-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, POdjIF2otTCr/vVf3IqIxAFjDT7lYSIfFB1XYZuShr5n/kSs6ewsgiXiMnVFaZwJ 9SZNnhii2WHF3Wo6lGp/lg== 0000950133-00-002075.txt : 20000516 0000950133-00-002075.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950133-00-002075 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROS SYSTEMS INC CENTRAL INDEX KEY: 0000320345 STANDARD INDUSTRIAL CLASSIFICATION: CALCULATING & ACCOUNTING MACHINES (NO ELECTRONIC COMPUTERS) [3578] IRS NUMBER: 521101488 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09993 FILM NUMBER: 634636 BUSINESS ADDRESS: STREET 1: 12000 BALTIMORE AVE CITY: BELTSVILLE STATE: MD ZIP: 20705 BUSINESS PHONE: 3012016000 MAIL ADDRESS: STREET 1: 12000 BALTIMORE AVE CITY: BELTSVILLE STATE: MD ZIP: 20705-1291 10-Q 1 FORM 10-Q 1 Form 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended March 31, 2000 Commission file number 0-9993 MICROS SYSTEMS, INC. ----------------------------------------------------------------- (Exact name of Registrant as specified in its charter) MARYLAND 52-1101488 ----------------------------------------------------------------- (State of incorporation) (I.R.S. Employer Identification Number) 7031 Columbia Gateway Drive, Columbia, Maryland 21046-2289 ----------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: 443-285-6000 ------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such report(s)), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ----- ----- As of March 31, 2000, there were 17,246,290 shares of Common Stock, $0.025 par value, outstanding. 1 2 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 2000 PART I - Financial Information Item 1. Financial Statements General The information contained in this report is furnished for the Registrant, MICROS Systems, Inc., and its subsidiaries (referred to collectively herein as "MICROS" or the "Company"). In the opinion of management, the information in this report contains all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the results for the interim periods presented. The financial information presented herein should be read in conjunction with the financial statements included in the Registrant's Form 10-K for the fiscal year ended June 30, 1999 and its Forms 10-Q for the quarters ended September 30, 1999 and December 31, 1999, as filed with the Securities and Exchange Commission. 2 3 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands, except per share data)
March 31, June 30, 2000 1999 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 35,759 $ 22,806 Accounts receivable, net of allowance for doubtful accounts of $4,482 at March 31, 2000 and $3,618 at June 30, 1999 106,601 101,019 Inventories 40,595 32,605 Deferred income taxes 5,633 5,637 Prepaid expenses and other current assets 12,440 11,040 --------- --------- Total current assets 201,028 173,107 Property, plant and equipment, net of accumulated depreciation and amortization of $29,131 at March 31, 2000 and $23,720 at June 30, 1999 20,096 15,687 Deferred income taxes, non-current 3,942 4,186 Goodwill and intangible assets, net of accumulated amortization of $11,729 at March 31, 2000 and $8,946 at June 30, 1999 28,131 16,255 Purchased and internally developed software costs, net of accumulated amortization of $11,241 at March 31, 2000 and $9,258 at June 30, 1999 25,618 22,607 Other assets 325 288 --------- --------- Total assets $ 279,140 $ 232,130 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank lines of credit $ -- $ 8 Current portion of long-term debt 230 357 Current portion of capital lease obligations 21 98 Accounts payable 29,036 28,041 Accrued expenses and other current liabilities 37,577 38,195 Income taxes payable 7,914 14,113 Deferred income taxes 782 754 Deferred service revenue 22,594 16,240 --------- --------- Total current liabilities 98,154 97,806 Other liabilities, non-current 5 -- Long-term debt, net of current portion 2,444 5,368 Capital lease obligations, net of current portion 400 325 Deferred income taxes, non-current 8,071 8,098 Minority interests 1,565 1,260 --------- --------- Total liabilities 110,639 112,857 --------- --------- Commitments and contingencies Shareholders' equity: Common stock, $0.025 par; authorized 50,000 shares; issued and outstanding 17,246 at March 31, 2000 and 16,207 at June 30, 1999 431 405 Capital in excess of par 50,670 22,298 Retained earnings 126,792 102,860 Accumulated other comprehensive income (9,392) (6,290) --------- --------- Total shareholders' equity 168,501 119,273 --------- --------- Total liabilities and shareholders' equity $ 279,140 $ 232,130 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 3 4 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except per share data)
