10-Q 1 w49174e10-q.txt FOR THE QUARTER ENDED: MARCH 31, 2001 1 Form 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended March 31, 2001 Commission file number 0-9993 MICROS SYSTEMS, INC. ----------------------------------------------------------------- (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, 2001, there were 17,400,769 shares of Common Stock, $0.025 par value, outstanding. 2 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 2001 PART I - Financial Information Item 1. Financial Statements General The information contained in this report is furnished for the Registrant, MICROS Systems, Inc., and its subsidiaries (referred to collectively herein as "MICROS" or the "Company"). In the opinion of management, the information in this report contains all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the results for the interim periods presented. The financial information presented herein should be read in conjunction with the financial statements included in the Registrant's Form 10-K for the fiscal year ended June 30, 2000, as filed with the Securities and Exchange Commission. 3 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands, except per share data)
March 31, June 30, 2001 2000 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 25,687 $ 26,211 Accounts receivable, net of allowance for doubtful accounts of $6,671 at March 31, 2001 and $7,791 at June 30, 2000 94,954 98,917 Inventories 31,026 34,292 Deferred income taxes 14,027 15,575 Prepaid expenses and other current assets 12,824 16,098 --------- --------- Total current assets 178,518 191,093 Property, plant and equipment, net of accumulated depreciation and amortization of $34,705 at March 31, 2001 and $29,800 at June 30, 2000 25,097 24,332 Deferred income taxes, non-current 9,519 9,840 Goodwill and intangible assets, net of accumulated amortization of $16,844 at March 31, 2001 and $12,963 at June 30, 2000 32,471 26,750 Purchased and internally developed software costs, net of accumulated amortization of $12,213 at March 31, 2001 and $11,191 at June 30, 2000 30,035 24,604 Other assets 2,853 2,358 --------- --------- Total assets $ 278,493 $ 278,977 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank lines of credit $ 13,507 $ 522 Current portion of long-term debt 2,387 397 Current portion of capital lease obligations 140 63 Accounts payable 17,633 21,145 Accrued expenses and other current liabilities 36,302 39,814 Income taxes payable 2,019 15,021 Deferred income taxes 454 475 Deferred service revenue 33,097 20,126 --------- --------- Total current liabilities 105,539 97,563 Long-term debt, net of current portion 1,009 3,729 Capital lease obligations, net of current portion 330 330 Deferred income taxes, non-current 11,108 11,138 Commitments and contingencies Minority interests 2,362 2,596 Shareholders' equity: Common stock, $0.025 par; authorized 50,000 shares; issued and outstanding 17,401 at March 31, 2001 and 17,336 at June 30, 2000 435 433 Capital in excess of par 55,403 54,225 Retained earnings 117,250 119,064 Accumulated other comprehensive loss (14,943) (10,101) --------- --------- Total shareholders' equity 158,145 163,621 --------- --------- Total liabilities and shareholders' equity $ 278,493 $ 278,977 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 4 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except per share data)
Three Months Ended March 31, ---------------------------- 2001 2000 ---- ---- Revenue: Hardware and software $ 42,488 $ 55,711 Service 38,646 36,242 -------- -------- Total revenue 81,134 91,953 -------- -------- Costs and expenses: Cost of sales Hardware and software 20,501 20,265 Service 19,640 19,726 -------- -------- Total cost of sales 40,141 39,991 Selling, general and administrative expenses 31,622 27,325 Research and development expenses 5,473 4,491 Depreciation and amortization 3,626 3,167 -------- -------- Total costs and expenses 80,862 74,974 -------- -------- Income from operations 272 16,979 Non-operating income (expense): Interest income 278 261 Interest expense (246) (43) Other income, net 20 289 -------- -------- Income before taxes, minority interests and equity in net earnings of affiliates 324 17,486 Income tax expense 131 7,081 -------- -------- Income before minority interests and equity in net earnings of affiliates 193 10,405 Minority interests and equity in net earnings of affiliates (124) (181) -------- -------- Net income $ 69 $ 10,224 ======== ======== Net income per common share: Basic $ 0.00 $ 0.60 ======== ======== Diluted $ 0.00 $ 0.56 ======== ======== Weighted-average number of shares outstanding: Basic 17,373 17,080 ======== ======== Diluted 17,497 18,356 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 5 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except per share data)
