back office accounting and
reporting. As part of this partnership, MICROS serves as a preferred reseller of
Systems Union's software and business solutions.
As part of MICROS's acquisition of the assets of HSI, the Company secured a
PMS product called Jaguar. Jaguar is a PC based PMS system targeted at smaller
lodging sites, both independent and chains. It has an installed base of over 500
sites.
Restaurant Information Systems
MICROS's restaurant systems include POS application software, encompassing
transaction control, restaurant operations, accounting data, interfaces to other
systems, communications, and hardware and support services. Depending on the
products installed, the systems run on either proprietary hardware terminals or
PCs.
The Company's restaurant POS systems for the table service/leisure and
entertainment markets are the 8700 Hospitality Management System ("HMS"), the
9700 HMS, the 3700 POS system, HSI POS, Indatec, the 2700 HMS and the 2800 HMS.
For the quick service market, MICROS offers the 3700 POS System and the 2400
Fast Food System ("FFS").
The Company also offers the MICROS PC Workstation ("PCWS"), named the
Eclipse, which is an Intel(R)-based microprocessor personal computer, for sale
in both hospitality and non-hospitality markets. The Eclipse was released in
June 2001 and serves as the replacement for an earlier PCWS named Ultra. The
PCWS is a specialized point-of-sale computer designed to withstand the rigors of
a restaurant environment. Sanmina-SCI Corporation ("SSCI") manufactures the
MICROS Eclipse PCWS in its Lynchburg, Virginia plant. It is a color touchscreen
based system that offers both passive and active matrix display options. MICROS
resells various hardware products such as personal computers, printers, network
cards, and other related computer equipment. MICROS signed an agreement with
Hewlett Packard Corporation in fiscal 2000 in which Hewlett Packard was
designated as a non-exclusive preferred provider of personal computers,
printers, and networking equipment on a global basis. Sales under this
relationship began in fiscal 2001. MICROS is designing a new POS terminal,
called User Workstation IV, that is scheduled to be introduced in the second
half of fiscal year 2003. This product is a thin-client point of sale terminal
with standalone resiliency. This capability means that if the system server
shuts down that the POS terminal can continue to function and store data until
the server is operational.
The 8700 HMS, released in September 1993, and since upgraded to add new
features and functionality in subsequent releases, is designed for table service
and quick service restaurants in hotels, resorts, casinos, airports,
stadiums/arenas, theme parks and larger independent and chain restaurants. The
8700 HMS product has an open systems architecture which allows its use on a PC
as the server with the order entry terminals being either the Company's
proprietary order entry POS terminal hardware or MICROS PCWS. The 8700 HMS
utilizes the SCO UNIX operating system, which permits multi-tasking and
multi-user operations. This architecture gives it the ability to manage any size
restaurant or food service operation.
The Company introduced the next generation version of the 8700 HMS in
fiscal 2001, named the 9700 HMS. This product incorporates the feature set of
the 8700 HMS, but runs on Microsoft's Windows(R) 2000 operating system, and
possesses additional features and functionality, including additional reporting
tools.
The 3700 POS, released in October 1996, is designed for table service
restaurants. It has an open systems architecture as it operates under
Microsoft's Windows(R) 2000 operating system, utilizes either Microsoft's SQL or
Sybase's relational databases, and runs on industry standard Intel(R)-based PCs.
It utilizes a touchscreen, with the Microsoft Windows(R) based graphical user
interface.
The 2700 HMS, of which the first version was released in March 1989, is a
stand-alone intelligent terminal designed for table service restaurants, both
large and small. The 2700 HMS, available in both an entry level and
premium-configured platform, relies on proprietary terminal architecture and
interfaces with Microsoft's DOS/Windows(R), PC back office software systems. The
2700 HMS Touchscreen System, released in September 1991, combines touchscreen
technology with the Company's 2700 HMS POS system. In 1999, the 2800 HMS was
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released. The 2800 HMS gives the 2700 HMS system the ability to utilize the
restaurant operations software developed for the 3700 POS.
During fiscal 1999, MICROS introduced the Restaurant Enterprise Series
("RES") software suite, now called the RES 3000. RES is a software suite of
products that encompasses point-of-sale transaction control, restaurant
operations (labor scheduling, time and attendance and financial management),
data analysis, and communications. The POS software comprises the front-end
application for the 3700 and 2800 POS systems. The restaurant operations modules
constitute the Enterprise Office suite. The software modules include inventory,
product forecasting, labor management, financial management, and enterprise data
management. These modules are designed to operate at a restaurant site. For
management of multiple restaurants, the RES includes a suite of software
products called Enterprise Management. This suite allows for data to be
transmitted to a remote site (including a corporation's headquarters) for data
collection and analysis. Additionally, changes such as pricing and menus can be
made at a remote site and downloaded to specified restaurant locations. The
Restaurant Enterprise Series is an important component of MICROS's strategy to
fully integrate point-of-sale transaction processing with other restaurant
operational and management functions.
For quick service restaurants, MICROS markets the 2400 FFS and the 3700
POS. The 2400 FFS, released in October 1991, features a proprietary, networked
intelligent terminal architecture. The system's application software addresses
quick service requirements in the areas of order entry, drive-thru operations,
inventory tracking, employee timekeeping/labor tracking and data communications
and produces a variety of management reports through an interface with back
office, PC based software systems. MICROS offers a back office management
information systems software package called the 2400 Manager Workstation Plus
("MWS+"). The MWS+ software is a PC-based software product that provides for
management analysis of sales and operational trends at quick service
restaurants, both at the store and corporate levels. The product also integrates
POS functions with in-store back office, regional and home office management
information system functions. The RES 3000 incorporates new software features
required by the QSR industry. The addition of the RES 3000 allows MICROS to
offer QSR customers a PC based, Windows(R) 2000 operating system POS
architecture.
In fiscal 2001, MICROS made a minority investment in Vivonet, Inc., a
Vancouver, Canada based privately held software development company. The
investment was in the form of both equity and convertible debentures. As part of
the minority investment, MICROS secured exclusive distribution rights for the
global hospitality industry to distribute Vivonet's web-based POS system. MICROS
introduced this product, named iPOS, in fiscal 2002. In fiscal year 2003, MICROS
shall receive a perpetual, royalty-free, exclusive (for the hospitality
industry) license to iPOS, and shall thereafter assume full development and
control of this product. Development will be conducted in MICROS's Columbia,
Maryland headquarters building. MICROS will maintain its equity interest in
Vivonet which, on a fully diluted basis, is approximately 5%.
In addition, MICROS developed and introduced an Internet based portal
product called "mymicros.net" during fiscal year 2002. Mymicros.net posts store
transaction POS detail to a centralized data warehouse in near real time. This
allows the customer to view reports and charts for single store, a group, or the
entire enterprise from anywhere that has an Internet connection. In fiscal year
2003, MICROS will introduce a web-based labor scheduling product for inclusion
in mymicros.net. The mymicros.net software product can either be purchased via a
license to use or by an annual or multi-year subscription contract.
MICROS is marketing the HSI POS product primarily to table service
customers in North America via a direct sales force. The product's functionality
is similar to the MICROS RES 3000. A portal called "myhsi.net" was introduced in
fiscal year 2002. The product's functionality is similar to the mymicros.net
portal and is designed for the HSI POS product. MICROS plans on continuing the
development of the HSI POS product, which serves effectively certain niches of
the hospitality industry.
The Indatec product is being marketed to smaller table service restaurants
and small hotels with restaurants in Europe that do not require the higher-level
functionality of MICROS POS products. These smaller restaurants require a lower
cost product in terms of purchase and installation expense, a market niche that
the Indatec product is designed to serve.
The Company's design architecture allows existing users of many MICROS POS
products to access new technologies and applications in conjunction with their
existing MICROS POS system. In addition, many MICROS products interface with
various back office accounting and property management systems, including the
Company's hotel PMS products.
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Services
MICROS provides a wide range of service products and services to its
customers. Products include spare parts, media supplies (ribbons, paper, etc.),
network products, active power-line conditioners and uninterruptible power
supplies. Services include installation, operator and manager training, on-site
hardware maintenance, customized software development, application software
support, credit card software support, systems configuration, network support
and consulting. MICROS also now offers a software hosting capability as part of
the mymicros.net service. This service allows customers to access mymicros.net
without investing in hardware and a network. The customer may either purchase a
license to use the software, or subscribe to mymicros.net for a fixed term under
a multi-year contract.
MICROS provides field hardware and software maintenance via a
combination of its direct and indirect (authorized U.S. dealers and
international distributors) channels. The field hardware maintenance is provided
mainly to customers using MICROS POS hardware and software systems. MICROS may
contract with various PC manufacturers to provide either first or second line
support for PC servers for both hotel and restaurant customers. Maintenance
contracts are an important and growing part of MICROS's revenue.
MICROS operates a help desk seven days a week, 24 hours per day (7/24) in
its Columbia, Maryland headquarters. This central support operation receives
support calls from customers and addresses them on-line or dispatches a service
call to the appropriate local service provider. Internationally, in-country
support is provided by the local sales entity, whether it be a MICROS subsidiary
or distributor. MICROS maintains regional support centers in Neuss, Germany,
Buenos Aires, Argentina and Sydney, Australia. MICROS's corporate customer
service provides back-up support for its regional centers. Customer support for
myfidelio.net is centered in Hamburg, Germany, the site of the subsidiary's
product development operations. MICROS's HSI division maintains a 7/24 call
center in Phoenix, Arizona to support its hotel and restaurant products.
In fiscal 2002, MICROS made a decision to open a call center in Galway,
Ireland. This center will become operational in fiscal 2003 and will serve as
the software support call center for all MICROS POS and Fidelio installations in
the United Kingdom and as the sales center for all hotel software in this
geographical area. The new center will replace MICROS's current United Kingdom
call center currently located in Slough, England.
MICROS believes that its services are an important competitive factor and
differentiator in customer purchasing decisions. Service revenue, which
comprises programming, installation, training, in-field support and help-desk
maintenance, constituted approximately 47% ($172.6 million) of MICROS's total
revenues in fiscal 2002, 47% ($154.8 million) in fiscal 2001 and 40% ($143.3
million) for fiscal 2000.
An important component of MICROS's service offerings are maintenance
service contracts that encompass field and depot hardware maintenance and
software support. Most service maintenance contracts are annual contracts that
will automatically renew for a one-year renewal term unless either party tenders
timely notice of non-renewal. Service maintenance contracts were $99.5 million
for fiscal 2002, $87.0 million for fiscal 2001 and $65.7 million for fiscal
2000. Service maintenance contract revenue is included in the service revenue
for the Company.
SALES, MARKETING AND DISTRIBUTION
The Company considers its direct and indirect global distribution network a
major strength. This network has been built over the past 25 years. The Company
(including its various subsidiaries), its U.S. based dealers, and international
distributors work closely together in seeking to identify new customers,
products, services and markets, as well as to serve the Company's existing
customer base with enhanced products and services.
The Company's products are sold primarily through three channels: (i) the
Direct Sales Channel, comprised of the Company's sales distribution network
consisting of approximately 46 wholly or majority owned subsidiaries and sales
offices, (ii) the MICROS Major Accounts program directed to designated regional,
national, and international customers; and (iii) the Indirect Sales Channel, an
independent sales distribution network consisting of approximately 66 domestic
dealers and 60 international distributors.
Foreign sales, including export sales from the United States, accounted for
approximately 48% ($176.7 million) of the Company's total revenue in fiscal
2002, 47% ($154.7 million) in fiscal 2001 and 53% ($190.9 million) of the
Company's total revenue in fiscal year 2000.
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RESEARCH AND DEVELOPMENT
The products sold by the Company are subject to rapid and continual
technological change. Accordingly, the Company must continually develop
innovative systems incorporating the newest technologies. Products available
from the Company, as well as those from its competitors, have increasingly
offered a wider range of features and capabilities.
The Company conducts its core POS product software and hardware development
at its Columbia, Maryland corporate headquarters. To facilitate rapid responses
for various regional application needs outside the United States, MICROS also
conducts POS software development in its subsidiaries located in Phoenix,
Arizona, Singapore, Sydney, Australia, Hamburg, Neuss and Bernau am Chiemsee,
Germany. In addition, the Company continually examines and evaluates software
and hardware products and designs created by third parties and has acquired and
may in the future acquire ownership or licensing rights to such products and
designs.
In fiscal 1998, MICROS started using the hardware design services of SSCI.
This outsourcing allowed the Company to reduce its internal staff of designers
while increasing its capacity to design new hardware platforms. MICROS still
retains an in-house design capability in Columbia, Maryland. See also
Manufacturing in Part I of this Form 10-K.
MICROS-Fidelio's hotel PMS, S&C, CRS, and CIS development is primarily
conducted in Naples, Florida. MICROS maintains close relationships with major
software operating and database companies such as Oracle, Novell, Sybase, and
Microsoft. These relationships are important to MICROS so it can readily
incorporate software changes from these companies into its products. MICROS's
international offices may also conduct specific product enhancement activities
to meet specific interface needs, local requirements, and customer requests.
Product development for MICROS's myfidelio.net subsidiary is conducted in
Hamburg, Germany. The operational headquarters for myfidelio.net resides in
Stockholm, Sweden.
Research and development expenses (exclusive of capitalized software
development costs), which consist primarily of labor costs, amounted to $19.3
million, $19.7 million, and $17.6 million for fiscal years 2002, 2001 and 2000,
respectively. Actual research and development expenditures, including
capitalized software development costs of $3.0 million, $8.9 million, and $8.2
million for fiscal years 2002, 2001 and 2000, respectively, amounted to $22.3
million, $28.6 million, $25.8 million for fiscal years 2002, 2001 and 2000,
respectively.
COMPETITION
The Company believes that its competitive strengths include its established
global distribution and service network, its ability to offer a broad array of
hardware, software and service products to the hospitality industry and its
corporate focus on providing information systems solutions principally to the
hospitality industry.
The markets in which the Company operates are highly competitive. MICROS
competes on the basis of various factors, including product functionality,
service capabilities, price and geography. There are at least 40 competitors
worldwide that offer some form of sophisticated POS system similar to the
Company's and over 100 hotel systems competitors. Competitors in the POS
marketplace include full service providers such as Aloha, Infogenesis, NCR, Par
Technology, Panasonic, POSitouch, Radiant Systems, Sharp, Squirrel, Tridex,
Vectron AG, and hardware providers such as Aspeon, IBM, and NCR, who market
their products in conjunction with independent software vendors. There are also
numerous companies that license their POS-oriented software with PC-based
systems in regional markets around the world.
Many of the over 100 competitors in the hotel systems market are companies
with software designed to run on industry standard PCs. These companies may have
several hotel related software products, or simply one product for a particular
niche. These competitors include Daylight Software, MAI Systems, Multi-Systems,
Newmarket, Optims, Pegasus, Springer-Miller, and property management systems
developed and marketed by major hotel chains for their corporate-owned
operations and franchisees. Internationally, MICROS generally faces smaller,
regionally oriented competitors.
The CRS market is highly fragmented, with most central reservation systems
being customized systems for each hotel chain or allied reservation group. The
competitors in this market consist of in-house development efforts by chains,
property management competitors such as Pegasus and Springer-Miller, and
specialized central reservation providers such as Lexington Services, VIP
International Corp. and WizCom International/Trust
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International (subsidiaries of Cendant). The market for central reservation
systems is highly competitive.
MICROS believes that the CIS market has various competitors. Those that
offer such a product are generally smaller companies targeting specialized
segments of the market. However, most of the systems in place today are
customized solutions developed by specific chains for their own use. These
customized systems are thus not marketed to other hotel chains. The CIS market
is relatively young and untested, and thus the future growth and direction of
such is uncertain.
MANUFACTURING
The Company's manufacturing program seeks to maintain flexibility and
reduce costs by emphasizing the strategic outsourcing of key products and
subassemblies. Pursuant to a contract with MICROS, SSCI manufactures MICROS's
POS terminals, PCWS terminals, and certain communication boards. The Company
entered into this non-exclusive agreement in order to lower its manufacturing
costs, expand the availability of POS and PCWS terminals, and improve product
quality.