Three Months Ended March 31, ---------------------------- 2000 1999 ---- ---- Revenue: Hardware and software $ 55,711 $ 54,962 Service 36,242 30,159 -------- -------- Total revenue 91,953 85,121 -------- -------- Costs and expenses: Cost of sales Hardware and software 20,265 27,986 Service 19,726 13,913 -------- -------- Total cost of sales 39,991 41,899 Selling, general and administrative expenses 27,325 24,082 Research and development expenses 4,491 3,591 Depreciation and amortization 3,167 2,456 -------- -------- Total costs and expenses 74,974 72,028 -------- -------- Income from operations 16,979 13,093 Non-operating income (expense): Interest income 261 144 Interest expense (43) (496) Other income, net 289 519 -------- -------- Income before taxes, minority interests and equity in net earnings of affiliates 17,486 13,260 Income taxes 7,081 5,303 -------- -------- Income before minority interests and equity in net earnings of affiliates 10,405 7,957 Minority interest and equity in net earnings of affiliates (181) (269) -------- -------- Net income $ 10,224 $ 7,688 ======== ======== Net income per common share: Basic $ 0.60 $ 0.48 ======== ======== Diluted $ 0.56 $ 0.45 ======== ======== Weighted-average number of shares outstanding: Basic 17,080 16,141 ======== ======== Diluted 18,356 17,044 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4 5 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except per share data)
Nine Months Ended March 31, --------------------------- 2000 1999 ---- ---- Revenue: Hardware and software $ 172,890 $ 147,517 Service 109,239 84,837 --------- --------- Total revenue 282,129 232,354 --------- --------- Costs and expenses: Cost of sales Hardware and software 84,166 75,277 Service 55,189 40,915 --------- --------- Total cost of sales 139,355 116,192 Selling, general and administrative expenses 79,499 66,184 Research and development expenses 12,676 10,899 Office closure costs -- 427 Depreciation and amortization 8,862 7,275 --------- --------- Total costs and expenses 240,392 200,977 --------- --------- Income from operations 41,737 31,377 Non-operating income (expense): Interest income 682 330 Interest expense (479) (1,786) Other (expense) income, net (480) 32 --------- --------- Income before taxes, minority interests and equity in net earnings of affiliates 41,460 29,953 Income taxes 16,787 11,980 --------- --------- Income before minority interests and equity in net earnings of affiliates 24,673 17,973 Minority interest and equity in net earnings of affiliates (741) (564) --------- --------- Net income $ 23,932 $ 17,409 ========= ========= Net income per common share: Basic $ 1.44 $ 1.08 ========= ========= Diluted $ 1.34 $ 1.03 ========= ========= Weighted-average number of shares outstanding: Basic 16,635 16,127 ========= ========= Diluted 17,880 16,982 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 5 6 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Nine Months Ended March 31, 2000 (Unaudited, in thousands)
Accumulated Common Stock Capital Other -------------- in Excess Retained Comprehensive Shares Amount of Par Earnings Income Total ------ ------ ------ -------- ------ ----- Balance, June 30, 1999 16,207 $ 405 $ 22,298 $102,860 $ (6,290) $119,273 Stock issued upon exercise of options 1,014 25 16,916 -- -- 16,941 Stock issued for business acquisition 25 1 997 -- -- 998 Income tax benefit from stock options exercised -- -- 10,459 -- -- 10,459 Comprehensive income Net income -- -- -- 23,932 -- -- Foreign currency translation adjustments -- -- -- -- (3,102) -- Total comprehensive income -- -- -- -- -- 20,830 -------- -------- -------- -------- -------- -------- Balance, March 31, 2000 17,246 $ 431 $ 50,670 $126,792 $ (9,392) $168,501 ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 6 7 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed and unaudited - in thousands)
Nine months ended March 31, --------------------------- 2000 1999 ---- ---- Net cash flows provided by operating activities: $ 17,530 $ 29,767 -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment (9,045) (4,812) Proceeds on dispositions of property, plant and equipment 88 757 Internally developed software (5,603) (6,029) Dividends to minority owners (103) (69) Purchase of net district assets (642) -- Purchase of equity interest in investees (2,000) -- Net cash paid for acquisitions, minority interests and contingent earn-out payments (11,831) (1,675) -------- -------- Net cash used in investing activities (29,136) (11,828) -------- -------- Cash flows from financing activities: Principal payments on line of credit (9,108) (17,894) Principal payments on long-term debt and capital lease obligation (3,021) (2,150) Proceeds from line of credit 9,100 3,898 Proceeds from issuance of long term debt -- 2,995 Proceeds from issuance of stock 16,941 907 Income tax benefit from stock options exercised 10,459 240 -------- -------- Net cash provided by (used in) financing activities 24,371 (12,004) -------- -------- Effect of exchange rate changes on cash 188 228 -------- -------- Net increase in cash and cash equivalents 12,953 6,163 Cash and cash equivalents at beginning of period 22,806 13,592 -------- -------- Cash and cash equivalents at end of period $ 35,759 $ 19,755 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 407 $ 1,741 ======== ======== Income taxes $ 8,260 $ 6,232 ======== ========