Nine Months Ended March 31, --------------------------- 2001 2000 ---- ---- Revenue: Hardware and software $ 124,542 $ 172,890 Service 110,698 109,239 --------- --------- Total revenue 235,240 282,129 --------- --------- Costs and expenses: Cost of sales Hardware and software 61,253 84,166 Service 56,794 55,189 --------- --------- Total cost of sales 118,047 139,355 Selling, general and administrative expenses 93,589 79,499 Research and development expenses 14,399 12,676 Depreciation and amortization 10,382 8,862 --------- --------- Total costs and expenses 236,417 240,392 --------- --------- Income (loss) from operations (1,177) 41,737 Non-operating income (expense): Interest income 762 682 Interest expense (598) (479) Other expense, net (1,540) (480) --------- --------- Income (loss) before taxes, minority interests and equity in net earnings of affiliates (2,553) 41,460 Income tax expense (benefit) (1,034) 16,787 --------- --------- Income (loss) before minority interests and equity in net earnings of affiliates (1,519) 24,673 Minority interests and equity in net earnings of affiliates (295) (741) --------- --------- Net income (loss) $ (1,814) $ 23,932 ========= ========= Net income (loss) per common share: Basic $ (0.10) $ 1.44 ========= ========= Diluted $ (0.10) $ 1.34 ========= ========= Weighted-average number of shares outstanding: Basic 17,356 16,635 ========= ========= Diluted 17,356 17,880 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 6 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Nine Months Ended March 31, 2001 (Unaudited, in thousands)
Accumulated Common Stock Capital Other --------------- in Excess Retained Comprehensive Shares Amount of Par Earnings Income Total ------ ------ --------- -------- ------ ----- Balance, June 30, 2000 17,336 $433 $54,225 $119,064 $(10,101) $ 163,621 Comprehensive loss Net loss -- -- -- (1,814) -- (1,814) Foreign currency translation adjustments -- -- -- -- (4,842) (4,842) -------- Total comprehensive loss -- -- -- -- -- (6,656) Stock issued upon exercise of options 21 1 350 -- -- 351 Stock issued to 3rd Party 44 1 799 800 Income tax benefit from stock options exercised -- -- 29 -- -- 29 ------ ---- ------- -------- --------- -------- Balance, March 31, 2001 17,401 $435 $55,403 $117,250 $(14,943) $158,145 ====== ==== ======= ======== ========= ========
The accompanying notes are an integral part of the consolidated financial statements. 7 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed and unaudited - in thousands)
Nine months ended March 31, --------------------------- 2001 2000 ---- ---- Net cash flows provided by operating activities: $ 13,017 $ 27,989 -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment (6,745) (9,045) Proceeds on dispositions of property, plant and equipment -- 88 Internally developed software (7,214) (5,603) Dividends paid to minority owners -- (103) Purchase of net district assets -- (642) Purchase of equity interest in investees (214) (2,000) Net cash paid for acquisitions, minority interests and contingent earn-out payments (11,691) (11,831) -------- -------- Net cash used in investing activities (25,864) (29,136) -------- -------- Cash flows from financing activities: Principal payments on line of credit (4,160) (9,108) Principal payments on long-term debt and capital lease obligations (677) (3,021) Proceeds from line of credit 17,021 9,100 Proceeds from issuance of stock 350 16,941 -------- -------- Net cash provided by financing activities 12,534 13,912 -------- -------- Effect of exchange rate changes on cash (211) 188 -------- -------- Net increase (decrease) in cash and cash equivalents (524) 12,953 Cash and cash equivalents at beginning of period 26,211 22,806 -------- -------- Cash and cash equivalents at end of period $ 25,687 $ 35,759 ======== ========
Supplemental schedule of noncash financing and investing activities (in thousands): In October 1999, the Company acquired all of the stock of OPUS 2 Revenue Technologies, Inc. ("OPUS"), pursuant to the terms of a stock purchase agreement. The purchase price of $4,800 for OPUS consists of an up-front payment of both cash of $3,800 and MICROS stock valued at approximately $1,000. The Company issued 24,510 shares (in whole shares) of restricted common stock to the former owners. An additional payment of $450 was paid in January 2000 for the purchase of Opus. Goodwill, net of amortization, related to this acquisition was $4,900 at March 31, 2001, and is being amortized over seven years. Additionally, the former shareholders have the right to earn: (i) three earn-out payments based on OPUS revenues, for the three periods ending 9 months (for which no earn-out payment was due or paid), 21 months, and 33 months after the closing of the transaction; and (ii) a performance payment based on the completion of the development of certain new software. The pro forma effects of this acquisition are immaterial and are not presented. In February 2001, the Company purchased the outstanding stock of the minority shareholder in hotelBANK, Inc. for total consideration in the amount of $800. Simultaneous with the purchase of the stock in hotelBANK, Inc., the Company sold to the minority shareholder, 44,216 shares (in whole shares) of restricted MICROS common stock, for total consideration in the amount of $800. The accompanying notes are an integral part of the consolidated financial statements. 8 MICROS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Quarter Ended March 31, 2001 (Unaudited, in thousands, except per share data) 1. Inventories The components of inventories are as follows:
March 31, June 30, 2001 2000 ------------------ ----------------- Raw materials $ 3,695 $ 4,573 Work-in-process 903 576 Finished goods 26,428 29,143 ------------------ ----------------- $ 31,026 $ 34,292 ================== =================
2. New accounting standards In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements" to provide guidance regarding the recognition, presentation and disclosure of revenue in the financial statements. In March 2000, the SEC released SAB 101A, which delayed the implementation date of SAB 101 for registrants with fiscal years that begin between December 16, 1999 and March 15, 2000. Subsequently, the SEC released SAB 101B which further delays the implementation date of SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company is reviewing the provisions of the Bulletin. 3. Legal proceedings MICROS is and has been involved in legal proceedings arising in the normal course of business. The Company is of the opinion, based upon presently available information and the advice of counsel concerning pertinent legal matters, that any resulting liability should not have a material adverse effect on the Company's results of operations or financial position. On March 25, 1997, Budgetel Inns, Inc. ("Budgetel") filed suit against MICROS in the United States Federal District Court in the Eastern District of Wisconsin. Budgetel alleges, among other things, that MICROS breached a March 1993 software support agreement by failing to provide full support to this software package licensed to Budgetel in 1993. MICROS filed a counterclaim against Budgetel, alleging breach of contract and defamation. On April 11, 2001, the Magistrate Judge recommended that 4 of 5 of Budgetel's claims are subject to dismissal on summary judgment. As a result of this favorable recommendation, MICROS believes that the likelihood of any adverse effect on the Company's results of operations or financial position has been further reduced, and will accordingly no longer report on this matter. 9 MICROS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Quarter Ended March 31, 2001 (Unaudited, in thousands, except per share data) 4. Net income (loss) per share Basic net income per common share is computed by dividing net income by the weighted-average number of shares outstanding. Diluted net income per share includes the dilutive effect of stock options. Basic and diluted net loss per common share is computed using the weighted-average number of shares outstanding during the nine-month period and does not include unexercised stock options since their effect would be anti-dilutive due to the losses in the nine-month periods ended March 31, 2001. A reconciliation of the weighted-average number of common shares outstanding assuming dilution is as follows:
Three Months Ended Nine Months Ended March 31, March 31, 2001 2000 2001 2000 ---- ---- ---- ---- Net income (loss) $ 69 $10,224 $(1,814) $23,932 ======= ======= ======= ======= Average common shares outstanding 17,373 17,080 17,356 16,635 Dilutive effect of outstanding stock options 124 1,276 -- 1,245 ------- ------- ------- ------- Average common shares outstanding assuming dilution 17,497 18,356 17,356 17,880 ======= ======= ======= ======= Basic net income (loss) per share $ 0.00 $ 0.60 $ (0.10) $ 1.44 ======= ======= ======= ======= Diluted net income (loss) per share $ 0.00 $ 0.56 $ (0.10) $ 1.34 ======= ======= ======= =======
For the three and nine-month periods ended March 31, 2001, 2,585 (thousand) options and 2,546 (thousand) options, respectively, were excluded from the above reconciliation as these options were anti-dilutive for these periods. For the three-month period ended March 31, 2000, no options were excluded from the above reconciliation, as none were anti-dilutive. For the nine-month period ended March 31, 2000, 325 (thousand) options were excluded from the above reconciliation as these options were anti-dilutive for this period. 