The decision to outsource the Company's manufacturing was based upon an
extensive analysis of projected long-term product costs, current and projected
terminal demand relative to internal manufacturing capacity, targeted product
quality levels, and internal design and manufacturing capabilities. The analysis
indicated that MICROS could potentially obtain desired products from SSCI at a
lower cost than the Company could produce. SSCI also had sufficient assembly
capacity to meet MICROS's forecasted sales demand, and was capable of achieving
targeted product quality levels. MICROS retains a limited manufacturing
capability of certain products. While MICROS believes that there are entities
other than SSCI that could provide manufacturing capabilities, any default by
SSCI or disruption in its manufacturing process could have a material short-term
adverse impact on the operations of MICROS. While MICROS maintains a good
relationship with SSCI under the manufacturing agreement, MICROS was unable to
achieve an amicable arrangement with a subsidiary of SSCI in connection with
certain alleged breaches by the SSCI subsidiary under a 1999 development
agreement and therefore MICROS has filed litigation in the state of Maryland to
recover certain damages. While there can be no assurances that the manufacturing
relationship will remain good, the parties have decided to continue to maintain
the manufacturing relationship without interruption.
MICROS's Indatec operation manufactures its POS systems in a facility in
Bernau am Chiemsee, Germany and contracts with a third party manufacturer in
Germany for additional production capacity. MICROS's Asia/Pacific Region offers
a PC based terminal called the Elite from a regional based contract
manufacturer.
Material sourcing is based on availability, service, cost, delivery and
quality of the purchased items from domestic and international suppliers. Some
items are custom manufactured to the Company's design specifications. MICROS
believes that the loss of its current sources for components would not have a
material adverse effect on the Company's business since other sources of supply
are generally available. Except as provided above, the Company believes it
maintains good relationships with its suppliers.
In July 2001, MICROS moved its logistics operations from a building in
Beltsville, Maryland to a new facility in Hanover, Maryland. This facility
serves as MICROS's main distribution center for filling customer orders as well
as light assembly and product configuration services.
EMPLOYEES
As of August 31, 2002, the Company had approximately 2,507 full-time
employees. Approximately 1,225 or 49% of these employees are based in North
America (United States and Canada), with approximately half of the US-based
employees located in the Company's Columbia, Maryland headquarters. The balance
of this group is employed principally at the Company's regional district
offices, divisional office located in Phoenix, Arizona and its product
development subsidiaries in Naples, Florida, and Portsmouth, New Hampshire.
Approximately 880, or 35%, of the Company's employees are employed in the
Europe/Africa/Middle East region, 332 employees, or 13% of total employees, are
employed in the Asia/Pacific region, and 70 employees, or 3% of total employees,
are located in the Latin America region. On an aggregate basis, the Company had
approximately 289 employees in sales/marketing, 1,872 employees in customer
support services, administration and finance; 266 employees in product
development; and 80 employees in operations. The Company is not a party to any
collective bargaining agreements. None of the Company's employees are
represented by a labor union, except in Germany, France and Mexico, as mandated
by law. MICROS does use certain suppliers whose employees may be represented by
labor unions. MICROS believes it maintains good relations with its employees.
8
FOREIGN SALES AND FOREIGN MARKET RISK
The Company recorded foreign sales, including exports from the United
States, of approximately $176.7 million during fiscal 2002 to customers located
primarily in Europe, Africa, the Middle East, Australia, Asia, Latin America and
Canada. Comparable sales in fiscal 2001 and 2000 were $154.7 million and $190.9
million, respectively. See Note 15 of Notes to Consolidated Financial Statements
for additional geographic data.
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 23 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, especially in developing
countries with uncertain or unstable political structures or regimes.
Contributing to this risk factor is the adverse impact that political
instability has on the travel and tourism industries. 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.
PATENTS
The Company holds no patents and believes that its competitive position is
not materially dependent upon patent protection. The technology used in the
design and manufacture of most of the Company's hardware products is generally
known and available to others. With respect to the Company's software products,
it relies on nondisclosure agreements, and an array of U.S. and foreign
copyright and trademark laws for protection. In the U.S. and in most countries,
it is believed that both statutory and common law provides the Company with a
certain level of protection. Notwithstanding the above, there is a risk that
third party entities, including competitors, could attempt to misappropriate the
Company's intellectual property. Given this potential risk, the Company has
implemented certain procedures to monitor misappropriation of its intellectual
property.
FLUCTUATIONS AND CUSTOMERS
The Company's quarterly operating results have varied in the past and may
vary in the future depending upon such factors as the timing of new product
introductions, changes in the pricing and promotion policies of the Company and
its competitors, market acceptance of new products and enhanced versions of
existing products and the capital expenditure budgets of its customers.
Political uncertainty and world turmoil, such as the terrorist attacks in the
U.S. on September 11, 2001, will continue to adversely impact travel and tourism
and therefore the Company's quarterly operating results. Moreover, the Company
has experienced increased seasonality of its business, given the significant
volume of international sales. In particular, with the European summer holiday,
the Company generally experiences lower sales volume in the first fiscal quarter
relative to other quarters. Additionally, with the relative slowdown in
corporate buying at the beginning of the calendar year, which is MICROS's third
fiscal quarter, seasonal weakness for the third quarter ending March 31 has been
experienced. Nonetheless, the Company believes that quarter-to-quarter historic
comparisons of its results are not necessarily meaningful or indicative of
future performance.
No single customer accounts for 10% or more of the Company's consolidated
revenues, nor is any material portion of the Company's business subject to
renegotiation of profits at the election of the U.S. Federal Government. In
fiscal years 2001 and 2002, the Company did participate, directly and
indirectly, in certain contracts with the U.S. Federal Government, which such
contracts contained standard termination for convenience
9
clauses. The Company would not anticipate any material adverse financial impact
in the event that the U.S. Government elected to exercise a termination for
convenience clause.
ENVIRONMENTAL MATTERS
The Company believes that it is in compliance in all material respects with
all applicable environmental laws and does not anticipate that such compliance
will have a material effect on its future capital expenditures, earnings or
competitive position with respect to any of its operations.
BACKLOG
The Company generally has a backlog of approximately two months' revenue,
substantially all of which is cancelable at any time prior to shipment, although
historically few orders have been canceled. As of June 30, 2002, 2001, and 2000,
the backlog totaled approximately $67.2 million, $59.4 million and $43.0
million, respectively.
OTHER
The Company currently has a $45.0 million multi-currency committed line of
credit expiring on December 31, 2002. The financing agreement was amended on
April 30, 2001, to include a security interest in inventory and receivables
located in the United States. Prior to this upcoming expiration date, the
Company anticipates that it will renew this line of credit for an additional
one-year period. Interest due under the line of credit is calculated as follows:
(i) if the advance is in U.S. dollars, at the option of the Company, either the
bank's prime rate minus an additional prime rate percentage, or the LIBOR rate
plus an additional LIBOR rate percentage; however, (ii) if the advance is made
in a foreign currency, the LIBOR rate for the applicable denominated currency,
plus an additional LIBOR rate percentage. The Company has a one-time option to
convert the line of credit into a three-year secured term loan upon expiration
of the line of credit. Interest due under the three-year secured term loan shall
be, at the option of the Company, the prime rate plus one quarter of one percent
(0.25%) or the floating LIBOR rate. Under the terms of the current loan
agreement, the Company may borrow up to $45.0 million less the amount of
outstanding letters of credit and a fixed amount equal to $1.5 million if the
Company enters into any exchange contracts. The agreement also requires the
Company to satisfy certain financial covenants and limits the assumption of
additional debt and restricts the Company's payment of dividends other than
stock dividends.
The Company also has a credit relationship with a European bank in the
amount of EUR 7.6 million (approximately $7.6 million at the June 30, 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 the Company has significant
international operations, its Euro-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.
As of June 30, 2002, the total outstanding line of credit is $18.7 million
consisting of: US $15.0 million, ZAR (South African Rand) 14.6 million
(approximately $1.4 million at the June 30, 2002 exchange rate), SEK (Swedish
Krona) 7.5 million (approximately $0.8 million at the June 30, 2002 exchange
rate), AUD (Australian Dollar) $0.5 million (approximately $0.3 million at the
June 30, 2002 exchange rate) and JPY (Japanese Yen) 140.0 million (approximately
$1.2 million at the June 30, 2002 exchange rate). The Company has approximately
$32.4 million available to borrow. The amount available to borrow was reduced by
$1.5 million for exchange contracts as mandated in the amended financing
agreement.
In May 2000, the Company signed a $1.2 million promissory note with the
Maryland Department of Business and Economic Development. The loan was for ten
years, and was satisfied and discharged in full in February 2002 (see Note 6 of
Notes to Consolidated Financial Statements).
BUSINESS AND INVESTMENT RISKS; INFORMATION RELATING TO FORWARD-LOOKING
STATEMENTS
In light of current market conditions, there is uncertainty as to whether
the Company can enjoy revenue or profitability growth in the next year.
Accordingly, there can be no assurance that any particular level of growth is
reasonable or can be achieved. In addition, due to the competitive nature of the
market, the Company continues to experience gross margin pressure on its
products and service offerings, and the Company expects product and service
margins to decline. 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.
10
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.
The statements contained herein not based on historic facts are
forward-looking statements, within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
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, projections, or
forward-looking statements made by, or on behalf of, MICROS. Primary risks are
disclosed in the Company's press releases and periodic SEC filings. Some of the
additional risks and uncertainties include the following:
- -- Weakness in the hospitality and tourism industries as a result of the
terrorist attacks in the U.S. on September 11, 2001, and armed conflicts arising
therefrom;
- -- Potentially unfavorable adverse economic conditions arising from President
Bush's "war on terrorism", and the threatened attack on Iraq (this is especially
true in the hospitality and tourism industry, where geo-political instability
has a material adverse impact);
- -- Given the adverse impact on the travel and hospitality industry as a result
of the terrorist attacks of September 11, 2001, MICROS has experienced delays in
certain purchases. There can be no guarantee that this slow down will be only
short-term;
- -- MICROS's actions in connection with continued and increasing price and
product competition in many product areas, including but not limited to Eclipse
PC Workstations, and the impact on sales margins for those items;
- -- Difficulties or delays in the development, production, testing and marketing
of products, including a failure to deliver new products and technologies when
scheduled, announced or generally anticipated; the failure of customers to
accept these products or technologies when planned; any defects in products;
MICROS's inability to differentiate its products; and a failure of manufacturing
efforts, whether internal or through MICROS's third party manufacturing
entities;
- -- The inherent difficulties in accurately forecasting buying patterns
(especially since more than an insignificant portion of the business is "street"
business that cannot be easily predicted), and appropriately staffing and
preparing for fluctuations in buying demand;
- -- Implementation of a cost-effective service structure capable of servicing
increasingly complex software systems in increasingly more remote locations;
additional costs and expenses associated with servicing and supporting open
systems, which generally incorporate third party software products (the support
and service of which may be more difficult and costly);
- -- Unanticipated manufacturing, supply, service or labor difficulties
experienced by certain large MICROS vendors, including Sanmina-SCI Systems,
Inc., resulting in a disruption or discontinuation of the services or products
provided to MICROS, or difficulties in the manufacturing relationship;
- -- The technological risks of large customer roll-outs, especially where the
contracts involve newer technology such as the MICROS-Fidelio integrated hotel
information system known as Opera, or third party software; and installation of
which the customer contracts with MICROS to provide;
11
- -- The ability to respond quickly and cost-effectively to the introduction of
new technologies, including Internet-based technologies;
- -- Because almost half of MICROS's sales are outside the U.S., MICROS's results
could be significantly affected by weak economic conditions in countries in
which it does business, and emerging markets in which there tend to be
significant growth, and by changes in foreign currency exchange rates affecting
those countries;
- -- Ongoing economic and political turmoil and instability in countries where
MICROS maintains a direct sales and service presence, such as Argentina, Brazil
and South Africa;
- -- The ability of MICROS to recruit and retain engineers and other
highly-skilled personnel;
- -- Although MICROS attempts to protect its proprietary technology through a
combination of trade secrets, copyright, trademark law, nondisclosure agreements
and technical measures, such protection may not preclude competitors from
developing products with features similar to MICROS's products;
- -- The costs and other effects of legal and administrative cases and
proceedings, settlements and investigations, claims, and changes in those items,
and developments or assertions by or against MICROS relating to intellectual
property rights and intellectual property licenses;
- -- The effects of, and changes in, laws and regulations, other activities of
governments, agencies and similar organizations, insofar as legislative change
can affect local operations and the features that may have to be incorporated
into the Company's software sets;
- -- Unanticipated impact of issues relating to the adoption and implementation of
a common currency, the Euro, by the European Economic and Monetary Union
("EMU"); unanticipated litigation expenses relating to the adoption and
implementation of the Euro, including suits where MICROS is named as a result of
MICROS products interfacing to third party non-compliant products.
12
ITEM 2. PROPERTIES
The Company's worldwide corporate headquarters are located in Columbia,
Maryland. Pursuant to the terms of a 10-year lease agreement (the "Lease
Agreement") expiring on March 1, 2010, MICROS leases the entire five story
structure, consisting of 247,624 square feet, from Columbia Gateway Office
Corporation. The Company's executive offices are located at the Columbia
facility. The Company also conducts sales, marketing, customer support, and
product development activities at this location. MICROS is currently subleasing
one of the five floors (approximately 50,000 square feet) to an independent
local company pursuant to a 2 year sublease agreement, which expires on October
31, 2002. As the current sub-tenant has elected not to renew its sublease,
MICROS has engaged an independent brokerage firm to find a suitable sub-tenant
for the space. As it is likely that MICROS will not be able to find a suitable
and credit-worthy sub-tenant prior to the expiration of the existing sub-lease
given the current real estate market conditions, MICROS will incur additional
costs and expenses. It is impossible to predict when MICROS will be able to
contract with a suitable new sub-tenant, especially given the uncertain and weak
real estate markets currently existing in Columbia, Maryland.
Effective August 1, 2001, and as a replacement to its former
warehouse/staging facility in Beltsville, Maryland, MICROS leased a facility
approximately 75,600 square feet in Hanover, Maryland. MICROS conducts light
assembly, manufacturing, repair and configuration in this facility. MICROS
leases the Hanover facility pursuant to a lease expiring July 31, 2009 with a
termination right first available in July 2006.
The Company's European headquarters facility, in which the Company conducts
certain sales, marketing, development and customer support activities for
Europe, is located in Neuss, Germany. Currently, the Company leases
approximately 42,000 square feet in a Neuss office building pursuant to a lease
agreement expiring in May 31, 2007.
Further, the Company leases approximately 20,515 square feet of office
space in Naples, Florida, where the Company develops software, including the
Opera suite of products, for the hotel industry.
To satisfy other sales, service and support, and product development needs,
the Company leases space in 23 cities domestically, including Boston, Chicago,
Los Angeles and other major metropolitan areas, and in over 32 cities
internationally, including London, Paris, Stockholm, Sydney and Hong Kong.
In general, the Company believes that additional space will be available as
needed.
ITEM 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 litigation 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 2002, no matters were submitted to a
vote of security holders.
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
As of August 31, 2002, there were approximately 508 record holders of the
Company's Common Stock, $.025 par value.
The Company's Common Stock (symbol "MCRS") is traded on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system. The
following table shows the range of trading prices (closing prices) for the
period indicated, as reported by NASDAQ.
On August 31, 2002, the closing price for the stock was $24.41.
Price Range
-----------
(in dollars)
------------
High Low
---- ---
Year Ended June 30, 2002
7/01/01 - 9/30/01 (First Quarter) 28.40 16.80
10/01/01 - 12/31/01 (Second Quarter) 26.12 17.01
1/01/02- 3/31/02 (Third Quarter) 30.78 20.25
4/01/02 - 6/30/02 (Fourth Quarter) 29.07 25.53
Year Ended June 30, 2001
7/01/00 - 9/30/00 (First Quarter) 26.00 14.69
10/01/00 - 12/31/00 (Second Quarter) 23.50 14.88
1/01/01- 3/31/01 (Third Quarter) 21.94 16.31
4/01/01 - 6/30/01 (Fourth Quarter) 24.68 16.81
Year Ended June 30, 2000
7/01/99 - 9/30/99 (First Quarter) 40.50 32.50
10/01/99 - 12/31/99 (Second Quarter) 76.25 38.88
1/01/00 - 3/31/00 (Third Quarter) 67.75 51.09
4/01/00 - 6/30/00 (Fourth Quarter) 56.19 15.75
The Company has never paid a cash dividend and has no current intention to
pay any cash dividends. Its current policy is to retain earnings and use funds
for the operation and expansion of its business and the repurchase of the
Company's stock. In addition, certain indebtedness restricts the amount of cash
dividends which may be payable. The Company is a party to a line of credit
agreement expiring December 31, 2002, which restricts the payment of dividends
other than stock dividends (see Note 5 of Notes to Consolidated Financial
Statements). Future cash dividend policy will be determined by the Board of
Directors based on the Company's earnings, financial condition, capital
requirements, and other existing conditions.