Supplemental schedule of non-cash financing and investing activities (in thousands): In October 1999, the Company acquired all of the stock of OPUS 2 Revenue Technologies, Inc. ("OPUS"), pursuant to the terms of a stock purchase agreement. 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 $4.8 million for OPUS consists of an up-front payment of both cash of $3.8 million and MICROS stock valued at $1.0 million. The Company issued 24,510 shares (in whole shares) of restricted common stock to the former owners. An additional payment of $.5 million was paid in January 2000 for the purchase of Opus. Goodwill related to this acquisition was $6.2 million at March 31, 2000, and is being amortized over seven years. Additionally, the former shareholders have the right to earn: (i) three earn-out payments based on OPUS revenues, for the three periods ending 9 months, 21 months, and 33 months after the closing of the transaction; and (ii) a performance payment based on the completion of the development of certain new software. The pro forma effects of this acquisition are immaterial and are not presented. The accompanying notes are an integral part of the consolidated financial statements. 7 8 MICROS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Quarter Ended March 31, 2000 (Unaudited, in thousands, except per share data) 1. Inventories The components of inventories are as follows:
March 31, June 30, 2000 1999 --------- --------- Raw materials $ 6,123 $ 4,784 Work-in-process 2,066 2,053 Finished goods 32,406 25,768 --------- --------- $ 40,595 $ 32,605 ========= =========
2. New accounting standards In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities. The Company is currently evaluating the impact, if any, of SFAS No. 133. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". This statement will not have an impact on the Company's consolidated financial position, results of operations or cash flows. 3. Legal proceedings MICROS is and has been involved in legal proceedings arising in the normal course of business. The Company is of the opinion, based upon presently available information and the advice of counsel concerning pertinent legal matters, that any resulting liability should not have a material adverse effect on the Company's results of operations or financial position. On March 25, 1997, Budgetel Inns, Inc. ("Budgetel") filed suit against MICROS in the United States Federal District Court in the Eastern District of Wisconsin. Budgetel alleges, among other things, that MICROS breached a March 1993 software support agreement by failing to provide full support to this software package licensed to Budgetel in 1993. MICROS filed its answer to the complaint in September of 1999. MICROS also filed a counterclaim against Budgetel, alleging breach of contract and defamation. Although the discovery phase of the litigation has been substantially completed, no trial date has been scheduled. While the ultimate outcome of litigation is uncertain, and while litigation is inherently difficult to predict, the Company is of the opinion, based upon presently available information and the advice of counsel concerning pertinent legal matters, that resulting liability, if any, should not have a material adverse effect on the Company's results of operations or financial position. 8 9 MICROS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Quarter Ended March 31, 2000 (Unaudited, in thousands, except per share data) 4. Net income per share Basic net income per common share is computed by dividing net income by the weighted-average number of shares outstanding. Diluted net income per share includes the dilutive effect of stock options. A reconciliation of weighted average of common shares outstanding assuming dilution is as follows:
Three Months Ended Nine Months Ended March 31, March 31, 2000 1999 2000 1999 ---- ---- ---- ---- Net income $10,224 $ 7,688 $23,932 $17,409 ======= ======= ======= ======= Average common shares outstanding 17,080 16,141 16,635 16,127 Dilutive effect of outstanding stock options 1,276 903 1,245 855 ------- ------- ------- ------- Average common shares outstanding assuming dilution 18,356 17,044 17,880 16,982 ======= ======= ======= ======= Basic net income per share $ 0.60 $ 0.48 $ 1.44 $ 1.08 ======= ======= ======= ======= Diluted net income per share $ 0.56 $ 0.45 $ 1.34 $ 1.03 ======= ======= ======= =======
For the three-month period ended March 31, 2000, no options were excluded from the above reconciliation, as none were anti-dilutive. For the nine-month period ended March 31, 2000, 325 (thousand) options were excluded from the above reconciliation as these options were anti-dilutive for this period. For the three and nine-month periods ended March 31, 1999, 9 (thousand) options and 5 (thousand) options, respectively, were excluded from the above reconciliation as these options were anti-dilutive for these periods. 5. Segment reporting data The Company develops, manufactures, sells and services point-of-sale computer systems, property management systems, central reservation and central information systems products for the hospitality industry. The Company's principal customers are lodging and food service-related businesses. MICROS is organized and operates in two segments: U.S. and International. The international segment is primarily in Europe and the Pacific Rim. For purposes of applying SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," we consider the U.S. and International products and services to be similar; however, management views them separately in operating the business. The following information is presented in accordance with the requirements of SFAS No. 131. Prior period amounts have been restated in accordance with the requirements of the new standard. 9 10 MICROS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Quarter Ended March 31, 2000 (Unaudited, in thousands, except per share data) 5. Segment reporting data, continued A summary of the Company's operating segments is as follows (in thousands):