5. Acquisitions In December 2000, the Company acquired 4.5% of the issued and outstanding shares of the preferred stock of Vivonet Incorporated ("Vivonet") for $500. MICROS also agreed to purchase $2,000 worth of interest bearing convertible debentures, provided certain ongoing financial and performance covenants are satisfied by Vivonet. The stock purchase price is being paid over seven monthly installments. Stock certificates are issued to the Company upon receipt of each installment of the purchase price. The convertible debentures are being paid over twenty-four monthly installments. Vivonet issues the debentures to the Company upon receipt of each installment payment. The first installment payments for both the stock and debentures were made in January 2001. As of March 31, 2001, $464 has been paid to Vivonet. In January 2001, the Company acquired the stock of Indatec GmbH and Co. KG ("Indatec"). Based in Bernau am Chiemsee, Germany, Indatec is one of Germany's top developers of point-of-sale solutions for the independent restaurant industry. Indatec's products include a range of point-of-sale terminals, peripherals and associated software for independent restaurants and other catering facilities. The purchase price of DM 10,706 (approximately $5,100 at the exchange rate as of the date of acquisition) was paid in February 2001. 10 MICROS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Quarter Ended March 31, 2001 (Unaudited, in thousands, except per share data) 5. Acquisitions, continued Goodwill related to this acquisition was DM 9,700 (approximately $4,700 at the exchange rate in effect at the date of acquisition), and is being amortized over seven years. The pro forma effects of this acquisition are immaterial and are not presented. 6. Segment reporting data The Company develops, manufactures, sells and services point-of-sale computer systems, property management systems, central reservation and central information systems products for the hospitality industry. MICROS is organized and operates in two segments: U.S. and International. The international segment is primarily in Europe, the Pacific Rim and Latin America. For purposes of applying SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," management views the U.S. and International segments separately in operating the business, although the products and services are similar for each segment. The following information is presented in accordance with the requirements of SFAS No. 131. A summary of the Company's operating segments is as follows (in thousands):
Three Months Ended Nine Months Ended March 31, March 31, 2001 2000 2001 2000 ---- ---- ---- ---- Revenues (1): United States $ 45,474 $ 41,746 $ 130,263 $ 140,470 International 44,730 63,092 136,759 178,974 Intersegment eliminations (9,070) (12,885) (31,782) (37,315) --------- --------- --------- --------- Total revenues $ 81,134 $ 91,953 $ 235,240 $ 282,129 ========= ========= ========= ========= Income (loss) before taxes, minority interests, and equity in net earnings of affiliates (1): United States $ (3,969) $ 5,662 $ (15,027) $ 8,073 International 9,724 20,120 30,027 58,169 Intersegment eliminations (5,431) (8,296) (17,553) (24,782) --------- --------- --------- --------- Total income (loss) before taxes, minority interests, and equity in net earnings of affiliates $ 324 $ 17,486 $ (2,553) $ 41,460 ========= ========= ========= =========
March June 31, 30, 2001 2000 -------- -------- Identifiable assets (2): United States $148,935 $158,552 International 129,558 120,425 Intersegment eliminations -- -- -------- -------- Total identifiable assets $278,493 $278,977 ======== ========
(1) Amounts based on the location of the customer. (2) Amounts based on the location of the selling entity. 11 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 2001 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - Third Quarter and Nine Month Comparisons The Company recorded a breakeven net income per common share in the third quarter of fiscal 2001, compared with diluted net income of $0.56 per share in the third quarter of fiscal 2000. Net loss for the nine months ended March 31, 2001, was $0.10 per share compared with diluted net income of $1.34 per common share for the first nine months of fiscal 2000. For the quarter and year-to-date, the decreased net income was primarily due to lower sales volumes and higher operating expenses both in absolute dollars and as a percentage of sales. Revenue of $81.1 million for the third quarter of fiscal 2001 decreased $10.8 million, or 11.8%, compared to the same period last year. For the first nine months of fiscal 2001, revenue decreased $46.9 million to $235.2 million, or 16.6%, over the same period in fiscal 2000. A comparison of the sales mix for fiscal years 2001 and 2000 is as follows:
Three Months Ended Nine Months Ended March 31, March 31, 2001 2000 2001 2000 ---- ---- ---- ---- Hardware 33.1% 35.3% 35.5% 41.5% Software 19.3% 25.3% 17.5% 19.8% Service 47.6% 39.4% 47.0% 38.7% ----- ----- ----- ----- 100.0% 100.0% 100.0% 100.0% ====== ====== ====== ======