In fiscal 2002, the Board of Directors authorized the purchase of up to
1,000,000 shares of the Company's stock. As of August 31, 2002, the Company has
purchased a total of 165,000 shares of its common stock, at prices ranging from
$22.20/share to $28.00/share, at an aggregate cost of $4.3 million.
14
ITEM 5 continued:
EQUITY COMPENSATION PLAN INFORMATION
Number of Number of
securities to Weighted- securities remaining
be issued upon average available for future
exercise of exercise price issuance under equity
outstanding of outstanding compensation plans
options, warrants options, warrants, (excluding securities
Plan category and rights and rights reflected in column (a))
- ------------- ---------- ---------- ------------------------
(a) (b) (c)
Equity compensation
plans approved by
security holders 3,754,971 $26.68 529,813
Equity compensation
plans not approved
by security holders --
-- --
--------- -------
Total 3,754,971 $26.68 529,813
========= =======
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (in thousands except per share
amounts)
Fiscal Years Ended June 30,
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Statement of Operations Data
Revenue $367,163 $326,776 $361,854 $337,079 $281,918
Income from operations $18,764 $3,999 $29,470 $48,645 $34,077
Net income (loss) $12,239 ($704) $16,204 $27,294 $19,641
Basic net income (loss) per common share (1) $0.70 ($0.04) $0.96 $1.69 $1.23
Diluted net income (loss) per common share (1) $0.69 ($0.04) $0.91 $1.60 $1.18
Cash dividends -- -- -- -- --
Balance Sheet Data
Working capital $83,485 $60,644 $93,535 $75,301 $45,399
Total assets $312,830 $274,456 $278,977 $232,130 $204,611
Long-term debt and capital leases (2) $426 $3,679 $4,519 $6,148 $9,790
Shareholders' equity $178,362 $158,848 $163,621 $119,273 $91,733
Book value per share $10.18 $9.09 $9.44 $7.36 $5.70
Additional Data
Weighted average number of common shares
Outstanding - basic 17,510 17,377 16,796 16,140 16,027
- diluted 17,850 17,377 17,892 17,034 16,690
(1) Included in fiscal 1998 net income per share is a charge relating to
the closure of the Company's Munich, Germany headquarters in the amount of
$0.08 per share (basic) and $0.07 per share (diluted). Also included in
fiscal 1998 net income per share is a charge for a change in accounting
principle in the amount of $0.02 per share.
(2) Including current portion.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
MICROS considers certain accounting policies related to revenue
recognition, capitalized software, goodwill, bad debt, income taxes and
foreign currency translation to be critical policies. For a detailed
discussion and other accounting policies, see Note 1 in the Notes to the
Consolidated Financial Statements.
Revenue recognition
Revenue from hardware sales is recognized at the time of shipment with
a provision for estimated returns and allowances. Revenue from licensed
software sales is recognized in accordance with Statement of Position
("SOP") 97-2, "Software Revenue Recognition," as amended by SOP 98-9,
"Modification of SOP 97-2, Software Revenue Recognition with Respect to
Certain Transactions." If a third party can install the software,
revenue is recognized when shipped, with an appropriate deferral for
any undelivered software contract elements. However, if MICROS has the
proprietary knowledge to install the software, revenue is recognized
upon installation and when ready to go live, with an appropriate
deferral for any undelivered software contract elements. This deferral
is earned when significant obligations no longer exist. Revenue from
customer-specific development work is recognized under the completed
contract method. Service contract revenue is initially recorded as
deferred service revenue and is recognized on a pro rata basis over the
contract term. Revenue from the installation of the product and the
training of customer's staff is recognized as the work is performed.
Capitalized software development costs
Software development costs, for software products to be licensed to
others, incurred prior to establishing technological feasibility are
charged to operations and included in research and development costs.
Software development costs incurred after establishing technological
feasibility and purchased software costs are capitalized on a
product-by-product basis until the product is available for general
release to customers upon which amortization begins. Annual
amortization, charged to cost of sales, is the greater of the amount
computed using the ratio that current gross revenues for a product bear
to the total of current and anticipated future gross revenues for that
product, or the straight-line method over the remaining estimated
economic life of the product.
Goodwill and intangible assets
Goodwill represents the excess of purchase price over the fair value of
the net assets of the acquired subsidiaries and investees. Goodwill and
intangible assets are stated on the basis of cost and are amortized on
a straight-line basis over their estimated periods of benefit, none of
which exceeds 10 years. Recoverability is assessed whenever adverse
events and changes in circumstances indicate that undiscounted cash
flows previously anticipated warrant reassessment. Beginning in July
2002, the Company will discontinue the amortization of goodwill based
on Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets."
Bad debt
MICROS maintains allowances for doubtful accounts for estimated losses
which may result from the inability of our customers to make required
payments. These allowances are based on customer payment practices and
history, inquiries, credit reports from third parties and other
financial information. If the financial condition of our customers were
to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
Income taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the expected
future tax consequences attributable to the differences between the
financial statement carrying amounts and the tax basis of assets and
liabilities. Deferred tax assets and liabilities are measured using the
enacted tax rates in effect for the year in which those temporary
differences are
16
expected to be recovered or settled. The effect on the deferred
tax assets and liabilities of a change in tax rate is recognized in
income in the period that includes the enactment date. Valuation
allowances are established when necessary to reduce deferred tax assets
to the amounts more likely than not to be realized. If the Company
determines that it will not be able to realize all or part of its net
deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged to income in the period such determination is
made.
Foreign currency translation
The financial statements of MICROS's non-U.S. operations are translated
into U.S. dollars for financial reporting purposes. The assets and
liabilities of non-U.S. operations whose functional currencies are not
in U.S. dollar are translated at the fiscal year-end exchange rates,
while revenues and expenses are translated at month-end exchange rates
during the fiscal year. The cumulative translation effects are
reflected in shareholders' equity. Gains and losses on transactions
denominated in other than the functional currency of an operation are
reflected in other income (expense).
RESULTS OF OPERATIONS
COMPARISON OF FISCAL 2002 TO FISCAL 2001:
The Company recorded a diluted net income of $0.69 per common share in
fiscal 2002, compared with a diluted net loss of $0.04 per common share in
fiscal 2001. This increase was primarily due to increased sales volume and cost
savings from operating expenses, both in absolute dollars and as a percentage of
revenue.
Revenue increased by $40.4 million, or 12.4%, to $367.2 million for fiscal
2002 compared to the same period last year. A comparison of the sales mix for
fiscal years 2002 and 2001 is as follows:
Year Ended June 30,
-------------------
2002 2001
---------------------- --------------------
$ (000's) % $ (000's) %
--------- - --------- -
Hardware $134.1 36.5% $116.1 35.5%
Software 60.5 16.5% 55.9 17.1%
Service 172.6 47.0% 154.8 47.4%
----- ----- ----- -----
Total $367.2 100.0% $326.8 100.0%
====== ====== ====== ======
In absolute dollars, combined hardware and software revenues for fiscal
2002 increased $22.7 million, or 13.2%, and service revenues increased $17.7
million, or 11.4%, over the same period a year earlier. Combined hardware and
software sales increased primarily due to the increase in sales volume for
MICROS PC Workstations and software sales for Opera, which was released in June
2001. Part of the volume increase for PC Workstations is related to a large
rollout program. As the rollout was substantially completed in the second half
of fiscal 2002, the sales volume in PC Workstations may decrease in fiscal 2003.
Service revenues increased primarily due to support revenues earned on a larger
customer base.
The Company's revenue for fiscal 2002 was transacted in approximately 23
currencies, while in fiscal years 2001 and 2000, the Company's revenue was
transacted in approximately 29 currencies. The decrease of currencies transacted
is due to the adoption of the Euro as the common currency for the twelve
participating member nations of the European Union ("EU"). MICROS has
subsidiaries in seven of the twelve participating member nations. The relative
mix over the past three years is as follows:
17
Year Ended June 30,
-------------------
Revenues by currency (1) 2002 2001 2000
---- ---- ----
United States Dollar 57% 59% 57%
Euro 18% - -
German Mark - 12% 13%
British Pound Sterling 7% 7% 9%
Australian Dollar 3% 3% 4%
French Franc - 3% 3%
Swedish Krona 2% 2% 2%
Italian Lira - 2% 1%
Chinese Renminbi 1% 1% 1%
Singapore Dollar 1% 1% 1%
Spanish Peseta - 1% 1%
All Other Currencies (2) 11% 9% 8%
--- -- --
Total 100% 100% 100%
==== ==== ====
(1) Calculated using average month end exchange rates for the year.
(2) Represents approximately 16 currencies in fiscal 2002 and 19 currencies in
fiscal 2001 and 2000.
Cost of sales, as a percentage of revenue, increased to 51.8% from 49.8%
for fiscal 2002 compared to fiscal 2001. Cost of sales for hardware and software
products, as a percentage of related revenue, was 55.5% and 49.1% in fiscal 2002
and 2001, respectively. The increase is primarily due to the increase in sales
for hardware (MICROS PC Workstations), which generate lower margins. In
addition, software amortization increased by $2.8 million due to the release of
Opera in June 2001.
Service costs, as a percentage of service revenue, decreased to 47.5% in
fiscal 2002 compared to 50.6% in fiscal 2001. The decrease was 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 $3.0 million, or
2.4%, in fiscal 2002 compared to fiscal 2001. As a percentage of revenue,
selling, general and administrative expenses decreased to 33.5% in fiscal 2002
compared to 38.6% in fiscal 2001. The decrease is due primarily to strategic
cost reductions in fiscal 2002.
Research and development expenses (exclusive of capitalized software
development costs), which consist primarily of labor costs, decreased $0.4
million, or 1.9%, in fiscal 2002 compared to fiscal 2001. As a percentage of
revenue, research and development expenses (exclusive of capitalized software
development costs) decreased to 5.3% in fiscal 2002 compared to 6.0% in fiscal
2001. Capitalized software development costs were $3.0 million in fiscal 2002
compared to $8.9 million in fiscal 2001. Total research and development
expenditures, including capitalized software development costs, decreased 21.7%
from $28.6 million in fiscal 2001 to $22.4 million in fiscal 2002. As a
percentage of revenue, research and development expenditures (inclusive of
capitalized software development costs) amounted to 6.1% in fiscal 2002 compared
to 8.7% in fiscal 2001. Total research and development expenditures, including
capitalized software development costs, decreased mainly due to the reduction of
outside consultants after the release of the Opera software in June 2001.
Depreciation and amortization increased $1.7 million, or 12.0%, in fiscal
2002 compared to fiscal 2001. As a percentage of revenue, it has remained
constant at 4.4%.
Income from operations for fiscal 2002 was $18.8 million, or 5.1% of
revenue, compared to income of $4.0 million, or 1.2% of revenue in fiscal 2001.
The increase is primarily due to an increase in sales, improved service margins
and a reduction of operating expenses, partially offset by a decrease in
hardware and software margins.
Non-operating income for fiscal 2002 increased $4.3 million compared to
fiscal 2001 mainly due to the write down of a cost investment of $1.2 million in
fiscal 2001. The increase is also due to a foreign currency translation gain of
$0.4 million in fiscal 2002 compared to a foreign translation loss of $1.2
million in fiscal 2001.
The effective tax rate for fiscal 2002 was 34% compared to 291.9% for
fiscal 2001. The overall decrease was due to the utilization of previously
valued net operating losses and the utilization of foreign tax credits.
The EU filed a challenge against the U.S. Foreign Sales corporation ("FSC")
tax provisions with the World Trade Organization ("WTO"). On August 30, 2002,
the WTO arbitrator issued a final decision upholding this
18
challenge. The arbitrator's decision allows the EU to impose sanctions on
imports of U.S. goods into EU member countries. The EU has not begun to impose
such sanctions, nor has it indicated when or if it will begin such charges.
Legislative bodies in the U.S. have made the revision of the international tax
provisions of the Internal Revenue Code a high priority on the legislative
agenda. It is uncertain when or if such legislative actions will mitigate the
sanctions ruled upon by the WTO. 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.
COMPARISON OF FISCAL 2001 TO FISCAL 2000:
The Company recorded a diluted net loss of $0.04 per common share in
fiscal 2001, compared with a diluted net income of $0.91 per common share in
fiscal 2000. The decreased net income was primarily due to lower sales volumes
as a result of market conditions and higher operating expenses both in absolute
dollars and as a percentage of revenue.
Revenue of $326.8 million for fiscal 2001 decreased $35.0 million, or 9.7%,
compared to the same period last year. A comparison of the sales mix for fiscal
years 2001 and 2000 was as follows:
Year Ended June 30,
-------------------
2001 2000
-------------------- ----------------------
$ (000's) % $ (000's) %
--------- - --------- -
Hardware $116.1 35.5% $152.2 42.1%
Software 55.9 17.1% 66.3 18.3%
Service 154.8 47.4% 143.3 39.6%
----- ----- ----- -----
Total $326.8 100.0% $361.8 100.0%
====== ====== ====== ======
Both hardware and software sales decreased as a percentage of total revenue
in fiscal 2001 in comparison to fiscal 2000 primarily due to the continued
slowdown in information technology purchases by the hospitality industry.
Service sales increased in comparison to fiscal 2000, primarily due to support
revenues earned on a larger customer base, partially offset by a decreased
volume of installation revenue.
Combined hardware and software revenues for fiscal 2001 decreased $46.5
million, or 21.3%, while service revenues increased $11.5 million or 8.0%, over
the same period a year earlier.
The Company's revenue for fiscal 2001 was transacted in approximately 29
currencies, while in fiscal years 2000 and 1999, the Company's revenue was
transacted in approximately 29 and 25 currencies, respectively. The relative mix
over the past three years was as follows:
Year Ended June 30,
---------------------
Revenues by currency (1) 2001 2000 1999
---- ---- ----
United States Dollar 59% 57% 57%
German Mark 12% 13% 15%
British Pound Sterling 7% 9% 8%
Australian Dollar 3% 4% 2%
French Franc 3% 3% 4%
Swedish Krona 2% 2% 3%
Italian Lira 2% 1% 1%
Chinese Renminbi 1% 1% 1%
Singapore Dollar 1% 1% 1%
Spanish Peseta 1% 1% 1%
All Other Currencies (2) 9% 8% 7%
-- -- --
Total 100% 100% 100%
==== ==== ====
(1) Calculated using average month end exchange rates for the year.
(2) Represents approximately 19 currencies in fiscal 2001 and 2000 and
approximately 15 currencies in fiscal 1999.
Cost of sales, as a percentage of revenue, decreased to 49.8% from 51.8%
for fiscal 2001 compared to fiscal 2000. Cost of sales for hardware and software
products, as a percentage of related revenue, was 49.1% and 52.8% in fiscal 2001
and 2000, respectively. The decrease as a percentage of revenue was primarily
due to the reduction of hardware sales as a percentage of total hardware and
software sales. Also, included in the fiscal year 2000 software cost of sales
figure was approximately $1.0 million for the discontinuance of the 3400 product
line.
19
Service costs, as a percentage of service revenue, increased to 50.6% in
fiscal 2001 compared to 50.2% in fiscal 2000. The increased costs in comparison
to fiscal 2000 were 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 $9.8 million, or
8.4%, in fiscal 2001 compared to fiscal 2000. As a percentage of revenue,
selling, general and administrative expenses increased to 38.6% in fiscal 2001
compared to 32.1% in fiscal 2000. The increase was due primarily to decreased
revenue and additional expenses related to acquisitions, partially offset by
cost reductions.