Three Months Ended Nine Months Ended March 31, March 31, 2000 1999 2000 1999 ---- ---- ---- ---- Revenues (1): United States $ 41,746 $ 46,167 $ 140,470 $ 117,074 International 63,092 49,486 178,974 146,838 Intersegment eliminations (12,885) (10,533) (37,315) (31,558) --------- --------- --------- --------- Total revenues $ 91,953 $ 85,121 $ 282,129 $ 232,354 ========= ========= ========= ========= Income before taxes, minority interests, and equity in net earnings of affiliates (1): United States $ 5,662 $ 4,675 $ 8,073 $ 5,068 International 20,120 15,619 58,169 45,725 Intersegment eliminations (8,296) (7,034) (24,782) (20,840) --------- --------- --------- --------- Total income before taxes, minority interests, and equity in net earnings of affiliates $ 17,486 $ 13,260 $ 41,460 $ 29,953 ========= ========= ========= =========
Mar 31, Jun 30, 2000 1999 ---- ---- Identifiable assets (2): United States $148,258 $122,588 International 130,882 109,542 Intersegment eliminations -- -- -------- -------- Total identifiable assets $279,140 $232,130 ======== ========
(1) Amounts based on the location of the customer. (2) Amounts based on the location of the selling entity. 10 11 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 2000 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - Third Quarter and Nine Month Comparisons The Company recorded diluted net income of $0.56 per common share in the third quarter of fiscal 2000, compared with diluted net income of $0.45 per common share in the third quarter of fiscal 1999. Net income for the nine months ended March 31, 2000, on a diluted basis, was $1.34 per share compared with $1.03 per common share for the first nine months of fiscal 1999. For the quarter, the increased net income was primarily due to higher sales volumes and lower cost of sales as a percentage of revenue, partially offset by higher operating expenses as a percentage of sales. The year-to-date increase in net income was primarily due to higher sales volumes along with lower operating expenses as a percentage of sales. Revenue of $92.0 million for the third quarter of fiscal 2000 increased $6.8 million, or 8.0%, compared to the same period last year. For the first nine months of fiscal 2000, revenue increased $49.8 million to $282.1 million, or 21.4%, over the same period in fiscal 1999. A comparison of the sales mix for fiscal years 2000 and 1999 is as follows:
Three Months Ended Nine Months Ended March 31, March 31, 2000 1999 2000 1999 ---- ---- ---- ---- Hardware 35.3% 44.3% 41.5% 43.7% Software 25.3% 20.3% 19.8% 19.8% Service 39.4% 35.4% 38.7% 36.5% ----- ----- ----- ----- 100.0% 100.0% 100.0% 100.0% ===== ===== ===== =====
For the quarter, hardware sales decreased in absolute dollars and as a percentage of total revenue over the prior year primarily due to decreased demand for the Company's 8700 series and computer equipment. Software sales increased in absolute dollars and as a percentage of total revenue primarily due to the sale of large hotel software contracts in the third quarter of fiscal 2000 compared to fiscal 1999. Service sales increased in absolute dollars and as a percentage of total sales for the third quarter in comparison to the prior year primarily due to increased maintenance revenues associated with new and existing customers. On a year-to-date basis, hardware sales decreased as a percentage of total sales while software sales remained constant as a percentage of total sales. Hardware sales increased in absolute dollars, however decreased as a percentage of total sales primarily due to the hardware growth rate being lower than the growth rate of the service business. Service sales increased in absolute dollars and as a percentage of total sales on a year-to-date basis primarily due to increased installation and support revenues. Combined hardware and software revenues for the third quarter of fiscal 2000 increased $0.7 million, or 1.4%, while service revenues increased $6.1 million, or 20.2%, over the same period a year earlier. On a year-to-date basis, hardware and software sales increased $25.4 million, or 17.2%, while service revenues increased $24.4 million, or 28.8%, over the same period a year earlier. Cost of sales, as a percentage of revenue, decreased to 43.5% for the third quarter of fiscal 2000 from 49.2% for the third quarter of fiscal 1999. For the first nine months of fiscal 2000 and 1999, cost of sales, as a percentage of revenue, was 49.4% and 50.0%, respectively. Cost of sales for hardware and software products, as a percentage of related revenue, was 36.4% in the third quarter of fiscal 2000 compared to 51.0% for the same quarter a year earlier and 48.7% compared to 51.0% 11 12 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 2000 Results of Operations - Third Quarter and Nine Month Comparisons, continued