For the quarter and year-to-date, both hardware and software sales decreased in absolute dollars in comparison to the prior year, primarily due to the continued slowdown in information technology purchases by the hospitality industry. Service sales increased in absolute dollars for the third quarter in comparison to the prior year primarily due to an increase in support revenues earned on a larger customer base. On a year-to-date basis service sales increased in absolute dollars primarily due to support revenues earned on a larger customer base offset by a decreased volume of installation revenue. Combined hardware and software revenues for the third quarter of fiscal 2001 decreased $13.2 million, or 23.7%, while service revenues increased $2.4 million, or 6.6%, over the same period a year earlier. On a year-to-date basis, hardware and software sales decreased $48.3 million, or 28.0%, while service revenues increased $1.5 million, or 1.3%, over the same period a year earlier. Cost of sales, as a percentage of revenue, increased to 49.5% for the third quarter of fiscal 2001 from 43.5% for the third quarter of fiscal 2000. For the first nine months of fiscal 2001 and 2000, cost of sales, as a percentage of revenue, was 50.2% and 49.4% respectively. Cost of sales for hardware and software products, as a percentage of related revenue, was 48.3% in the third quarter of fiscal 2001 compared to 36.4% for the same quarter a year earlier and 49.2% compared to 48.7% for the first nine months of fiscal 2001 and 2000, respectively. For the quarter and year-to-date, this increase was primarily due to the increase of lower margin hardware sales as a percentage of total hardware and software sales and a decrease in sales of high margin software contracts. Service costs, as a percentage of service revenue, decreased to 50.8% in the third quarter of fiscal 2001 compared to 54.4% in the same quarter in fiscal 2000. Service costs, as a percentage of service revenue, increased to 51.3% in the first nine months of fiscal 2001 compared to 50.5% for the same period in fiscal 2000. The third quarter decrease in comparison to the prior year was primarily due to the 12 continued expansion of the Company's customer base and the ability of the Company to increase service revenues at a rate in excess of service costs. The year-to-date increase in comparison to the prior year was primarily due to a lower number of installations performed in fiscal 2001 resulting in lower labor utilization rates for service personnel, partially offset by the continued expansion of the Company's customer base. Selling, general and administrative expenses increased $4.3 million, or 15.7%, in the third quarter of fiscal 2001 compared to the same period last year. As a percentage of revenue, selling, general and administrative expenses increased to 39.0% in the third quarter of fiscal 2001 compared to 29.7% in the third quarter of fiscal 2000. For the first nine months of fiscal 2001, selling, general and administrative expenses, as a percentage of revenue, was 39.8% compared to 28.2% for the same period a year earlier. For both the quarter and year-to-date, these increases are primarily due to decreased revenue and additional expenses related to acquisitions. Research and development expenses (exclusive of capitalized software development costs), which consist primarily of labor costs, increased $1.0 million, or 21.9%, in the third quarter of fiscal 2001 compared to the same period a year earlier. Actual research and development expenditures, including capitalized software development costs of $2.5 million in the third quarter of fiscal 2001 and $2.4 million in the third quarter of fiscal 2000, increased $1.0 million, or 14.5%, compared to the same period a year earlier. For the first nine months of fiscal 2001, research and development expenses (exclusive of capitalized software development costs), which consist primarily of labor costs, increased $1.7 million, or 13.6%, compared to the same period a year earlier. Actual research and development expenditures, including capitalized software development costs of $7.2 million for the first nine months of fiscal 2001 and $5.6 million for the first nine months of fiscal 2000, increased $3.3 million, or 18.2%, compared to the same period a year earlier. The increase in absolute dollars for the three and nine-month periods is primarily due to increased expenditures in the Company's hotel business. Income from operations for the third quarter of fiscal 2001 was $0.3 million, or 0.3% of revenue, compared to income of $17.0 million, or 18.5% of revenue, in the same period a year earlier. For the first nine months of fiscal 2001, income from operations was a loss of $1.2 million compared to income of $41.7 million a year earlier. For both the third quarter and first nine months of fiscal 2001, the Company's lower dollar income from operations is primarily due to a lower volume of sales in fiscal 2001 and higher operating expenses due to acquisitions. Other income for the third quarter decreased $0.3 million in fiscal 2001 compared to the prior year. For the first nine months of fiscal 2001, other expense was $1.5 million compared to an expense of $0.5 million a year earlier. The year-to-date increase was primarily related to translation loss of $1.1 million in the second quarter of fiscal 2001 compared to a gain of $0.3 million in the second quarter of fiscal 2000. The translation