Research and development expenses (exclusive of capitalized software
development costs), which consist primarily of labor costs, increased $2.1
million, or 12.0%, in fiscal 2001 compared to fiscal 2000. As a percentage of
revenue, research and development expenses (exclusive of capitalized software
development costs) increased to 6.1% in fiscal 2001 compared to 4.9% in fiscal
2000. Capitalized software development costs were $8.9 million in fiscal 2001
compared to $8.2 million in fiscal 2000. Total research and development
expenditures, including capitalized software development costs, increased 10.9%
from $25.8 million in fiscal 2000 to $28.6 million in fiscal 2001. As a
percentage of revenue, research and development expenditures (inclusive of
capitalized software development costs) amounted to 8.8% in fiscal 2001 compared
to 7.1% in fiscal 2000. The increase in absolute dollars was primarily due to
increased expenditures in the Company's hotel business.
Depreciation and amortization increased $3.1 million, or 27.4%, in fiscal
2001 compared to fiscal 2000. As a percentage of revenue, depreciation and
amortization increased to 4.4% in fiscal 2001 compared to 3.1% in fiscal 2000.
The increase was due primarily to additional amortization relating to
acquisitions made over the prior 20 months.
Income from operations for fiscal 2001 was $4.0 million, or 1.2% of
revenue, compared to income of $29.5 million in fiscal 2000, or 8.% of revenue.
The Company's lower income from operations was primarily due to a lower volume
of sales in fiscal 2001 and higher operating expenses due to acquisitions.
Other expense for 2001 increased $2.7 million, or 242.9%, compared to
fiscal 2000. The increase was primarily due to the write down of a cost
investment of $1.2 million. The increase was also due to a foreign currency
translation loss of $1.2 million in fiscal 2001 compared to a foreign currency
translation loss of $0.7 million in fiscal 2000.
The effective tax rate for fiscal 2001 was 291.9% compared to 40.3% for
fiscal 2000. The overall increase was due to both a shift in earnings towards
countries with higher tax rates with offsetting net operating losses being
incurred in countries with lower tax rates and changes in tax rates in foreign
jurisdictions.
RETIRED STOCK
In fiscal 2002, the board of directors authorized the purchase of up to
1,000,000 shares of the Company's stock. During fiscal 2002, the Company
purchased 95,600 shares at an aggregate cost of $2.6 million.
EURO CONVERSION
On January 1, 1999, certain member nations of the EMU adopted a common
currency, the Euro. For a three-year transition period, both the Euro and
individual participants' currencies will remain in circulation. Since March 1,
2002, the Euro has become the sole legal tender for the twelve participating EMU
countries, and is in use in certain other countries and territories. The
adoption of the Euro has affected a multitude of financial systems and business
applications as the commerce of these nations is now transacted in the Euro. Of
the twelve participating countries currently using the Euro as their sole legal
tender, the Company has subsidiary operations in seven of those countries and
distributor relationships in the remaining five countries.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has a $45.0 million multi-currency committed line of
credit expiring on December 31, 2002. The financing agreement was amended on
April 30, 2001, to include a security interest in inventory and receivables
located in the United States. Prior to this upcoming expiration date, the
Company anticipates that it will renew this line of credit for an additional
one-year period. Interest due under the line of credit is calculated as
20
follows: (i) if the advance is in U.S. dollars, at the option of the Company,
either the bank's prime rate minus an additional prime rate percentage, or the
LIBOR rate plus an additional LIBOR rate percentage; however, (ii) if the
advance is made in a foreign currency, the LIBOR rate for the applicable
denominated currency, plus an additional LIBOR rate percentage. The Company has
a one-time option to convert the line of credit into a three-year secured term
loan upon expiration of the line of credit. Interest due under the three-year
secured term loan shall be, at the option of the Company, the prime rate plus
one quarter of one percent (0.25%) or the floating LIBOR rate. Under the terms
of the current loan agreement, the Company may borrow up to $45.0 million less
the amount of outstanding letters of credit and a fixed amount equal to $1.5
million if the Company enters into any exchange contracts. The agreement also
requires the Company to satisfy certain financial covenants and limits the
assumption of additional debt and restricts the Company's payment of dividends
other than stock dividends.
The Company also has a credit relationship with a European bank in the
amount of EUR 7.6 million (approximately $7.6 million at the June 30, 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 the Company has significant
international operations, its Euro 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.
As of June 30, 2002, the total outstanding line of credit is $18.7 million
consisting of: US $15.0 million, ZAR (South African Rand) 14.6 million
(approximately $1.4 million at the June 30, 2002 exchange rate), SEK (Swedish
Krona) 7.5 million (approximately $0.8 million at the June 30, 2002 exchange
rate), AUD (Australian Dollar) $0.5 million (approximately $0.3 million at the
June 30, 2002 exchange rate) and JPY (Japanese Yen) 140.0 million (approximately
$1.2 million at the June 30, 2002 exchange rate). The Company has approximately
$32.4 million available to borrow. The amount available to borrow was reduced by
$1.5 million for exchange contracts as mandated in the amended financing
agreement.
In May 2000, the Company signed a $1.2 million promissory note with the
Maryland Department of Business and Economic Development. The loan was for ten
years, and was satisfied and discharged in full in February 2002 (see Note 6 of
Notes to Consolidated Financial Statements).
Net cash provided by operating activities for fiscal 2002 was $42.3 million
versus $26.6 million for fiscal 2001. The Company used $12.1 million for
investing activities in fiscal 2002, including $8.3 million for the purchase of
property, plant, and equipment and internally developed software and $4.1
million for business acquisitions and equity interests. Net financing activities
for fiscal 2002 provided $10.2 million, primarily stemming from the line of
credit. Proceeds of $31.6 million was provided by borrowings on the line of
credit during fiscal 2002 which was offset by $20.9 million in repayments on the
lines of credit, long term debt and capital lease obligations. Proceeds from the
issuance of stock provided $2.6 million for fiscal 2002 offset by $2.6 million
in the repurchase of the Company's stock. 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 2003 will be approximately the same
as fiscal 2002.
21
Financial indicators of the Company's liquidity and capital resources as of June
30, 2002 and 2001 were:
In thousands, except ratios 2002 2001
- -------------------------------------- ---- ----
Cash and cash equivalents $66,638 $26,456
------- -------
Available credit facilities $52,600 $51,500
Outstanding credit facilities 18,700 6,800
Outstanding letters of credit - 1,200
Exchange contracts 1,500 1,500
----- -----
Unused credit facilities $32,400 $42,000
------- -------
Working capital $83,485 $60,645
------- -------
Long-term debt and capital lease obligations:
Current $147 $2,448
Non-current 279 1,231
--- -----
Total $426 $3,679
---- ------
Shareholders' equity $178,362 $158,848
-------- --------
Current ratio 1.69 1.62
---- ----
Inflation
The Company has not experienced any significant impact as a result of
inflation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Part I, Item I, Foreign Sales and Foreign Market Risks, and Part II,
Item 7. Additionally, MICROS's committed line of credit bears interest at a
floating rate. MICROS 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14(a) 1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Position
- ----------------- ----------------------------
T. Paul Armstrong Executive Vice President, New Technologies
Louis M. Brown, Jr. Director and Vice Chairman of the Board
A. L. Giannopoulos Chairman, President and Chief Executive Officer
J. Alan Hayman Executive Vice President, Restaurant Sales and Strategies
Daniel G. Interlandi Executive Vice President, North American Sales
Bernard Jammet Executive Vice President, Latin American Sales
F. Suzanne Jenniches Director
Gary C. Kaufman Executive Vice President, Finance and Administration and Chief Financial Officer
Thomas L. Patz Executive Vice President, Strategic Initiatives, and General Counsel
William M. Poe Executive Vice President, Hotel Sales and Strategies
John G. Puente Director
Cynthia A. Russo Vice President and Corporate Controller
Dwight S. Taylor Director
William S. Watson Director
Directors of the Registrant are elected for a term of one year.
- ------------------------------
Directors and Executive Officers of the Registrant during fiscal 2002:
T. Paul Armstrong, 45, joined the Company in July 1981 as a software
engineer. In December 1983, he was promoted to the position of Director, Systems
Engineering. In November 1989 he was promoted to Vice President, Research and
Development. In October 1993, Mr. Armstrong was named Vice President and Product
Manager, Full Service Products. In July 1995, Mr. Armstrong was promoted to
Senior Vice President, Research and Development, in April 1996, he was made
Senior Vice President and General Manager for the Table Service Restaurant
Group, and in April 1997 was named Senior Vice President and General Manager for
the Strategic Account Group. In June 2000, Mr. Armstrong was promoted to his
current position of Executive Vice President, New Technologies. Mr. Armstrong is
a graduate of Cambridge University, England.
Louis M. Brown, Jr., 59, has been a Director of the Company since 1977.
Mr. Brown held the position of President and Chief Executive Officer from
January 1986 until his appointment as Chairman of the Board in January 1987. In
April 2001, Mr. Brown tendered his resignation as Chairman, and was appointed
Vice Chairman. He also serves as Chief Executive Officer of Precision Auto Care,
Inc., a franchise company for the auto care industry. Additionally, Mr. Brown
serves as President and a director of IDEAS, Inc., a supplier of high
technology, custom-engineered products and services. Formerly, Mr. Brown served
as Chairman of Autometric, Inc. and of Planning Systems, Inc. He is a graduate
of the Johns Hopkins University (B.E.S.-E.E.).
A. L. Giannopoulos, 62, has been a Director since March 1992 and was
elected President and Chief Executive Officer in May 1993. In April 2001, Mr.
Giannopoulos was appointed Chairman of the Company's Board of Directors.
Effective as of June 1, 1995, Mr. Giannopoulos resigned as General Manager of
the Westinghouse Information and Security Systems Divisions, having been with
Westinghouse for 30 years, and was hired by the Company pursuant to an
Employment Agreement to terminate December 31, 1999, subsequently amended to
terminate on June 30, 2005. In prior assignments at Westinghouse, Mr.
Giannopoulos was General Manager of the
23
Automation Division and National Industrial Systems Sales Force, Industries
Group. Mr. Giannopoulos is a graduate of Lamar University with a Bachelor of
Science degree in Electrical Engineering.
J. Alan Hayman, 49, began his career with MICROS in January 2000. He has
also held key positions at the Company including Regional Vice President for
Restaurant Sales and Strategies, and was promoted to Senior Vice President in
October 2000. Mr. Hayman currently serves as Executive Vice President, a
position to which he was appointed in September 2001. Prior to joining MICROS,
Mr. Hayman served as Vice President of Sales for Hayman Systems, a leading
MICROS dealer that was acquired by MICROS in December 1999. Mr. Hayman graduated
in 1974 from Boston University, School of Management, with a BS in Business
Administration.
Daniel Interlandi, 49, began his career with MICROS in 1980, and has
held key sales and management positions with the Company involving districts
operations, distributors, major accounts, customer service, research and
development, and marketing. He was promoted to Vice President, Full Service
Products in May 1993 and to Senior Vice President, Sales and Marketing in
September 1993. In April 1996, he was appointed Senior Vice President and
General Manager, Leisure and Entertainment Group, and in April 1997, he assumed
additional responsibility for the Table Service Restaurant Group. In fiscal year
2000, Mr. Interlandi had oversight responsibility for EAME operations, and in
January 2001, Mr. Interlandi was appointed to his current position, Executive
Vice President, North American Sales. Mr. Interlandi is a 1975 graduate of Knox
College.
Bernard Jammet, 43, joined the Company in July 1984 as European Sales
Manager. In 1988, he was named Managing Director for Europe/Africa/Middle East
Operations and was promoted to Vice President in November 1990. In November
1994, he was promoted to the position of Senior Vice President, International
Operations. In October 1998, he was appointed Executive Vice President, Product
Development, and in January 2001, Mr. Jammet was appointed to his current
position of Executive Vice President, Latin America Sales. Before joining
MICROS, Mr. Jammet was employed with the former MICROS distributor for France.
Mr. Jammet is a graduate of the Hotel School of Lausanne, Switzerland, with a
Masters degree in Hotel Administration.
F. Suzanne Jenniches, 54, has been a Director of the Company since
October 1996. She is Vice President of Communications Systems for the Electronic
Systems Sector of Northrop Grumman, which designs and develops advanced
communications systems for both government and commercial applications. Ms.
Jenniches is past President of the national Society of Women Engineers, has
served on the Board of Governors for the American Association of Engineering
Societies, and is currently a member of the U.S. Army Science Board. Ms.
Jenniches is a graduate of Clarion College and holds a Masters degree in
Environmental Engineering from the Johns Hopkins University.
Gary C. Kaufman, 52, served as a Director of the Company from January
1991 until May 1994 when he was appointed to Vice President, Finance and
Administration and Chief Financial Officer. Subsequent to June 30, 1996, he was
promoted to Senior Vice President, Finance and Administration and Chief
Financial Officer, and in September 1999, was promoted to Executive Vice
President, Finance and Administration and Chief Financial Officer. Previously,
Mr. Kaufman was Division Controller for Westinghouse Security and Network
Services Divisions, having been with Westinghouse for 20 years in various
financial positions. Mr. Kaufman is a graduate of the University of Dayton with
a Bachelor of Science degree in Accounting and is also a Certified Public
Accountant.
Thomas L. Patz, 42, joined the Company in August 1995 as General
Counsel. In November 1996, he was promoted to the position of Vice President and
General Counsel. In September 1999, Mr. Patz was promoted to the position of Sr.
Vice President and General Counsel, and in January 2000, Mr. Patz was promoted
to his present position of Executive Vice President, Strategic Initiatives, and
General Counsel. Previously, Mr. Patz was Assistant General Counsel of
Westinghouse Electric Corporation. Mr. Patz is a 1982 graduate of Brown
University, and a 1985 graduate of the University of Virginia School of Law with
a degree of Juris Doctor. Mr. Patz is a member of the Maryland State Bar.
William M. Poe, 54, joined the Company in August 1999 as Vice President,
Hotel Sales and Strategies. He was promoted to Senior Vice President, Hotel
Sales and Strategies in November 1999, and to his current position, Executive
Vice President, Hotel Sales and Strategies, in November 2001. In this role Mr.
Poe managed the development of existing and new hotel major account business for
the MICROS-Fidelio brand hotel management systems. Mr. Poe has resigned from the
Company effective October 2002.
John G. Puente, 72, has been a Director since May 1996. He is the
Chairman of E-Cargo (Internet Cargo Services, Inc.), a company that coordinates
product shipments over the Internet. Until August 1999, Mr. Puente
24
served as Chairman of Telogy Networks, Inc., a developer of communications
software products, at which time it was acquired by Texas Instruments. Mr.
Puente is on the Board of Directors of Primus Telecommunications, a long
distance telecommunications service provider. Previously, he was Chairman and
Chief Executive Officer of Orion Network Systems, a company that provides
satellite services and facilities. Prior to joining Orion, Mr. Puente was Vice
Chairman of M/A-Com, a supplier of microwave components and systems to the
telecommunications industry. He was a founder and Chairman of Digital
Communications Corporation (now Hughes Network Systems) and SouthernNet, a fiber
optic long distance company that merged to form Telecom USA and was later
acquired by MCI. Mr. Puente is a graduate of Polytechnic Institute of New York
and now serves on the Board of Trustees of that institution, and he holds a
Masters degree from Stevens Institute of Technology. He is Chairman of the Board
of Trustees of Capitol College.
Cynthia A. Russo, 32, joined the Company in January 1996 as a Senior
Accountant. In October 1996, she was promoted to Manager of Accounting, in March
1999, she was promoted to Director of Financial Reporting and Services, in
February 2000 she was promoted to Director of Corporate Reporting and
Accounting, and in May 2001 she was promoted to her current position, Vice
President and Corporate Controller. Ms. Russo holds a Bachelor of Science degree
in Accounting from James Madison University. She is a Certified Public
Accountant and a Certified Internal Auditor.
Dwight S. Taylor, 57, has been a Director of the Company since 1997. He
is President of Corporate Development Services, LLC ("CDS"), a commercial real
estate development firm with offices in Columbia, Maryland, and a subsidiary of
Corporate Offices Properties Trust (NYSE: OFC). From 1984 until 1998, Mr. Taylor
had been employed by Constellation Real Estate, Inc. in various capacities. Mr.