for the first nine months of fiscal 2000 and 1999, respectively. For the quarter and year-to-date this decrease was primarily due to the third quarter sales distribution mix of decreased sales in the lower margin point-of-sale major account channel and increased sales in the higher margin international subsidiaries and dealer channels. The decrease in cost of sales is also due to higher software sales as a percentage of revenue as compared to prior fiscal year. Service costs, as a percentage of service revenue, increased to 54.4% in the third quarter of fiscal 2000 compared to 46.1% in the same quarter in fiscal 1999. Service costs, as a percentage of service revenue, increased to 50.5% in the first nine months of fiscal 2000 compared to 48.2% for the same period in fiscal 1999. The third quarter increase in comparison to the prior year was due primarily to the decrease of the installation revenue of hardware. The year-to-date increase in comparison to the prior year was due to additional expenses incurred to resolve potential Year 2000 issues in the second quarter and the decrease of installation revenue in the third quarter. Selling, general and administrative expenses increased $3.2 million, or 13.5%, in the third quarter of fiscal 2000 compared to the same period last year. As a percentage of revenue, selling, general and administrative expenses increased to 29.7% in the third quarter of fiscal 2000 compared to 28.3% in the third quarter of fiscal 1999 due primarily to increased personnel costs required to meet current and anticipated sales growth. For the first nine months of fiscal 2000, selling, general and administrative expenses, as a percentage of revenue, were 28.2% compared to 28.5% for the same period a year earlier. The year-to-date decrease is due to sales growth at a rate in excess of these expenses. Research and development expenses (exclusive of capitalized software development costs), which consist primarily of internal and sub-contracted labor costs, increased $0.9 million, or 25.1%, in the third quarter of fiscal 2000 compared to the same period a year earlier. Actual research and development expenditures, including capitalized software development costs of $2.4 million in the third quarter of fiscal 2000 and $1.5 million in the third quarter of fiscal 1999, increased $1.8 million, or 35.4%, compared to the same period a year earlier. This increase in absolute dollars for the three-month period is primarily due to increased expenditures in the Company's restaurant business. For the first nine months of fiscal 2000 compared to fiscal 1999, research and development expenses (exclusive of capitalized software development costs), which consist primarily of internal and sub-contracted labor costs, increased $1.8 million, or 16.3%, compared to the same period a year earlier. Actual research and development expenditures for the first nine months of fiscal 2000, including capitalized software development costs of $5.6 million in 2000 and $6.0 million in 1999, increased $1.4 million, or 8.0%, compared to the same period a year earlier. The increase in absolute dollars for the nine-month period is primarily due to increased expenditures for the Company's restaurant business. Office closure costs relate to follow-on costs incurred in the first quarter of fiscal 1999 associated with the Company's fourth quarter of fiscal 1998 permanent closure of its facility in Munich, Germany. These costs relate to the relocation of former Munich employees to their new places of employment within the Company. Income from operations for the third quarter of fiscal 2000 was $17.0 million, or 18.5% of revenue, compared to income of $13.1 million, or 15.4% of revenue, in the same period a year earlier. For the first nine months of fiscal 2000, income from 12 13 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31,2000 Results of Operations - Third Quarter and Nine Month Comparisons, continued operations was $41.7 million compared to income of $31.4 million a year earlier. The third quarter income from operations increased over the prior year's comparable period due to higher sales and increased gross margins, partially offset by higher operating expenses as a percentage of sales. For the first nine months of fiscal 2000, the Company's higher dollar income from operations is primarily due to higher sales and lower operating expenses as a percentage of sales. Interest expense decreased $0.5 million, or 91.3%, for the third quarter of fiscal 2000 compared to the same period a year ago. Interest expense for the first nine months in fiscal 2000 was $0.5 million compared to $1.8 million, a decrease of 73.2%, for the comparable period in fiscal 1999. The quarter and year-to-date decrease was primarily due to the Company's lower average debt level during fiscal 2000 in comparison to the same period a year ago. Interest income increased $0.1 million for the third quarter of fiscal 2000 compared to the same period a year ago. Interest income for the first nine months in fiscal 2000 was $0.7 million compared to $0.3 million, an increase of 106.7%, for the comparable period in fiscal 1999. The quarter and year-to-date increase is due primarily to the Company's higher average cash balance