loss was primarily due to changes in exchange rates between the German mark and the U.S. dollar and between the South African rand and the U.S. dollar. The effective tax rate for the third quarter of fiscal years 2001 and 2000 was 40.4% and 40.5%, respectively. The effective tax rate for year-to-date fiscal years 2001 and 2000 was 40.5%. In response to an adverse World Trade Organization ("WTO") finding relative to the U.S. Foreign Sales corporation ("FSC") tax provisions, the U.S. repealed the FSC tax provision and enacted a replacement act, the Extraterritorial Income Exclusion Act of 2000. The European Union ("EU") has filed a challenge with the WTO regarding the new tax provision. It is currently not possible to predict what impact, if any, this issue will have on future earnings pending final resolution of the EU challenge. 13 Euro Conversion On January 1, 1999, certain member nations of the European Economic and Monetary Union ("EMU") adopted a common currency, the Euro. For a three-year transition period, both the Euro and individual participants' currencies will remain in circulation. After June 30, 2002, the Euro will be the sole legal tender for EMU countries. The adoption of the Euro will affect a multitude of financial systems and business applications as the commerce of these nations will be transacted in the Euro and the existing national currency during the transition period. As of March 31, 2001, of the twelve countries currently admitted to the EMU, the Company has subsidiary operations in six of those countries and distributor relationships in the remaining six countries. MICROS is currently addressing Euro related issues and its impact on information systems, currency exchange rate risk, taxation, contracts, competition and pricing. Action plans currently being implemented are expected to result in compliance with all laws and regulations; however, there can be no certainty that such plans will be successfully implemented or that external factors will not have an adverse effect on the Company's operations. Moreover, there is still some uncertainty with respect to the interpretation of certain Euro regulations, and the impact of the regulations on the Company's Euro implementation. Any costs associated with the adoption of the Euro will be expensed as incurred. The Company currently does not expect these costs to be material to its results of operations, financial condition or liquidity. Liquidity and Capital Resources The Company has a $45.0 million multi-currency committed line of credit, which was renewed during the second quarter of fiscal 2001 for an additional one-year period, expiring on December 31, 2001. The financing agreement was amended on April 30, 2001, to include a security interest in inventory and receivables located in the United States. The Company has the one-time option to convert the line of credit into a three-year secured term loan upon expiration of the line of credit. As of March 31, 2001, there is a balance outstanding of US $9.8 million, SEK 3.5 million (approximately $0.3 million at the March 31, 2001 exchange rate) and ZAR 10.6 million (approximately $1.3 million at the March 31, 2001 exchange rate) under this line of credit. In addition, the Company has a credit arrangement from a European bank which provides for financing in an amount not to exceed DM 15.0 million (approximately $6.7 million at the March 31, 2001 exchange rate). Under the terms of this facility, the Company may borrow in the form of either a line of credit or term debt. Under the credit facility, the Company has a balance of DM 5.0 million (approximately $2.2 million at the March 31, 2001 exchange rate) in the form of balloon debt and has a balance of DM 4.0 million (approximately $1.8 million at the March 31, 2001 exchange rate) in line of credit borrowings. The balloon debt matures in September 2001. As the Company has significant international operations, its DM-denominated borrowings do not represent a significant foreign exchange risk. On an overall basis, the Company monitors its cash and debt positions in each currency in an effort to reduce its foreign exchange risk. Also, due to an acquisition in January 2001, the Company has a line of credit from several European banks in the amount of DM 1.6 million (approximately $0.7 million at the March 31, 2001 exchange rate). As of March 31, 2001, there is a balance outstanding of DM 0.7 (approximately $0.3 million at the March 31, 2001 exchange rate) on the lines of credit. Net cash provided by operating activities for the nine-months ended March 31, 2001, was $13.0 million versus $28.0 million for the nine-months ended March 31, 2000. The reduction in net cash for fiscal 2001 relative to fiscal 2000 was caused, by among other factors: (i) slowdown in information technology purchases due to Year 2000 driven purchases in calendar 1999 and also the reduction of new restaurant openings and the continued consolidation of hotels; (ii) longer and delayed