Taylor is also the immediate past President of the Maryland Chapter of the
National Association of Industrial and Office Properties ("NAIOP"), and a member
of the NAIOP National Board. Mr. Taylor currently serves on the Trustee Boards
of the Baltimore Polytechnic Institute Foundation, Capitol College, and Lincoln
University. Mr. Taylor is a 1968 graduate of Lincoln University with a Bachelor
of Arts degree in Economics.
William S. Watson, 58, currently serves as the Managing Director of The
Prism Partnership LLC, a consulting practice that provides strategic planning
and implementation consulting with a specialty in the hospitality and travel
industry. Mr. Watson also serves as Chairman and Executive Vice President of
TLX, Inc., a provider of logistics solutions to the airline industry, based in
Scottsdale, Arizona. During his career, Mr. Watson also served as Vice President
of Strategic Marketing for ITT-Sheraton Hotels, and Executive Vice President,
Chief Operating Officer of Best Western International. Mr. Watson is a 1964
graduate of Croydon Polytechnic, with a degree in Mechanical Engineering.
The Company knows of no family relationships between any director,
executive officer, or person nominated or chosen to become a director or
executive officer.
Information relating to filings made pursuant to Section 16 of the
Securities Exchange Act of 1934 will be set forth in the Company's Proxy
Statement, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION AND TRANSACTIONS
The information required by Item 11 will be set forth in the Company's
Proxy Statement under the caption "Executive Compensation", and such information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 will be set forth in the Company's
Proxy Statement under the caption "Security Ownership of Certain Beneficial
Owners and Management", and such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 2002 and 2001, the Company compensated Louis M. Brown, Jr.,
Vice-Chairman of the Board, $308,000 and $209,231, respectively, for consulting
services provided to the Company. For fiscal 2002, Mr. Brown earned a base
consulting fee of $230,000 and a bonus of $78,000. The bonus was accrued in
fiscal year 2002 and will be paid in September 2002. Effective June 30, 1995,
and amended February 1, 1999, and April 26, 2001, the Company and Mr. Brown
entered into a Consulting Agreement terminating June 30, 2005, pursuant to which
Mr. Brown is to provide on the average 20 hours per week of consulting services
to the Company in exchange for a base
25
consulting fee plus a target bonus.
During fiscal 2002 and 2001, the Company paid J. Alan Hayman $1,596,279
and $323,819, respectively, for earn-out payment obligations as part of the 1999
acquisition by MICROS of Stanley Hayman and Company, Inc. and Micros of South
Florida, Inc., each entity in which he was a 46.5% shareholder. There are no
additional earn-out payments required. In addition, during fiscal 2002 and 2001,
the Company paid a real estate partnership in which J. Alan Hayman holds a 50%
interest, $426,511 and $401,940, respectively, for the rental of the Laurel,
Maryland facilities. The rental rates were fair market value rates, as
determined by two independent valuations. The Laurel lease expires on December
31, 2002, and shall not be renewed.
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
No.
----
(a) The following documents are filed as a part of this report:
1. Financial Statements:
Report of Independent Accountants 30
Consolidated balance sheets as of June 30, 2002 and 2001 31
Consolidated statements of operations for the years ended June 30, 2002, 2001 and 2000 32
Consolidated statements of shareholders' equity for the years ended June 30, 2002, 2001 and 2000 33
Consolidated statements of cash flows for the years ended June 30, 2002, 2001 and 2000 34-35
Notes to consolidated financial statements 36-49
2. Financial Statement Schedules:
Schedule II - Valuation and qualifying accounts and reserves 50
All other schedules are omitted because they are not applicable, not required, or the required
information is included in the financial statements or notes thereto.
3. Exhibits:
3(i). Articles of Incorporation of the Company are incorporated herein by reference to Exhibit 3 to the Annual Report
on Form 10-K of the Company for the Fiscal Year ended June 30, 1990.
3(i)(a). Articles of Amendment to Articles of Incorporation are incorporated herein by reference to Exhibit 3(i) to the
Quarterly Report on Form 10-Q of the Company for the period ended December 31, 1997.
3(i)(b). Articles of Amendment to Articles of Incorporation are incorporated herein by reference to Exhibit 3(i) to the
Quarterly Report on Form 10-Q of the Company for the period ended December 31, 1998.
3(ii). By-laws of the Company as in effect on the date hereof is incorporated herein by reference to Exhibit 3 to the
Annual Report on Form 10-K of the Company for the Fiscal Year ended June 30, 1990.
10a1. Amendment and Restatement of MICROS Systems, Inc. Stock Option Plan is incorporated herein by reference to
Exhibit 4.1 to the Registration Statement on Form S-8 of the Company filed on February 16, 1990.
10a2. First Amendment to the Amendment and Restatement of MICROS Systems, Inc. Stock Option Plan constituting Exhibit
10a1 hereto is incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-8 of the
Company filed on February 16, 1990.
10b1. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is incorporated herein by reference to Exhibit A to the
Proxy Statement of the Company for the 1993 Annual Meeting of Shareholders.
10b2. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is incorporated herein by reference to Exhibit A to the
Proxy Statement of the Company for the 1995 Annual Meeting of Shareholders.
10b3. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is incorporated herein by reference to Exhibit A to the
Proxy Statement of the Company for the 1996 Annual Meeting of Shareholders.
10b4. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is incorporated herein by reference to Exhibit A to the
Proxy Statement of the Company for the 1997 Annual Meeting of Shareholders.
10b5. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is incorporated herein by
27
reference to Exhibit A to the Proxy Statement of the Company for the 1998 Annual Meeting of Shareholders.
10b6. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is incorporated herein by reference to Exhibit A to the
Proxy Statement of the Company for the 1999 Annual Meeting of Shareholders.
10b7. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is incorporated herein by reference to Exhibit A to the
Proxy Statement of the Company for the 2001 Annual Meeting of Shareholders.
10c. Underwriting Agreement dated July 6, 1995 by and among MICROS Systems, Inc., Westinghouse Electric Corporation,
Westinghouse Holdings Corporation, J.P. Morgan Securities, Inc., Morgan Stanley & Co. Incorporated and Smith
Barney, Inc. is incorporated herein by reference to Exhibit 10d to the Annual Report on Form 10-K of the Company
for the Fiscal Year ended June 30, 1995.
10d. Employment Agreement dated June 1, 1995 between MICROS Systems, Inc. and A. L. Giannopoulos is incorporated
herein by reference to Exhibit 10e to the Annual Report on Form 10-K of the Company for the Fiscal Year ended
June 30, 1995.
10e. First Amendment to Employment Agreement dated February 6, 1997 between MICROS Systems, Inc. and A. L.
Giannopoulos is incorporated herein by reference to Exhibit 10 to the Quarterly Report on Form 10-Q of the
Company for the period ended December 31, 1996.
10f. Second Amendment to Employment Agreement dated February 1, 1998 between MICROS Systems, Inc. and A. L.
Giannopoulos is incorporated herein by reference to Exhibit 10 to the Quarterly Report on Form 10-Q of the
Company for the period ended December 31, 1997.
10g. Third Amendment to Employment Agreement dated September 8, 1999 between MICROS Systems, Inc. and A. L.
Giannopoulos is incorporated herein by reference to Exhibit 10g to the Annual Report on Form 10-K of the Company
for the Fiscal Year ended June 30, 1999.
10h. Consulting Agreement dated June 30, 1995 between MICROS Systems, Inc. and Louis M. Brown, Jr. is incorporated
herein by reference to Exhibit 10 to the Annual Report on Form 10-K of the Company for the Fiscal Year ended
June 30, 1995.
10i. First Amendment to Consulting Agreement dated February 1, 1999 between MICROS Systems, Inc. and Louis M. Brown,
Jr. is incorporated herein by reference to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company for
the period ended December 31, 1998.
10j. Second Amendment to Consulting Agreement dated April 26, 2001 between MICROS Systems, Inc. and Louis M. Brown,
Jr. is incorporated herein by reference to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company for
the period ended March 31, 2001.
10k. MICROS Systems, Inc. Bonus and Incentive Plan is incorporated herein by reference to Exhibit 10 to the Quarterly
Report on Form 10-Q of the Company for the period ended September 30, 1994.
10l. Employment Agreement dated May 28, 1997 between MICROS Systems, Inc. and Gary C. Kaufman is incorporated herein
by reference to Exhibit 10 to the Annual Report on Form 10-K of the Company for the Fiscal Year ended June 30,
1997.
10m. First Amendment to Employment Agreement dated October 1, 1998 between MICROS Systems, Inc. and Gary C. Kaufman
is incorporated herein by reference to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company for the
period ended December 31, 1998.
10n. Employment Agreement dated May 28, 1997 between MICROS Systems, Inc. and Thomas L. Patz is incorporated herein
by reference to Exhibit 10 to the Annual Report on Form 10-K of the Company for the Fiscal Year ended June 30,
1997 (see 10l above, as text is identical)
10o. First Amendment to Employment Agreement dated October 1, 1998 between MICROS Systems, Inc. and Thomas L. Patz is
incorporated herein by reference to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company for the
period ended December 31, 1998 (see 10m above, as text is identical).
28
21. Subsidiaries of the Company.
23. Consent of Independent Accountants.
(b) Reports on form 8-K:
No reports on Form 8-K have been filed during the fourth quarter of the
fiscal year ended June 30, 2002.
The annual report will be mailed to shareholders prior to the annual
meeting scheduled for November 15, 2002.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of MICROS Systems, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 27 present fairly, in all material
respects, the financial position of MICROS Systems, Inc. and its subsidiaries at
June 30, 2002 and 2001, and the results of their operations and their cash flows
for each of the three years in the period ended June 30, 2002, in conformity
with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)(2) on page 27 presents fairly, in all material
aspects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
McLean, Virginia
August 16, 2002
30
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of June 30, 2002 and 2001
(in thousands, except per share data)
2002 2001
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $66,638 $26,456
Accounts receivable, net of allowance for doubtful accounts of
$8,981 in 2002 and $7,508 in 2001 86,918 84,779
Inventories, net 31,211 28,547
Deferred income taxes 7,008 6,955
Prepaid expenses and other current assets 12,756 11,032
--------- ---------
Total current assets 204,531 157,769
Property, plant and equipment, net 21,467 23,553
Deferred income taxes, non-current 20,707 23,573
Goodwill and intangible assets, net of accumulated amortization of
$28,025 in 2002 and $18,483 in 2001 32,055 35,182
Purchased and internally developed software costs, net of accumulated
amortization of $18,248 in 2002 and $12,699 in 2001 30,303 31,529
Other assets 3,767 2,850
--------- ---------
Total assets $312,830 $274,456
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $18,699 $4,659
Current portion of long-term debt -- 2,317
Current portion of capital lease obligations 147 131
Accounts payable 25,955 21,980
Accrued expenses and other current liabilities 34,554 35,417
Income taxes payable 7,303 5,200
Deferred income taxes 547 547
Deferred service revenue 33,841 26,874
--------- ---------
Total current liabilities 121,046 97,125
Long-term debt, net of current portion -- 979
Capital lease obligations, net of current portion 279 252
Deferred income taxes, non-current 9,933 14,213
Other non-current liabilities 1,232 936
Commitments and contingencies
Minority interests 1,978 2,103
Shareholders' equity:
Common stock, $0.025 par value; 50,000 shares authorized; shares
issued and outstanding 17,521 in 2002 and 17,475 in 2001 438 437
Capital in excess of par 56,867 56,515
Retained earnings 130,599 118,360
Accumulated other comprehensive loss (9,542) (16,464)
--------- ---------
Total shareholders' equity 178,362 158,848
--------- ---------
Total liabilities and shareholders' equity $312,830 $274,456
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
31
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 2002, 2001 and 2000
(in thousands, except per share data)
2002 2001 2000
------- ------- -------
Revenue:
Hardware and software $194,606 $171,930 $218,476
Service 172,557 154,846 143,378
------- ------- -------
Total revenue 367,163 326,776 361,854
------- ------- -------
Costs and expenses:
Cost of sales
Hardware and software 108,032 84,374 115,360
Service 81,994 78,374 71,942
------- ------- -------
Total cost of sales 190,026 162,748 187,302
Selling, general and administrative expenses 123,011 126,013 116,259
Research and development expenses 19,320 19,697 17,583
Depreciation and amortization 16,042 14,319 11,240
------- ------- -------
Total costs and expenses 348,399 322,777 332,384
------- ------- -------
Income from operations 18,764 3,999 29,470
Non-operating income (expense):
Interest income 1,067 1,011 969
Interest expense (722) (966) (690)
Other income (expense), net 236 (3,810) (1,111)
------- ------- -------
Income before taxes, minority interests and equity in
net earnings of affiliates 19,345 234 28,638
Income tax expense 6,577 683 11,527
------- ------- -------
Income (loss) before minority interests and equity in net
earnings of affiliates 12,768 (449) 17,111
Minority interests and equity in net earnings of affiliates (529) (255) (907)
------- ------- -------
Net income (loss) $12,239 ($704) $16,204
======= ======= =======
Net income (loss) per common share:
Basic $0.70 $(0.04) $ 0.96
======= ======= =======
Diluted $0.69 $(0.04) $ 0.91
======= ======= =======
Weighted-average number of shares outstanding:
Basic 17,510 17,377 16,796
======= ======= =======
Diluted 17,850 17,377 17,892
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
32
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended June 30, 2002, 2001 and 2000
(in thousands)
Accumulated
Common Stock Capital Other
---------------------- in Excess Retained Comprehensive
Shares Amount of Par Earnings (Loss) Income Total
--------- --------- --------- --------- -------------- ---------
Balance, June 30, 1999 16,207 $405 $22,298 $102,860 $(6,290) $119,273
========= ========= ========= ========= ========= =========
Comprehensive income
Net income -- -- -- 16,204 -- 16,204
Foreign currency translation adjustments -- -- -- -- (3,811) (3,811)
---------
Total comprehensive income 12,393
Stock issued upon exercise of options 1,104 27 18,726 -- -- 18,753
Stock issued for business acquisition 25 1 997 -- -- 998
Income tax benefit from stock options
exercised -- -- 12,204 -- -- 12,204
--------- --------- --------- --------- --------- ---------
Balance, June 30, 2000 17,336 $433 $54,225 $119,064 $(10,101) $163,621
========= ========= ========= ========= ========= =========
Comprehensive loss
Net loss -- -- -- (704) -- (704)
Foreign currency translation adjustments -- -- -- -- (6,363) (6,363)
---------
Total comprehensive income (7,067)
Stock issued upon exercise of options 94 3 1,320 -- -- 1,323
Stock issued to third party 45 1 799 -- -- 800
Income tax benefit from stock options
exercised -- -- 171 -- -- 171
--------- --------- --------- --------- --------- ---------
Balance, June 30, 2001 17,475 $437 $56,515 $118,360 $(16,464) $158,848
========= ========= ========= ========= ========= =========
Comprehensive income
Net income -- -- -- 12,239 -- 12,239
Foreign currency translation adjustments -- -- -- -- 6,922 6,922
---------
Total comprehensive income 19,161
Stock issued upon exercise of options 142 3 2,580 -- -- 2,583
Stock retired (96) (2) (2,608) -- -- (2,610)
Income tax benefit from stock options
exercised -- -- 380 -- -- 380
--------- --------- --------- --------- --------- ---------
Balance, June 30, 2002 17,521 $438 $56,867 $130,599 $(9,542) $178,362
========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
33
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 2002, 2001 and 2000
(in thousands)
2002 2001 2000
---- ---- ----
Cash flows from operating activities:
Net income (loss) $12,239 $(704) $16,204
-------- -------- --------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 16,042 14,319 11,240
Amortization of capitalized software 4,567 1,766 3,025
Provision for losses on accounts receivable 5,073 4,198 5,646
Provision for inventory obsolescence 1,638 614 1,816
Undistributed earnings from equity investment and
minority interests 530 255 907
Provision for deferred income taxes 661 (9,828) (913)
Loss on other than temporary decline in investments -- 1,200 --
Income tax benefit from stock options exercised 380 171 12,204
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (3,053) 10,503 (3,683)
(Increase) decrease in inventories (3,143) 7,042 (468)
(Increase) decrease in prepaid expenses and other assets (2,653) 3,745 (4,285)
Increase (decrease) in accounts payable 3,847 (247) (6,547)
(Decrease) in accrued expenses and other current
liabilities (689) (8,142) (634)
(Decrease) in income taxes payable (27) (2,861) (11,011)
Increase (decrease) in deferred service revenue 6,897 4,602 (199)
-------- -------- --------
Net cash provided by operating activities 42,309 26,633 23,302
-------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (5,216) (8,056) (13,640)
Proceeds from dispositions of property, plant and equipment 54 59 164
Internally developed software (3,034) (8,866) (8,177)
Proceeds from sale of affiliates -- 54 --
Proceeds from settlement related to previous acquisition 200 -- --
Purchase of net district assets -- -- (1,372)
Purchase of equity interest in investee (51) (429) (2,000)
Net cash paid for acquisitions, minority interests and
contingent earn-out payments (4,038) (13,938) (11,541)
-------- -------- --------
Net cash used in investing activities (12,085) (31,176) (36,566)
-------- -------- --------
Cash flows from financing activities:
Principal payments on line of credit (17,382) (12,652) (14,108)
Proceeds from line of credit 31,562 17,037 14,113
Principal payments on long-term debt (3,418) (418) (2,874)
Proceeds from issuance of long-term debt -- -- 1,206
Principal payments on capital lease obligations (149) (450) (142)
Dividends to minority owners (371) -- (135)
Proceeds from issuance of stock 2,583 1,322 18,753
Repurchase of stock (2,610) -- --
-------- -------- --------
Net cash provided by financing activities 10,215 4,839 16,813
-------- -------- --------
Effect of exchange rate changes on cash (257) (51) (144)
-------- -------- --------
Net increase in cash and cash equivalents 40,182 245 3,405
Cash and cash equivalents at beginning of year 26,456 26,211 22,806
-------- -------- --------
Cash and cash equivalents at end of year $66,638 $26,456 $26,211
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $1,748 $1,132 $593
======== ======== ========
Income taxes $10,697 $14,034 $12,798
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
34
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
for the years ended June 30, 2002, 2001 and 2000
(in thousands)
Supplemental schedule of noncash financing and investing activities (in
thousands):
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.