during fiscal year 2000 compared to fiscal year 1999. The effective tax rate for the third quarter and year-to-date of fiscal year 2000 was 40.5% compared to 40.0% for the third quarter and year-to-date of fiscal year 1999. The increase is due to a shift in the mix of earnings towards countries with higher tax rates. Year 2000 In 1997, the Company created a corporate-wide Year 2000 project team representing all business units of the Company. The "Year 2000 Issue" is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. The team was divided into three segments, each of which was tasked with analyzing one of the following three sets of issues: (i) Year 2000 compliance issues with respect to Company internal information technology systems and non-information technology systems; (ii) Year 2000 compliance issues with respect to the information systems of certain key Company vendors and suppliers; and (iii) Year 2000 compliance issues with respect to Company products that the Company sells and licenses to its worldwide customer base. On the basis of information currently available, MICROS believes that it did not experience any material problems relating to the Year 2000 issues. While MICROS did uncover certain minor issues relating to date dependent data, none were material and all were promptly addressed. Accordingly, the Year 2000 task force had been disbanded in February 2000. Any remaining issues that may surface will be handled through the Company's customer service organization. Nonetheless, the Company will continue to monitor products to attempt to assure that there are no uncorrected problems. While the Company believes it has diligently addressed the Year 2000 issues and that it has satisfactorily resolved any Year 2000 problems, it is possible hitherto undetected problems could be uncovered in the future. Year 2000 Compliance Costs To date, the Company has expensed all incremental costs related to the Year 2000 analysis and remediation efforts. Internal and external costs specifically associated with modifying software for the Year 2000 have been charged to expense as 13 14 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31,2000 Results of Operations - Third Quarter and Nine Month Comparisons, continued incurred. All of these costs were funded through operating cash flows. Management's current estimate (including the Year 2000 issues identified to date) is that the costs associated with the Year 2000 issue should not have a material adverse effect on the results of operations or financial position of the Company in any given quarter. To date, not including the costs incurred to upgrade the Company's internal management information systems, the Company has incurred approximately $2.2 million in expenditures related to the Year 2000 issue. Costs capitalized to date to implement the Company's new Year 2000 compliant internal management information systems, which address a large variety of informational and processing needs, are approximately $8.8 million. Euro Conversion On January 1, 1999, certain member nations of the European Economic and Monetary Union ("EMU") adopted a common currency, the Euro. For a three-year transition period, both the Euro and individual participants' currencies will remain in circulation. After June 30, 2002, the Euro will be the sole legal tender for EMU countries. The adoption of the Euro will affect a multitude of financial systems and business applications as the commerce of these nations will be transacted in the Euro and the existing national currency during the transition period. As of March 31, 2000, of the eleven countries currently admitted to the EMU, the Company has subsidiary operations in six of those countries and distributor relationships in the remaining five countries. MICROS is currently addressing Euro related issues and its impact on information systems, currency exchange rate risk, taxation, contracts, competition and pricing. Action plans currently being implemented are expected to result in compliance with all laws and regulations; however, there can be no certainty that such plans will be successfully implemented or that external factors will not have an adverse effect on the Company's operations. Moreover, there is still some uncertainty with respect to the interpretation of certain Euro regulations, and the impact of the regulations on the Company's Euro implementation. Any costs associated with the adoption of the Euro will be expensed as incurred and the Company currently does not expect these costs to be material to its results of operations, financial condition or liquidity. Liquidity and Capital Resources The Company has a $45.0 million multi-currency unsecured committed line of credit, which was renewed during the second quarter of fiscal 2000 for an additional one-year period, expiring on December 31, 2000. The line of credit was increased from $35.0 million to $45.0 million pursuant to an amendment entered into during the second quarter of fiscal 1999. The Company has the one-time option to convert the line of credit into a three-year secured term loan upon expiration of the line of credit. In addition, the Company has a credit facility from a European bank in the amount of DM 15.0 million (approximately $7.3 million at the March 31, 2000 exchange rate). Under the terms of this facility, the Company may, at its option, borrow in the form of a line of credit or in the form of term debt. As of March 31, 2000, the Company had borrowed approximately $2.4 million and has approximately $49.9 million available. There were no borrowings under the line of credit. The Company's DM-denominated borrowings under these credit facilities amounted to DM 5.0 million (approximately $2.4 million at the March 31, 2000 exchange rate). As the Company has significant international operations, its DM-denominated borrowings do not represent a significant foreign exchange risk. On an overall basis, 14 15 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31,2000 Results of Operations - Third Quarter and Nine Month Comparisons, continued the Company monitors its cash and debt positions in each currency in an effort to reduce its foreign exchange risk. Net cash provided by operating activities for the nine months ended March 31, 2000 was $17.5 million. The Company used $29.1 million in investing activities, primarily for acquisitions, the purchase of property, plant and equipment and internally developed software. Net financing activities for the first nine months of fiscal 2000 provided $24.4 million, primarily from the issuance of common 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, are sufficient to provide the working capital needs of the Company for the foreseeable future. The Company anticipates that its property, plant and equipment expenditures for fiscal 2000 will continue to increase approximately $8.0 million over fiscal 1999 expenditures, of which, approximately $4.7 million will be for the purchase of furniture and fixtures and leasehold improvements for its new headquarters building. Summary The Company has recently experienced rapid revenue growth at a rate that it believes has significantly exceeded that of the global market for point-of-sale computer systems, property management information systems and related products for the hospitality industry. Although the Company currently anticipates continued revenue growth at a rate in excess of such market, and therefore an increase in its overall market share, it does not expect to maintain growth at recent levels and there can be no assurance that any particular level of growth can be achieved. In addition, due to the competitive nature of the market, the Company continues to experience gross margin pressure on its products and service offerings, and the Company expects this to continue. There can be no assurance that the Company will be able to continue to increase sufficiently sales of its higher margin products, including software and services, to prevent future declines in the Company's overall gross margin. Moreover, some of the statements contained herein not based on historic facts are forward-looking statements that involve risks and uncertainties. Past performance is not necessarily a strong or reliable indicator of future performance. Actual results could differ materially from past results, estimates or projections. Some of the additional risks and uncertainties are: product demand and market acceptance, including demand and acceptance for the new OPERA products and the newest versions of the 3700 POS and 8700 systems; introduction by competitors of less costly hardware products; implementation of a cost-effective service structure capable of servicing increasingly complex software systems in increasingly more remote locations; achieving increased sales of higher margin software products; hiring and retention of qualified employees with sufficient technical expertise, especially in light of tightened labor markets; adverse economic or political conditions; unexpected currency fluctuations and devaluation of those currencies in which the Company conducts its business; impact of competitive products, including new Internet based products; product development delays; technological difficulties associated with new product releases, including those with respect to the next generation Internet technologies; and controlling expenses. These and other risks are disclosed in the Company's releases and SEC filings, including in the section titled "Business and Investment Risks; Information Relating to Forward-Looking Statements", in the Company's Annual Report on Form 10-K for the Fiscal Year ended June 30, 1999. 15 16 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 2000 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company has experienced rapid growth internationally. MICROS' significant international business and presence exposes the Company to certain market risks, such as currency, interest rate and political risks. With respect to currency risk, the Company transacts business in over 28 different currencies through its foreign subsidiaries. The fluctuation of currencies impacts sales and profitability. Frequently, sales and the costs associated with such sales are not always denominated in the same currency. Given the fact that the Company transacts business in many different currencies, adverse declines in certain currencies may at times be offset by favorable advances in other currencies. Recent weakness