sales cycles due to the introduction of new and/or untested technologies, such as Internet- 14 based technologies; and (iii) European currency weakness relative to the dollar. The Company used $25.9 million for investing activities in fiscal 2001, including $14.0 million for the purchase of property, plant, and equipment and internally developed software and $11.7 million for business acquisitions and contingent earn-out payments. Net financing activities for fiscal 2001 provided $12.5 million, primarily from proceeds of $17.0 million on the line of credit during fiscal 2001 which was offset by $4.8 million in repayments on the lines of credit, long term debt and capital lease obligations. The cash position of the Company at March 31, 2001 was $25.7 million. All cash is being held for the operation and expansion of the business. The Company anticipates that its cash flow from operations along with available lines of credit, in conjunction with other lines of credit for which the Company may be eligible or lines of credit to be renewed or converted into term debt, are sufficient to provide the working capital needs of the Company for the foreseeable future. The Company anticipates that its property, plant and equipment expenditures for fiscal 2001 will be approximately $8.0 million. Summary Until calendar year 2000, the Company had experienced rapid revenue growth at a rate that it believes had significantly exceeded that of the global market for point-of-sale computer systems and property management information systems products for the hospitality industry. In light of current market conditions, the Company does not expect to maintain growth at historic levels, and there can be no assurance that any particular level of growth can be achieved. In addition, due to the competitive nature of the market, the Company continues to experience gross margin pressure on its products and service offerings. There can be no assurance that the Company will be able to continue to increase sales sufficiently of its higher margin products, including software, to prevent future declines in the Company's overall gross margin. Moreover, MICROS's financial results in any single quarter are dependent upon the timing and size of customer orders and the shipment of products for large orders. Large software orders from customers may account for more than an insignificant portion of earnings in any quarter. The customers with whom MICROS does the largest amount of business are expected to vary from year to year as a result of the timing for the roll-out of each customer's system. Furthermore, if a customer delays or accelerates its delivery requirements or a product's completion is delayed or accelerated, revenues expected in a given quarter may be deferred or accelerated into subsequent or earlier quarters. The market price of MICROS Common Stock is volatile, and may be subject to significant fluctuations in response to variations in MICROS's quarterly operating results and other factors such as announcements of technological developments or new products by MICROS, customer roll-outs, technological advances by existing and new competitors, and general market conditions in the hospitality industry. In addition, conditions in the stock market in general and shares of technology companies in particular have experienced significant price and volume fluctuations which have at times been unrelated to the operating performance of companies. Moreover, some of the statements contained herein not based on historic facts are forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, that involve risks and uncertainties. Past performance is not necessarily a strong or reliable indicator of future performance. Actual results could differ materially from past results, estimates or projections. Some of the additional risks and uncertainties are: product demand and market acceptance, including demand and acceptance for the new OPERA products and the newest versions of the 3700 RES; implementation of a cost-effective service structure capable of servicing increasingly complex software systems in increasingly more remote locations; achieving increased sales of higher margin software products; hiring and retention of qualified employees with sufficient technical expertise; adverse economic or political conditions; unexpected currency fluctuations; impact of competitive 15 products and pricing on margins; product development delays; technological difficulties associated with new product releases, including those with respect to the Fidelio next generation integrated property management and central reservation system technologies; and controlling expenses. These and other risks are disclosed in the Company's releases and SEC filings, including in the section titled "Business and Investment Risks; Information Relating to Forward-Looking Statements", in the Company's Annual Report on Form 10-K for the Fiscal Year ended June 30, 2000. 