In June 2000, the Company acquired all of the stock of Frontier Business
Technologies, Inc. ("FBTI"), Frontier infoSystems of North America, Inc.
("FIS") and Frontier Business Technologies of Canada, Inc. ("FBTC"). All
three companies were owned by the same shareholder. The purchase price
for all three companies combined was $1,925, which was accrued in June
2000 and paid in July 2000 (See Note 2 of Notes to Consolidated
Financial Statements). Additionally, the selling shareholder was
previously eligible to earn five earn-out payments over a 60-month
period. MICROS has since discharged in full this obligation for a
one-time and final payment in the amount of $206. The pro forma effects
of this acquisition are immaterial and are not presented.
The accompanying notes are an integral part of the consolidated
financial statements.
35
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
1. Description of business and summary of significant accounting policies:
Description of business
MICROS Systems, Inc. is a leading worldwide designer, manufacturer,
marketer, and servicer of enterprise information solutions for the
global hospitality industry. The information solutions consist of
application specific software and hardware systems, supplemented by a
wide range of services. The hospitality industry includes numerous
defined market segments such as lodging (including individual hotel
sites, hotel central reservation systems and customer information
systems), table service restaurants, quick service restaurants,
entertainment venues such as stadiums and arenas, business foodservice
operations, transportation foodservice, government operations and
cruise ships. (References to "MICROS" or the "Company" herein include
the operations of MICROS Systems, Inc. and its subsidiaries on a
consolidated basis.)
Basis of preparation and use of estimates
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of
America. Inherent in this process are estimates and assumptions made by
management that affect the amounts reported in the Company's financial
statements and accompanying notes. Although these estimates are based
on management's knowledge of current events and actions it may
undertake in the future, actual results may ultimately differ from
estimates.
Principles of consolidation
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. The earnings in
consolidated MICROS subsidiaries are recorded net of minority
interests. Investments in 15%- through 50%-owned affiliated companies
in which the Company exercises significant influence over operating and
financial affairs are included under the equity method. Otherwise,
investments are included at cost. All significant intercompany accounts
and transactions have been eliminated.
Foreign currency translation
The financial statements of MICROS's non-U.S. operations are translated
into U.S. dollars for financial reporting purposes. The assets and
liabilities of non-U.S. operations whose functional currencies are not
in U.S. dollar are translated at the fiscal year-end exchange rates,
while revenues and expenses are translated at month-end exchange rates
during the fiscal year. The cumulative translation effects are
reflected in shareholders' equity. Gains and losses on transactions
denominated in other than the functional currency of an operation are
reflected in other income (expense).
Revenue recognition
Revenue from hardware sales is recognized at the time of shipment with
a provision for estimated returns and allowances. Revenue from licensed
software sales is recognized in accordance with Statement of Position
("SOP") 97-2, "Software Revenue Recognition," as amended by SOP 98-9,
"Modification of SOP 97-2, Software Revenue Recognition with Respect to
Certain Transactions." If a third party can install the software,
revenue is recognized when shipped, with an appropriate deferral for
any undelivered software contract elements. However, if MICROS has the
proprietary knowledge to install the software, revenue is recognized
upon installation and when ready to go live, with an appropriate
deferral for any undelivered software contract elements. This deferral
is earned when significant obligations no longer exist. Revenue from
customer-specific development work is recognized under the completed
contract method. Service contract revenue is initially recorded as
deferred service revenue and is recognized on a pro rata basis over the
contract term. Revenue from the installation of the product and the
training of customer's staff is recognized as the work is performed.
36
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
1. Description of business and summary of significant accounting policies,
continued:
Cash equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Standard cost is
determined principally by the first-in, first-out pricing method.
Property, plant and equipment
Property, plant and equipment are stated at cost and depreciated using
the straight-line method over their estimated useful lives, ranging
from three to ten years. Leasehold improvements are amortized over the
life of the lease or estimated useful lives, whichever is shorter.
Maintenance and repairs are charged to expense as incurred, and the
costs of additions and improvements are capitalized. Any gain or loss
from the retirement or sale of an asset is credited or charged to
operations.
Depreciation expense for fiscal 2002, 2001 and 2000, was $7,906, $8,053
and $6,669, respectively.
Software for internal use
Internally used computer software is capitalized according to Statement
of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". The costs capitalized are
amortized on a straight-line basis over the estimated life of the
software.
Warranties
The Company's products are under warranty for defects in material and
workmanship for a period ranging from 12 to 24 months. The Company
establishes an accrual for estimated warranty costs at the time of
sale.
Capitalized software development costs
Software development costs, for software products to be licensed to
others, incurred prior to establishing technological feasibility are
charged to operations and included in research and development costs.
Software development costs incurred after establishing technological
feasibility and purchased software costs are capitalized on a
product-by-product basis until the product is available for general
release to customers upon which amortization begins. Annual
amortization, charged to cost of sales, is the greater of the amount
computed using the ratio that current gross revenues for a product bear
to the total of current and anticipated future gross revenues for that
product, or the straight-line method over the remaining estimated
economic life of the product. Amortization expense for fiscal 2002,
2001 and 2000, was $4,567, $1,766 and $3,025, respectively.
Research and development costs
Expenditures for research and development not capitalized as described
above are charged to operations as incurred.
Goodwill and intangible assets
Goodwill represents the excess of purchase price over the fair value of
the net assets of the acquired subsidiaries and investees. Goodwill and
intangible assets are stated on the basis of cost and are amortized on
a straight-line basis over their estimated periods of benefit, none of
which exceeds 10 years. Recoverability is assessed whenever adverse
events and changes in circumstances indicate that
37
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
1. Description of business and summary of significant accounting policies,
continued:
undiscounted cash flows previously anticipated warrant reassessment.
Amortization of goodwill and intangible assets for fiscal 2002, 2001
and 2000 was $8,136, $6,266 and $4,571, respectively.
Beginning in July 2002, the Company will discontinue the amortization
of goodwill based on Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets" (see New
Accounting Standards).
Financing costs related to long-term debt
Costs associated with obtaining long-term debt are deferred and
amortized over the term of the related debt.
Advertising costs
Advertising costs are charged to expense as incurred. Advertising
expenses for fiscal 2002, 2001 and 2000 were $2,722, $3,474 and $2,660,
respectively.
Bad debt
MICROS maintains allowances for doubtful accounts for estimated losses
which may result from the inability of our customers to make required
payments. These allowances are based on customer payment practices and
history, inquiries, credit reports from third parties and other
financial information. If the financial condition of our customers were
to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. Bad debt expense for
fiscal 2002, 2001 and 2000 were $4,986, $3,449 and $5,642,
respectively.
Income taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the expected
future tax consequences attributable to the differences between the
financial statement carrying amounts and the tax basis of assets and
liabilities. Deferred tax assets and liabilities are measured using the
enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on the
deferred tax assets and liabilities of a change in tax rate is
recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts more likely than not to be realized. If the
Company determines that it will not be able to realize all or part of
its net deferred tax asset in the future, an adjustment to the deferred
tax asset would be charged to income in the period such determination
is made.
Net income (loss) per share
Basic net income (loss) per common share is computed by dividing net
income (loss) by the weighted-average number of shares outstanding.
Diluted net income per share includes the dilutive effect of stock
options.
A reconciliation of the weighted-average number of common shares
outstanding assuming dilution is as follows (in thousands):
2002 2001 2000
---- ---- ----
Average common shares outstanding 17,510 17,377 16,796
Dilutive effect of outstanding stock options 340 -- 1,096
--- -- -----
Average common shares outstanding assuming dilution 17,850 17,377 17,892
====== ====== ======
As of June 30, 2002, 1,552,896 stock options were excluded in the above
reconciliation, as these options were anti-dilutive. In fiscal year
2001 and 2000, 2,570,047 and 413,980 stock options were excluded,
respectively.
38
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
1. Description of business and summary of significant accounting policies,
continued:
Stock-based compensation
As permitted under SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has elected to follow Accounting Principles
Board Opinion ("APB") No. 25," Accounting for Stock Issued to
Employees." Accordingly, no compensation expense is recognized in the
Company's financial statements because the exercise price of the
employee stock options equals the market price of the Company's common
stock on the date of grant. For disclosure purposes, pro forma net
income (loss) and net income (loss) per share impacts are provided as
if the fair value method had been applied. (See Note 10 of Notes to
Consolidated Financial Statements).
Fair value of financial instruments
The carrying amounts of the Company's financial instruments reflected
in the consolidated balance sheet approximate fair values.
New accounting standards
In July 2002, The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities."
SFAS No. 146 nullifies the guidance in Emerging Issues Task Force
("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." Under EITF No. 94-3, an
entity recognized a liability for an exit cost on the date that the
entity committed itself to an exit plan. In SFAS No. 146, the FASB
acknowledges that an entity's commitment to a plan does not, by itself,
create a present obligation to the other parties that meets the
definition of a liability and requires that a liability for a cost that
is associated with an exit or disposal activity be recognized when the
liability is incurred. It also establishes that fair value is the
objective for the initial measurement of the liability. SFAS No. 146
will be effective for exit or disposal activities that are initiated
after December 31, 2002. The Company believes that the adoption of SFAS
No. 146 will not have a material effect on the Company's consolidated
financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which is effective for
the Company beginning in fiscal year 2002. SFAS No. 144 supersedes
previous guidance for financial accounting and reporting for the
impairment or disposal of long-lived assets and for segments of a
business to be disposed of. SFAS No. 144 retains the fundamental
provisions of existing generally accepted accounting principles with
respect to recognition and measurement of long-lived asset impairment
contained in SFAS No. 121, "Accounting for the Impairment of Long Lived
Assets and for Long-Lived Assets to be Disposed Of." However, SFAS No.
144 provides new guidance intended to address certain significant
implementation issues associated with SFAS No. 121, including expanded
guidance with respect to appropriate cash flows to be used, whether
recognition of any long-lived asset impairment is required, and if
required, how to measure the amount of impairment. SFAS No. 144 also
requires that any net assets to be disposed of by sale be reported at
the lower of carrying value or fair market value less costs to sell,
and expands the reporting of discontinued operations to include any
component of an entity with operations and cash flows that can be
clearly distinguished from the rest of the Company. The Company
believes that the adoption of SFAS No. 144 will not have a material
effect on the Company's consolidated financial statements.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
eliminates the pooling of interest method of accounting for business
combinations. The statement also includes certain transition provisions
for intangible assets acquired in a business combination completed
prior to July 1, 2001. The provisions of the final statement applies to
all business combinations initiated after June 30, 2001. SFAS No. 142
applies to all acquired intangible assets whether acquired singly, in a
group, or in a business combination. Under the new statement, goodwill
will no longer be amortized but will be evaluated for impairment
annually. Goodwill will not be tested for impairment in accordance with
SFAS 121, "Accounting for Long-Lived Assets and
39
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
1. Description of business and summary of significant accounting policies,
continued:
Long-Lived Assets to be Disposed of" but will be tested using an
approach prescribed in the statement. The Company will adopt the
provisions of SFAS No. 142 effective July 1, 2002. Based on the
valuations performed by a third party, the Company will discontinue the
amortization of goodwill in fiscal 2003.
In September 2000, the 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 adopted EITF 00-10 as of July 2001. All
comparative financial statements reflect the change in classification.
Reclassifications
Certain balances have been reclassified to conform to fiscal 2002
presentation.
2. Acquisitions:
The Company did not make any acquisitions in fiscal 2002. In fiscal
2001 and 2000 the Company acquired the stock of nine companies. The
Company also purchased assets and equity interests during fiscal 2001
and 2000. The most significant acquisitions are described below:
Indatec
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. Subsequent to this
payment the purchase price was reduced by DM 329 due to adjustments to
the net assets. Goodwill related to this acquisition was DM 11,698 at
the date of acquisition (approximately $5,602 at the exchange rate as
of the date of acquisition) and is being amortized over seven years.
The pro forma effects of this acquisition are immaterial and are not
presented.
Hospitality Solutions International
In October 2000, the Company purchased the assets of the hospitality
division of Hospitality Solutions International, Inc. ("HSI"). Based in
Scottsdale, Arizona, HSI's hospitality division is a top developer of
technology solutions for the hospitality industry. HSI's products
include the point-of-service and enterprise systems for restaurants, as
well as hotel management software. The purchase price for the assets of
$3,900 was paid in November 2000. As part of the acquisition, certain
liabilities of HSI were assumed. Goodwill related to this acquisition
was $5,618 at the date of acquisition and is being amortized over ten
years. Subsequent to the acquisition, the goodwill was increased by
$638 due to adjustments to the net assets. The goodwill balance at June
30, 2002 was $6,256. The pro forma effects of this acquisition are
immaterial and are not presented.
Frontier Business Technologies, Inc., Frontier infoSystems of North
America, Inc. and Frontier Business Technologies of Canada, Inc.
In June 2000, the Company acquired all of the stock of Frontier
Business Technologies, Inc. ("FBTI"), Frontier InfoSystems of North
America, Inc. ("FIS") and Frontier Business Technologies of Canada,
Inc. ("FBTC"). All three companies were owned by the same shareholder.
The purchase price for all three companies combined was $1,925, which
was paid in July 2000. The goodwill related to this acquisition was
$2,363 at the date of acquisition and is being amortized over seven
years. In May 2002, in consideration for the release of any claims or
rights to the additional earn-out payments that could have been earned
over a 60-month period, the Company made a final payment to the former
shareholder in the amount of $206. The goodwill balance at June 30,
2002 was $2,569. The pro forma effects of this acquisition are
immaterial and are not presented.
40
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
2. Acquisitions, continued:
Stanley Hayman and Company, Inc. and Micros of South Florida, Inc.
In December 1999, the Company acquired all of the stock of Stanley
Hayman and Company, Inc. ("Hayman") and Micros of South Florida, Inc.