in certain European currencies has, however, adversely impacted the financial performance of the Company. Such weakness may have a continued adverse effect on the financial performance of the Company. While the Company has not to date invested in financial instruments designed to protect against currency fluctuations, the Company will continue to evaluate the need to do so in the future. Additionally, the Company is subject to interest rate fluctuations in foreign countries to the extent that the Company elects to borrow in the local foreign currency. In the past, this has not been an issue of concern as the Company has the capacity to elect to borrow in other currencies with more favorable interest rates. While the Company has not to date invested in financial instruments designed to protect against interest rate fluctuations, the Company will continue to evaluate the need to do so in the future. Further, the Company is subject to political risk, especially in developing countries with uncertain or unstable political structures or regimes. The Company is also subject to the effects of, and changes in, laws and regulations, other activities of governments, agencies and similar organizations, especially in light of the recent weak Asian economic conditions. The Company does not believe at this time that it is exposed to unusual political risk that could have a material adverse impact on the Company. Finally, the Company's unsecured committed line of credit bears interest at a floating rate of interest. It does not invest in financial instruments designed to protect against interest rate fluctuations, although it will continue to evaluate the need to do so in the future. 16 17 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 2000 Part II - Other Information Item 1. Legal Proceedings MICROS is and has been involved in legal proceedings arising in the normal course of business. The Company is of the opinion, based upon presently available information and the advice of counsel concerning pertinent legal matters, that any resulting liability should not have a material adverse effect on the Company's results of operations or financial position. On March 25, 1997, Budgetel Inns, Inc. ("Budgetel") filed suit against MICROS in the United States Federal District Court in the Eastern District of Wisconsin. Budgetel alleges, among other things, that MICROS breached a March 1993 software support agreement by failing to provide full support to this software package licensed to Budgetel in 1993. MICROS filed its answer to the complaint in September of 1999. MICROS also filed a counterclaim against Budgetel, alleging breach of contract and defamation. Although the discovery phase of the litigation has been substantially completed, no trial date has been scheduled. While the ultimate outcome of litigation is uncertain, and while litigation is inherently difficult to predict, the Company is of the opinion, based upon presently available information and the advice of counsel concerning pertinent legal matters, that resulting liability, if any, should not have a material adverse effect on the Company's results of operations or financial position. Items 2 through 4. No events occurred during the quarter covered by the report that would require a response to any of these items. Item 5. Other Information In March 2000, MICROS commenced the relocation of its corporate headquarters from Beltsville, Maryland to Columbia, Maryland. In accordance with the terms of the lease agreement (the "Lease Agreement") between MICROS and Orix Columbia, Inc., a wholly-owned subsidiary of Orix USA Corporation, MICROS shall lease for a ten-year term the full 250,000 square foot building located on a twenty acre parcel in Columbia, Maryland. The annual amount of the lease liabilities under the Lease Agreement shall exceed the former corporate headquarters lease liabilities by approximately $1.5 million per year, which represents an additional 73,000 square feet at $21.00 per square foot to accommodate recent and planned growth. Moreover, MICROS has incurred and anticipates incurring certain additional one-time expenses associated with the relocation to the new facility. These one-time relocation expenses are approximately $0.6 million. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K - None 17 18 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MICROS SYSTEMS, INC. ----------------------------- (Registrant) May 15, 2000 /s/ Gary C. Kaufman - --------------------- --------------- Gary C. Kaufman Executive Vice President, Finance and Administration/Chief Financial Officer May 15, 2000 /s/ Roberta J. Watson - --------------------- ----------------- Roberta J. Watson Senior Vice President and Controller 18 19 EXHIBIT INDEX
Sequentially Exhibit Numbered Page - ------- ------------- 27. Financial Data Schedule N/A
19 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND RELATED STATEMENT OF INCOME AS OF MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JUN-30-2000 MAR-31-2000 35,759 0 111,083 4,482 40,595 201,028 49,227 29,131 279,140 98,154 2,844 0 0 431 168,070 279,140 172,890 282,129 84,166 240,392 0 0 479 41,460 16,787 23,932 0 0 0 23,932 1.44 1.34
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