16 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 2001 Item 3. Quantitative and Qualitative Disclosures About Market Risk Until calendar year 2000, the Company has experienced rapid growth internationally. MICROS' significant international business and presence does expose the Company to certain market risks, such as currency, interest rate and political risks. With respect to currency risk, the Company transacts business in over 28 different currencies through its foreign subsidiaries. The fluctuation of currencies impacts sales and profitability. Frequently, sales and the costs associated with such sales are not always denominated in the same currency. Given the fact that the Company transacts business in many different currencies, adverse declines in certain currencies can be offset by favorable advances in other currencies. Recent weakness in certain European currencies has, however, adversely impacted the financial performance of the Company. Additionally, the Company is subject to interest rate fluctuations in foreign countries to the extent that the Company elects to borrow in the local foreign currency. In the past, this has not been an issue of concern as the Company has the capacity to elect to borrow in other currencies with more favorable interest rates. While the Company has not to date invested in financial instruments designed to protect against interest rate fluctuations, the Company will continue to evaluate the need to do so in the future. Further, the Company is subject to political risk, especially in developing countries with uncertain or unstable political structures or regimes. The Company is also subject to the effects of, and changes in, laws and regulations, other activities of governments, agencies and similar organizations. The Company does not believe at this time that it is exposed to unusual political risk that could have a material adverse impact on the Company. Finally, the Company's committed line of credit bears interest at a floating rate of interest. It does not invest in financial instruments designed to protect against interest rate fluctuations, although it will continue to evaluate the need to do so in the future. 17 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 2001 Part II - Other Information Item 1. Legal Proceedings MICROS is and has been involved in legal proceedings arising in the normal course of business. The Company is of the opinion, based upon presently available information and the advice of counsel concerning pertinent legal matters, that any resulting liability should not have a material adverse effect on the Company's results of operations or financial position. On March 25, 1997, Budgetel Inns, Inc. ("Budgetel") filed suit against MICROS in the United States Federal District Court in the Eastern District of Wisconsin. Budgetel alleges, among other things, that MICROS breached a March 1993 software support agreement by failing to provide full support to this software package licensed to Budgetel in 1993. MICROS filed a counterclaim against Budgetel, alleging breach of contract and defamation. On April 11, 2001, the Magistrate Judge recommended that 4 of 5 of Budgetel's claims are subject to dismissal on summary judgment. As a result of this favorable recommendation, MICROS believes that the likelihood of any adverse effect on the Company's results of operations or financial position has been further reduced, and will accordingly no longer report on this matter. Items 2 through 4. No events occurred during the quarter covered by the report that would require a response to this item. Item 5. Other Information On April 25, 2001, the Board of Directors at a scheduled Board meeting unanimously approved (with Mr. Brown abstaining from the vote) the Second Amendment of the Consulting Agreement between Louis M. Brown, Jr. and the Company, dated June 30, 1995. The amendment extends the term of the original Consulting Agreement, dated June 30, 1995, as amended by the First Amendment, dated January 27, 1999, for three more years until June 30, 2005. Additionally, at a scheduled meeting on April 25, 2001, with Mr. Giannopoulos abstaining, the Board of Directors unanimously approved the appointment of Mr. Giannopoulos to the position of Chairman of the Board of Directors, adding to his current position of President and Chief Executive Officer. Further, with Mr. Brown abstaining, the Board of Directors unanimously approved the appointment of Mr. Brown to the position of Vice Chairman of the Board of Directors. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10a - Second Amendment to Consulting Agreement between the Company and Louis M. Brown Jr., dated April 26, 2001 (b) Reports on Form 8-K - None 18 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MICROS SYSTEMS, INC. ----------------------- (Registrant) May 14, 2001 /s/ Gary C. Kaufman ------------ ------------------- Gary C. Kaufman Executive Vice President, Finance and Administration/ Chief Financial/Accounting Officer