("MSF"). Hayman and MSF are affiliate companies with substantially
similar shareholders. The purchase price for both companies was $5,000,
which was paid in January 2000. The goodwill related to this
acquisition was $4,064 at the date of acquisition and is being
amortized over seven years. Additional payments of $252, $248 and $196
were made in July 2000, December 2000, and April 2001, respectively. In
September 2001, in consideration for the release of any claims or
rights to the six additional earn-out payments that could have been
earned over a 60-month period, the Company made a final payment to the
former shareholders in the amount of $3,433. The goodwill balance at
June 30, 2002 was $8,193. The pro forma effects of this acquisition are
immaterial and are not presented.
OPUS 2 Revenue Technologies, Inc.
In October 1999, the Company acquired all of the stock of OPUS 2
Revenue Technologies, Inc. ("OPUS"), pursuant to the terms of a stock
purchase agreement. Based in Portsmouth, New Hampshire, OPUS engages in
the development, marketing and sale of yield and revenue management
software systems designed for the hospitality industry. The purchase
price of $4,800 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. The goodwill related to this acquisition was $5,795
at the date of acquisition and is being amortized over seven years.
Additional payments of $450 and $2,000 were paid in January 2000 and
May 2001, respectively, for the purchase of OPUS. In January 2002, the
Company paid $261 for a tax settlement related to this acquisition. As
part of the purchase agreement, the former shareholders had the right
to earn: (i) three earn-out payments based on OPUS revenues (which have
not been earned, and the contractual right to has now expired); and
(ii) a performance payment based on the completion of the development
of certain new software, which was paid in May 2001. The goodwill
balance at June 30, 2002 was $8,506. The pro forma effects of this
acquisition are immaterial and are not presented.
During the fiscal year ending June 30, 2002, OPUS was merged into
another wholly-owned MICROS subsidiary, MSI Delaware, Inc., with the
latter subsidiary being the surviving entity.
3. Inventories:
The components of inventories are as follows:
2002 2001
---- ----
Raw materials $6,850 $3,736
Work-in-process 986 445
Finished goods 23,375 24,366
------ ------
$31,211 $28,547
======= =======
4. Property, plant and equipment:
The components of property, plant and equipment are as follows:
2002 2001
---- ----
Buildings and leasehold improvements $3,579 $2,997
Machinery and equipment 6,579 6,396
Furniture and fixtures 12,925 12,632
Computer hardware and software 41,053 36,895
------ ------
Total property, plant and equipment 64,136 58,920
Accumulated depreciation and amortization (42,669) (35,367)
-------- --------
Net property, plant and equipment $21,467 $23,553
======= =======
41
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
5. Line of credit:
The Company currently has a $45,000 multi-currency committed line of
credit expiring on December 31, 2002. The financing agreement was
amended on April 30, 2001, to include a security interest in inventory
and receivables located in the United States. Prior to this upcoming
expiration date, the Company anticipates that it will renew this line
of credit for an additional one-year period. Interest due under the
line of credit is calculated as follows: (i) if the advance is in U.S.
dollars, at the option of the Company, either the bank's prime rate
minus an additional prime rate percentage, or the LIBOR rate plus an
additional LIBOR rate percentage; however, (ii) if the advance is made
in a foreign currency, the LIBOR rate for the applicable denominated
currency, plus an additional LIBOR rate percentage. The Company has a
one-time option to convert the line of credit into a three-year secured
term loan upon expiration of the line of credit. Interest due under the
three-year secured term loan shall be, at the option of the Company,
the prime rate plus one quarter of one percent (0.25%) or the floating
LIBOR rate. Under the terms of the current loan agreement, the Company
may borrow up to $45,000 less the amount of outstanding letters of
credit and a fixed amount equal to $1,500 if the Company enters into
any exchange contracts. The agreement also requires the Company to
satisfy certain financial covenants and limits the assumption of
additional debt and restricts the Company's payment of dividends other
than stock dividends.
The Company also has a credit relationship with a European bank in the
amount of EUR 7,600 (approximately $7,600 at the June 30, 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 the Company has
significant international operations, its Euro 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.
As of June 30, 2002, the total outstanding line of credit is $18,700
consisting of: US $15,000, ZAR (South African Rand) 14,600
(approximately $1,400 at the June 30, 2002 exchange rate), SEK (Swedish
Krona) 7,500 (approximately $800 at the June 30, 2002 exchange rate),
AUD (Australian Dollar) $500 (approximately $300 at the June 30, 2002
exchange rate) and JPY (Japanese Yen) 140,000 (approximately $1,200 at
the June 30, 2002 exchange rate). The Company has approximately $32,400
available to borrow. The amount available to borrow was reduced by
$1,500 for exchange contracts as mandated in the amended financing
agreement.
6. Long-term debt:
As of June 30, 2002, the Company has no long-term debt. The components
of long-term debt for fiscal 2002 and 2001 are as follows:
2002 2001
---- ----
Balloon loan $ - $2,174
Note payable - 1,091
Term loans - -
Notes payable - 31
- --
- 3,296
Less current portion - 2,317
- -----
$ - $979
=== ====
On September 1, 1998, the Company acquired a balloon loan in the amount
of DM 5,000 from Commerzbank. The Company used the full proceeds to
reduce its DM-denominated borrowings under the Bank of America line of
credit. The full amount of the principal was discharged in full in
September 2001.
On May 1, 2000, the Company signed a promissory note with the Maryland
Department of Business and Economic Development. The note proceeds were
used to purchase furniture for the new corporate office in Columbia,
Maryland. The loan was for ten years, and was satisfied and discharged
in full in February 2002.
42
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
7. Accrued expenses and other current liabilities:
The components of accrued expenses and other current liabilities are as
follows:
2002 2001
---- ----
Compensation and related taxes $13,933 $11,405
Commissions 2,665 2,450
Volume rebates and credits due customers 1,530 2,140
Deposits received from customers 5,464 7,691
VAT and sales taxes 2,274 2,236
Payments due for acquisitions - 279
Accrued payables and other 8,688 9,216
----- -----
$34,554 $35,417
======= =======
8. Commitments and contingencies:
Leases
The Company and its subsidiaries lease office space under operating
leases expiring at various dates through 2015 and equipment leases
under both operating and capital leases. Rent expense under these
leases for fiscal 2002, 2001 and 2000 was $13,042, $13,283 and $8,433
respectively.
Future minimum lease commitments at June 30, 2002 for those leases
having an initial or remaining non-cancelable lease term in excess of
one year are as follows:
Operating Capital
Year ending June 30, Leases Leases
-------------------- ------ ------
2003 $11,866 $147
2004 10,044 84
2005 7,732 87
2006 5,635 39
2007 4,569 41
2008 and thereafter 12,553 28
------- ----
$52,399 426
=======
Current portion 147
----
Long-term obligation under capital lease $279
====
The Company's worldwide corporate headquarters are located in Columbia,
Maryland. Pursuant to the terms of a 10-year lease agreement (the
"Lease Agreement") expiring on March 1, 2010, MICROS leases the entire
five-story structure consisting of approximately 247,624 square feet,
from Columbia Gateway Office Corporation. Currently, the Company
subleases one of the five floors comprising 50,000 square feet. The
sublease expires on October 31, 2002 and the sub-tenant does not intend
to renew. MICROS has engaged an independent brokerage firm to find a
suitable tenant to sublease the space. There are no assurances that
MICROS will be successful in finding a suitable and credit-worthy new
sub-tenant. This lease commitment is expected to be approximately
$29,052 over the remaining life of the lease.
Effective August 1, 2001, MICROS leased a facility of approximately
76,000 square feet in Hanover, Maryland as a replacement to its former
warehouse/staging facility in Beltsville, Maryland. The Company
conducts light assembly, manufacturing, repair and configuration at
this location. The lease expires in July 2009. However, the Company has
the right to terminate in July 2006.
Legal proceedings
MICROS is and has been involved in legal proceedings arising in the
normal course of business. The Company is of the opinion, based upon
presently available information and the advice of counsel concerning
pertinent legal matters, that any resulting liability should not have a
material adverse effect on the Company's results of operations or
financial position.
43
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
9. Shareholders' Equity
In fiscal 2002, the Board of Directors authorized the purchase of up to
1,000,000 shares of the Company's stock. During fiscal 2002, the
Company purchased 95,600 shares at an aggregate cost of $2,610.
10. Stock options:
The Company has incentive and non-qualified stock options outstanding
that were granted to directors, officers, and other employees pursuant
to authorization by the Board of Directors. The exercise price of all
options equals the market value on the date of the grant. Substantially
all of the options granted are exercisable pursuant to a three-year
vesting schedule whereby one-third of the options vest upon the first
anniversary of the grant, the second third of the options vest upon the
second anniversary of the grant, and the final third of the options
vest upon the third anniversary of the grant. All options expire either
five or ten years from the date of grant. As of June 30, 2002, the
Company has approximately 530,000 authorized options available to
grant.
The Company applies the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for the stock option
awards. Accordingly, the Company has not recognized any related
compensation expense in the consolidated statements of operations.
The following table summarizes the status of, and changes in, the Company's
stock option plans during the past three years:
Stock Weighted-average Options Weighted-average
Options Exercise Price Exercisable Exercise Price
----------- ----------------- ----------- ------------------
(000's) (000's)
Balance, June 30, 1999 3,445 $20.40 1,525 $16.92
-----
Options granted 918 46.87
Options canceled (367) 27.28
Options exercised (1,111) 17.21
-------
Balance, June 30, 2000 2,885 $29.17 1,407 $19.75
-------
Options granted 1,060 19.10
Options canceled (301) 33.24
Options exercised (94) 14.05
-------
Balance, June 30, 2001 3,550 $26.24 1,906 $25.25
-------
Options granted 525 23.96
Options canceled (179) 23.63
Options exercised (141) 18.26
-------
Balance, June 30, 2002 3,755 $26.35 2,453 $26.68
=======
Additional information regarding stock options outstanding at June 30, 2002 is
as follows:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average
Weighted Remaining Weighted
Average Contractual Average
Range of Exercise Prices Shares Price Life (in years) Shares Price
- ------------------------ ------ ----- --------------- ------ -----
(000's) (000's)
$14.78 to $17.75 790 $15.55 5.89 586 $15.11
$18.06 to $22.97 784 20.51 8.59 268 20.23
$22.99 to $25.16 965 24.06 7.02 611 23.44
$26.72 to $48.88 1,182 38.48 6.99 965 36.87
$52.69 to $56.34 34 55.14 7.63 23 55.14
-- --
$14.78 to $56.34 3,755 $26.35 7.11 2,453 $26.68
===== =====
44
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
10. Stock options, continued:
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
Company to make certain disclosures as if the fair value based method
of accounting had been applied to the Company's stock option grants
made subsequent to fiscal 1995. Accordingly, the Company estimated the
grant-date fair value of each option awarded in fiscal years 2002, 2001
and 2000 using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
2002 2001 2000
---------- ---------- ----------
Risk-free interest rate 4.4% 5.6% 6.1%
Expected life 5.8 years 5.2 years 5.8 years
Expected volatility 52% 55% 52%
Expected dividend yield 0% 0% 0%
Had compensation cost been determined based on the weighted-average
estimate of the fair value of each option granted of $12.74, $10.35 and
$26.14 in fiscal 2002, 2001 and 2000, respectively, the Company's net
income would be reduced to pro forma amounts as follows:
Year ended June 30,
-------------------
2002 2001 2000
-------- -------- -------
Net income
As reported $12,239 $(704) $16,204
Pro forma $3,660 $(9,616) $6,803
Basic net income per share
As reported $0.70 $(0.04) $0.96
Pro forma $0.21 $(0.55) $0.41
Diluted net income per share
As reported $0.69 $(0.04) $0.91
Pro forma $0.21 $(0.55) $0.38
11. Income taxes:
Pretax accounting income for the years ended June 30 was taxed under
the following jurisdictions:
2002 2001 2000
---------- ---------- ----------
United States $(8,985) $(19,382) $(761)
Non-U.S. 28,330 19,616 29,399
------- -------- ------
$19,345 $234 $28,638
======= ======= =======
The components of income tax expense are:
2002 2001 2000
---------- ---------- ----------
Current:
Federal $(5,836) $ - $(581)
State - 364 370
Foreign 11,752 10,147 12,651
------ ------ ------
Total current 5,916 10,511 12,440
----- ------ ------
Deferred:
Federal 1,699 (8,762) (339)
State - - (22)
Foreign (1,038) (1,066) (552)
------- ------- -----
Total deferred 661 (9,828) (913)
--- ------- -----
Total tax expense $6,577 $683 $11,527
====== ==== =======
45
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
11. Income taxes, continued:
The total tax provision is different from the amount that would have
been recorded by applying the U.S. statutory federal income tax rate to
income before taxes. The reconciliation of these differences is as
follows:
2002 2001 2000
---- ---- ----
At statutory rate 35.0% 35.0% 35.0%
(Decrease) increase resulting from:
State taxes, net of federal tax benefit (2.2) (434.7) (0.1)
Tax credits (52.0) (2,563.9) (1.3)
Extraterritorial income exclusion benefit (1.0) -- --
Effect of tax rates in foreign jurisdictions 4.7 419.7 6.7
Subpart F inclusion 47.1 -- --
Permanent differences 2.0 2,835.8 (0.3)
Other 0.4 -- 0.3
------ ------- ------
Effective tax rate 34.0% 291.9% 40.3%
====== ======= ======
Except for certain earnings that the Company intends to reinvest
indefinitely, a provision has been made for the estimated U.S. federal
income tax liabilities applicable to undistributed earnings of
affiliates and associated companies. It is currently not practicable to
determine the U.S. federal income tax liability, if any, that would be
payable if such earnings were not reinvested indefinitely.
The following summarizes the significant components of the Company's
deferred tax assets and liabilities:
2002 2001
---------- ----------
Bad debt $2,199 $1,802
Accruals not currently deductible for tax 3,541 4,047
Inventory 1,267 1,328
Net operating loss carryforwards 5,111 12,890
Tax credit carryforward - 6,170
Purchased in-development software technology write-off 4,309 4,006
Tax impact of technology transfer 11,460 -
Other 642 1,559
--- -----
Total deferred tax assets 28,529 31,842
------ ------
Depreciation (1,874) (657)
Capitalized software development costs (8,077) (13,276)
Other (527) (827)
----- -----
Total deferred tax liabilities (10,480) (14,760)
-------- --------
Valuation allowance (814) (1,314)
----- -------
Net deferred tax asset $17,235 $15,768
======= =======
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. At June 30, 2002 and 2001, the Company had potential tax
benefits of $5,111 and $12,890, respectively, related to U.S. and
foreign net operating loss carryforwards for income tax purposes.
During fiscal 2002, the Company entered into a related party sale of
intellectual property. The tax impact of the sale is being amortized
over the economic life of the intellectual property for financial
statement purposes.
The tax losses and tax credit carryforwards (if not utilized against
taxable income) expire beginning 2004 with many having an indefinite
expiration. A valuation allowance of $814 and $1,314 has been provided
at June 30, 2002 and 2001, respectively, to offset the related deferred
tax assets due to uncertainty of realizing the benefit of the loss
carryforwards and tax credits.
46
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
12. Other income (expense), net:
Other income (expense) is comprised of the following:
2002 2001 2000
--------- --------- --------
Foreign exchange gain (loss), net $404 $(1,213) $(691)
Investment write-down -- (1,200) --
Other, net (168) (1,397) (420)
----- -------- --------
Total other income (expense), net $236 $(3,810) $(1,111)
===== ======== ========
13. Related party transactions:
During fiscal 2002 and 2001, the Company compensated Louis M. Brown,
Jr., Vice-Chairman of the Board, $308 and $209, respectively, for
consulting services provided to the Company. For fiscal 2002, Mr. Brown
earned a base consulting fee of $230 and a bonus of $78. The bonus was
accrued in fiscal year 2002 and will be paid in September 2002.
Effective June 30, 1995, and amended February 1, 1999, and April 26,
2001, the Company and Mr. Brown entered into a Consulting Agreement
terminating June 30, 2005, pursuant to which Mr. Brown is to provide on
the average 20 hours per week of consulting services to the Company in
exchange for a base consulting fee plus a target bonus.
During fiscal 2002 and 2001, the Company paid J. Alan Hayman $1,596 and
$324, respectively, for earn-out payment obligations as part of the
1999 acquisition by MICROS of Stanley Hayman and Company, Inc. and
Micros of South Florida, Inc., each entity in which he was a 46.5%
shareholder. There are no additional earn-out payments required. In
addition, during fiscal 2002 and 2001, the Company paid a real estate
partnership in which J. Alan Hayman holds a 50% interest, $427 and
$402, respectively, for the rental of the Laurel, Maryland facilities.
The rental rates were fair market value rates, as determined by two
independent valuations. The Laurel lease expires on December 31, 2002,
and shall not be renewed.
14. Employee benefit plan:
The Company sponsors an employee savings plan, which conforms to the
provisions of Section 401(k) of the Internal Revenue Code. The Plan
covers substantially all full-time employees in the United States and
allows employees to voluntarily defer up to 15% of their income through
contributions to the Plan. The Plan for corporate employees matches
fifty percent of the first five percent of each participating
employee's voluntary contributions. Furthermore, the Company may elect
to make additional contributions, at its discretion. Company
contributions made during the years ended June 30, 2002, 2001 and 2000
totaled $1,278, $1,048 and $850, respectively. The Company does not
have any material obligations to past or present employees related to
post employment benefits.
The Company also sponsors a non-qualified employee stock purchase plan,
in which substantially all full-time employees in the United States may
elect to participate. The plan allows qualified employees the right to
defer up to 10% of their base salary, and to use such deferred proceeds
for the purchase of MICROS stock at a price equal to 90% of the market
value on a pre-stipulated measurement date.
15. Segment reporting data:
The Company develops, manufactures, sells and services point-of-sale
computer systems, property management systems, central reservation and
central information systems products for the hospitality industry.
MICROS is organized and operates in two segments: U.S. and
International. The International segment is primarily in Europe, the
Pacific Rim and Latin America. For purposes of applying SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
management views the U.S. and International segments separately in
operating the business, although the products and services are similar
for each segment.
47
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
15. Segment reporting data, continued:
A summary of the Company's operating segments is as follows:
Year Ended June 30,
-----------------------------------------
2002 2001 2000
---------- --------- ---------
Revenues (1):
United States $210,335 $186,795 $179,554
International 206,502 185,502 232,272
Intersegment eliminations (49,674) (45,521) (49,972)
--------- --------- ---------
Total revenues $367,163 $326,776 $361,854
========= ========= =========
Income before taxes, minority interests and equity in net earnings
of affiliates (1):
United States $(2,754) $(17,944) $(3,561)
International 54,323 44,705 65,259
Intersegment eliminations $(32,224) $(26,527) $(33,060)
--------- --------- ---------
Total income before taxes, minority interests
and equity in net earnings of affiliates $19,345 $234 $28,638
========= ========= =========
Identifiable assets (2):
United States $133,653 $145,568 $158,552
International 179,177 128,888 120,425
--------- --------- ---------
Total identifiable assets $312,830 $274,456 $278,977
========= ========= =========
Capital expenditures (2):
United States $3,160 $4,955 $8,489
International 2,056 3,101 5,151
--------- --------- ---------
Total capital expenditures $5,216 $8,056 $13,640
========= ========= =========
Depreciation and amortization (2):
United States $9,982 $8,874 $6,535
International 6,060 5,445 4,705
--------- --------- ---------
Total depreciation and amortization $16,042 $14,319 $11,240
========= ========= =========
(1) Amounts based on the location of the customer.
(2) Amounts based on the location of the selling entity.
MICROS products are distributed in the U.S. and internationally,
primarily in Europe, the Pacific Rim, and Latin America through
subsidiaries, independent dealers/distributors and Company-owned sales
and service offices. The Company's principal customers are lodging,
food service-related businesses, and entertainment venues. No single
customer accounts for 10% or more of the Company's consolidated
revenues.
Geographic revenue information for the three years ended June 2002 is
based on the location of the selling entity. Long-lived assets shown by
geographic location represent property, plant, and equipment and are
based on the physical location of the assets at the end of each fiscal
year. Substantially all intangible assets do not have a physical or
geographic location; therefore, intangible assets are not included
below.
Revenues from unaffiliated customers by geographic location are as
follows:
2002 2001 2000
----------- ----------- -----------
United States $194,433 $171,898 169,202
International 172,730 154,878 192,652
------- ------- -------
Net revenue $367,163 $326,776 $361,854
======== ======== ========
Significant countries included above:
Germany $44,160 $53,114 $45,709
United Kingdom 25,892 22,043 30,441
Australia 12,944 11,167 12,972
France 3,489 4,322 11,151
48
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
15. Segment reporting data, continued:
Long-lived assets by geographic location are as follows:
2002 2001 2000
----------- ----------- -----------
United States $14,786 $17,099 $16,468
International 6,681 6,454 7,864
----- ----- -----
Total long-lived assets $21,467 $23,553 $24,332
======= ======= =======
Significant countries included above:
Sweden $2,024 $1,852 $2,229
Germany 1,233 1,136 1,356
United Kingdom 302 486 616
France 261 148 175
16. Quarterly financial information (unaudited):
Quarterly financial information for fiscal 2002 and 2001 is presented
in the following tables:
First Second Third Fourth
2002 Quarter Quarter Quarter Quarter
- ---- ------- ------- ------- -------
Revenue $83,511 $90,899 $92,378 $100,375
----------------------------------------------------------
Gross margin $40,068 $43,074 $43,842 $50,153
----------------------------------------------------------
Income from operations $2,807 $3,913 $4,528 $7,516
----------------------------------------------------------
Net income $879 $2,485 $3,685 $5,190
----------------------------------------------------------
Basic net income per common share $0.05 $0.14 $0.21 $0.30
----------------------------------------------------------
Diluted net income per common share $0.05 $0.14 $0.21 $0.29
----------------------------------------------------------
Stock Prices (in dollars)
- -------------------------
High $28.40 $26.12 $30.78 $29.07
Low $16.80 $17.01 $20.25 $25.53
===============================================================================
First Second Third Fourth
2001 Quarter Quarter Quarter Quarter
- ---- ------- ------- ------- -------
Revenue $74,009 $80,097 $81,134 $90,154
----------------------------------------------------------
Gross margin $35,865 $40,335 $40,993 $46,835
----------------------------------------------------------
(Loss) income from operations ($1,510) $61 $272 $5,176
----------------------------------------------------------
Net (loss) income ($919) ($964) $69 $1,110
----------------------------------------------------------
Basic net (loss) income per common share ($0.05) ($0.06) $0.00 $0.06
----------------------------------------------------------
Diluted net (loss) income per common share ($0.05) ($0.06) $0.00 $0.06
----------------------------------------------------------
Stock Prices (in dollars)
- -------------------------
High $26.00 $23.50 $21.94 $24.68
Low $14.69 $14.88 $16.31 $16.81
==============================================================================
49
MICROS SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
for the years ended June 30, 2002, 2001 and 2000 (in thousands)
Balance at Charged Balance
beginning to at end
Description of period expenses Deductions Other (1) of period
---------------------------------------------- ------------- ------------- ---------- --------- ----------
Year ended June 30, 2002:
Allowance for doubtful accounts $7,508 $5,073 $2,569 $(1,031) $8,981
Reserve for inventory obsolescence 4,236 1,638 1,529 (2) 612 4,957
----- ----- ----- --- -----
$11,744 $6,711 $4,098 $(419) $13,938
======= ====== ====== ====== =======
Year ended June 30, 2001:
Allowance for doubtful accounts $7,791 $4,198 $4,010 $(471) $7,508
Reserve for inventory obsolescence 3,799 614 530 (2) 353 4,236
----- --- --- --- -----
$11,590 $4,812 $4,540 $(118) $11,744
======= ====== ====== ====== =======
Year ended June 30, 2000:
Allowance for doubtful accounts $3,618 $5,646 $1,260 $(213) $7,791
Reserve for inventory obsolescence 4,289 1,816 2,301 (2) (5) 3,799
----- ----- ----- --- -----
$7,907 $7,462 $3,561 $(218) $11,590
====== ====== ====== ====== =======
(1) Primarily related to foreign currency translation.
(2) Material scrapped or otherwise disposed.
50
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: 9-30-02 By: /s/Gary C. Kaufman
------- --- -------------------
Gary C. Kaufman
Executive Vice President, Finance and
Administration/Chief Financial Officer
Date: 9-30-02 By: /s/Cynthia A. Russo
------- --- --------------------
Cynthia A. Russo
Vice President and Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, and in the capacities and on the dates indicated.
Name Title
- ----------------------- -----------------------
/s/A. L. Giannopoulos Chairman, President and 9-30-02
- ------------------------ Chief Executive Officer
A. L. Giannopoulos
/s/Gary C. Kaufman Executive Vice President 9-30-02
- ------------------------ Finance and Administration
Gary C. Kaufman Chief Financial Officer
/s/Louis M. Brown, Jr. 9-30-02
- ------------------------ Director and
Louis M. Brown, Jr. Vice Chairman of the Board
/s/F. Suzanne Jenniches 9-30-02
- ------------------------ Director
F. Suzanne Jenniches
/s/John G. Puente 9-30-02
- ---------------------- Director
John G. Puente
/s/Dwight S. Taylor 9-30-02
- ------------------------ Director
Dwight S. Taylor
/s/William S. Watson 9-30-02
- ------------------------ Director
William S. Watson
51
CERTIFICATIONS
I, A.L. Giannopoulos, certify that:
1. I have reviewed this Annual Report on Form 10-K of MICROS
Systems, Inc. (the "Registrant");
2. Based on my knowledge, this Annual Report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this Annual Report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the Registrant as of, and for, the periods presented in this Annual Report.
By: /s/ A. L. Giannopoulos
------------------------
Chairman, President and
Chief Executive Officer
Date: September 30, 2002
I, Gary C. Kaufman, certify that:
1. I have reviewed this Annual Report on Form 10-K of MICROS
Systems, Inc. (the "Registrant");
2. Based on my knowledge, this Annual Report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this Annual Report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the Registrant as of, and for, the periods presented in this Annual Report.
By: /s/ Gary C. Kaufman
------------------------
Executive Vice President,
Finance and Administration,
and Chief Financial Officer
Date: September 30, 2002
52
EXHIBIT INDEX
3(i). Articles of Incorporation of the Company are incorporated
herein by reference to Exhibit 3 to the Annual Report on Form
10-K of the Company for the Fiscal Year ended June 30, 1990.
3(i)(a). Articles of Amendment to Articles of Incorporation are
incorporated herein by reference to Exhibit 3(i) to the
Quarterly Report on Form 10-Q of the Company for the period
ended December 31, 1997.
3(i)(b). Articles of Amendment to Articles of Incorporation are
incorporated herein by reference to Exhibit 3(i) to the
Quarterly Report on Form 10-Q of the Company for the period
ended December 31, 1998.
3(ii). By-laws of the Company as in effect on the date hereof is
incorporated herein by reference to Exhibit 3 to the Annual
Report on Form 10-K of the Company for the Fiscal Year ended
June 30, 1990.
10a1. Amendment and Restatement of MICROS Systems, Inc. Stock Option
Plan is incorporated herein by reference to Exhibit 4.1 to the
Registration Statement on Form S-8 of the Company filed on
February 16, 1990.
10a2. First Amendment to the Amendment and Restatement of MICROS
Systems, Inc. Stock Option Plan constituting Exhibit 10a1
hereto is incorporated herein by reference to Exhibit 4.2 to
the Registration Statement on Form S-8 of the Company filed on
February 16, 1990.
10b1. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is
incorporated herein by reference to Exhibit A to the Proxy
Statement of the Company for the 1993 Annual Meeting of
Shareholders.
10b2. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is
incorporated herein by reference to Exhibit A to the Proxy
Statement of the Company for the 1995 Annual Meeting of
Shareholders.
10b3. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is
incorporated herein by reference to Exhibit A to the Proxy
Statement of the Company for the 1996 Annual Meeting of
Shareholders.
10b4. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is
incorporated herein by reference to Exhibit A to the Proxy
Statement of the Company for the 1997 Annual Meeting of
Shareholders.
10b5. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is
incorporated herein by reference to Exhibit A to the Proxy
Statement of the Company for the 1998 Annual Meeting of
Shareholders.
10b6. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is
incorporated herein by reference to Exhibit A to the Proxy
Statement of the Company for the 1999 Annual Meeting of
Shareholders.
10b7. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is
incorporated herein by reference to Exhibit A to the Proxy
Statement of the Company for the 2001 Annual Meeting of
Shareholders.
10c. Underwriting Agreement dated July 6, 1995 by and among MICROS
Systems, Inc., Westinghouse Electric Corporation, Westinghouse
Holdings Corporation, J.P. Morgan Securities, Inc., Morgan
Stanley & Co. Incorporated and Smith Barney, Inc. is
incorporated herein by reference to Exhibit 10d to the Annual
Report on Form 10-K of the Company for the Fiscal Year ended
June 30, 1995.
10d. Employment Agreement dated June 1, 1995 between MICROS
Systems, Inc. and A. L. Giannopoulos is incorporated herein by
reference to Exhibit 10e to the Annual Report on Form 10-K of
the Company for the Fiscal Year ended June 30, 1995.
53
10e. First Amendment to Employment Agreement dated February 6, 1997
between MICROS Systems, Inc. and A. L. Giannopoulos is
incorporated herein by reference to Exhibit 10 to the
Quarterly Report on Form 10-Q of the Company for the period
ended December 31, 1996.
10f. Second Amendment to Employment Agreement dated February 1,
1998 between MICROS Systems, Inc. and A. L. Giannopoulos is
incorporated herein by reference to Exhibit 10 to the
Quarterly Report on Form 10-Q of the Company for the period
ended December 31, 1997.
10g. Third Amendment to Employment Agreement dated September 8,
1999 between MICROS Systems, Inc. and A. L. Giannopoulos is
incorporated herein by reference to Exhibit 10g to the Annual
Report on Form 10-K of the Company for the Fiscal Year ended
June 30, 1999.
10h. Consulting Agreement dated June 30, 1995 between MICROS
Systems, Inc. and Louis M. Brown, Jr. is incorporated herein
by reference to Exhibit 10 to the Annual Report on Form 10-K
of the Company for the Fiscal Year ended June 30, 1995.
10i. First Amendment to Consulting Agreement dated February 1, 1999
between MICROS Systems, Inc. and Louis M. Brown, Jr. is
incorporated herein by reference to Exhibit 10 to the
Quarterly Report on Form 10-Q of the Company for the period
ended December 31, 1998.
10j. Second Amendment to Consulting Agreement dated April 26, 2001
between MICROS Systems, Inc. and Louis M. Brown, Jr. is
incorporated herein by reference to Exhibit 10 to the
Quarterly Report on Form 10-Q of the Company for the period
ended March 31, 2001.
10k. MICROS Systems, Inc. Bonus and Incentive Plan is incorporated
herein by reference to Exhibit 10 to the Quarterly Report on
Form 10-Q of the Company for the period ended September 30,
1994.
10l. Employment Agreement dated May 28, 1997 between MICROS
Systems, Inc. and Gary C. Kaufman is incorporated herein by
reference to Exhibit 10 to the Annual Report on Form 10-K of
the Company for the Fiscal Year ended June 30, 1997.
10m. First Amendment to Employment Agreement dated October 1, 1998
between MICROS Systems, Inc. and Gary C. Kaufman is
incorporated herein by reference to Exhibit 10 to the
Quarterly Report on Form 10-Q of the Company for the period
ended December 31, 1998.
10n. Employment Agreement dated May 28, 1997 between MICROS
Systems, Inc. and Thomas L. Patz is incorporated herein by
reference to Exhibit 10 to the Annual Report on Form 10-K of
the Company for the Fiscal Year ended June 30, 1997 (see 10l
above, as text is identical).
10o. First Amendment to Employment Agreement dated October 1, 1998
between MICROS Systems, Inc. and Thomas L. Patz is
incorporated herein by reference to Exhibit 10 to the
Quarterly Report on Form 10-Q of the Company for the period
ended December 31, 1998 (see 10m above, as text is identical).
21. Subsidiaries of the Company.
23. Consent of Independent Accountants.
54