-----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, KQXdYDNTkumTumIW+myxs76turWa/khO80O10Xy27pw6NDkIWpjB0Hbm61txrOSr y1l31+7b2DhjKGk/Q6hurA== 0000950133-98-000424.txt : 19980218 0000950133-98-000424.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950133-98-000424 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980213 SROS: NASD 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: 98539951 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 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended December 31, 1997 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) 12000 Baltimore Avenue, Beltsville, Maryland 20705-1291 ----------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: 301-210-6000 ------------ 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 December 31, 1997, there were 8,009,472 shares of Common Stock, $.025 par value, outstanding. 1 - 2 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended December 31, 1997 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, 1997 and its Form 10-Q for the quarter ended September 30, 1997 for the fiscal year ending June 30, 1998, 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)
December 31, June 30, 1997 1997 ---- ---- ASSETS ------ Current assets: Cash and cash equivalents $ 8,626 $ 10,864 Accounts receivable, net of allowance for doubtful accounts of $2,247 at December 31, 1997 and $2,508 at June 30, 1997 66,940 64,541 Inventories 32,488 23,855 Deferred income taxes 3,424 3,437 Prepaid expenses and other current assets 8,273 5,053 --------- --------- Total current assets 119,751 107,750 Property, plant and equipment, net of accumulated depreciation and amortization of $17,184 at December 31, 1997 and $15,303 at June 30, 1997 20,721 19,297 Deferred income taxes, non-current 4,771 5,026 Goodwill and intangible assets, net of accumulated amortization of $7,223 at December 31, 1997 and $5,731 at June 30, 1997 18,264 20,806 Purchased and internally developed software, net of accumulated amortization of $5,635 at December 31, 1997 and $4,825 at June 30, 1997 12,504 9,872 Other assets 668 799 --------- --------- Total assets $ 176,679 $ 163,550 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Bank lines of credit $ 18,342 $ 11,740 Current portion of long-term debt 2,516 2,846 Current portion of capital lease obligation 213 210 Accounts payable 21,389 16,797 Accrued expenses and other current liabilities 23,617 30,567 Income taxes payable 8,341 5,182 Deferred service revenue 11,406 12,570 --------- --------- Total current liabilities 85,824 79,912 Long-term debt, net of current portion 4,675 3,368 Capital lease obligation, net of current portion 3,447 3,711 Deferred income taxes 3,278 3,321 Minority interests 1,399 1,511 --------- --------- Total liabilities 98,623 91,823 --------- --------- Commitments and contingencies Shareholders' equity: Common stock, $.025 par; authorized 30,000 shares; issued and outstanding 8,009 at December 31, 1997 and 7,992 at June 30, 1997 200 200 Capital in excess of par 18,540 18,103 Retained earnings 63,757 56,126 Accumulated foreign currency translation adjustments (4,441) (2,702) --------- --------- Total shareholders' equity 78,056 71,727 --------- --------- Total liabilities and shareholders' equity $ 176,679 $ 163,550 ========= =========
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 December 31, ------------------------------- 1997 1996 ---- ---- Revenue: Hardware and software $42,186 $35,867 Service 24,081 20,090 ------- ------- Total revenue 66,267 55,957 ------- ------- Costs and expenses: Cost of sales Hardware and software 19,261 17,613 Service 12,469 10,060 ------- ------- Total cost of sales 31,730 27,673 Selling, general and administrative expenses 20,385 16,813 Research and development expenses 3,265 2,467 Depreciation and amortization 2,072 1,511 ------- ------- Total costs and expenses 57,452 48,464 ------- ------- Income from operations 8,815 7,493 Non-operating income (expense): Interest income 131 113 Interest expense (372) (371) Other income (expense), net (71) 101 ------- ------- Income before taxes and minority interest, equity in net earnings of affiliates and cumulative effect of accounting change 8,503 7,336 Income tax expense 3,398 2,938 ------- ------- Income before minority interest, equity in net earnings of affiliates and cumulative effect of accounting change 5,105 4,398 Minority interest and equity in net earnings of affiliates (77) (387) ------- ------- Net income before cumulative effect of accounting change 5,028 4,011 Cumulative effect of change in accounting principle, net of tax benefit of $274 (412) - ------- ------- Net income $ 4,616 $ 4,011 ======= ======= Diluted net income per common and common equivalent share: Income before cumulative effect of accounting change $ 0.61 $ 0.50 Cumulative effect of change in accounting principle (.05) - ------- ------- Diluted net income per common and common equivalent share $ 0.56 $ 0.50 ======= ======= Basic net income per common share: Income before cumulative effect of accounting change $ 0.63 $ 0.50 Cumulative effect of change in accounting principle (.05) - ------- ------- Basic net income per common share $ 0.58 $ 0.50 ======= ======= Weighted-average number of shares outstanding: Diluted 8,293 8,055 ======= ======= Basic 8,008 7,958 ======= =======
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)
Six Months Ended December 31, ----------------------------- 1997 1996 ---- ---- Revenue: Hardware and software 79,598 $ 66,828 Service 46,257 36,645 -------- -------- Total revenue 125,855 103,473 -------- -------- Costs and expenses: Cost of sales Hardware and software 37,683 32,581 Service 24,348 18,463 -------- -------- Total cost of sales 62,031 51,044 Selling, general and administrative expenses 39,245 32,806 Research and development expenses 6,423 4,413 Depreciation and amortization 3,953 3,317 -------- -------- Total costs and expenses 111,652 91,580 -------- -------- Income from operations 14,203 11,893 Non-operating income (expense): Interest income 199 219 Interest expense (672) (782) Other income (expense), net 7 142 -------- -------- Income before taxes and minority interest, equity in net earnings of affiliates and cumulative effect of accounting change 13,737 11,472 Income tax expense 5,494 4,592 -------- -------- Income before minority interest, equity in net earnings of affiliates and cumulative effect of accounting change 8,243 6,880 Minority interest and equity in net earnings of affiliates (200) (542) -------- -------- Net income before cumulative effect of accounting change 8,043 6,338 Cumulative effect of change in accounting principle, net of tax benefit of $274 (412) - -------- -------- Net income $ 7,631 $ 6,338 ======== ======== Diluted net income per common and common equivalent share: Income before cumulative effect of accounting change $ 0.97 $ 0.79 Cumulative effect of change in accounting principle (.05) - -------- -------- Diluted net income per common and common equivalent share $ 0.92 $ 0.79 ======== ======== Basic net income per common share: Income before cumulative effect of accounting change $ 1.00 $ 0.80 Cumulative effect of change in accounting principle (.05) - -------- -------- Basic net income per common share $ 0.95 $ 0.80 ======== ======== Weighted-average number of shares outstanding: Diluted 8,269 7,997 ======== ======== Basic 8,003 7,952 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 5 - 6 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed and unaudited - in thousands)
Six months ended December 31, ----------------------------- 1997 1996 ---- ---- Net cash flows (used in) provided by operating activities: $(2,714) $10,283 ------- ------- Cash flows from investing activities: Purchases of property, plant and equipment (3,843) (3,100) Proceeds on dispositions of property, plant and equipment 83 35 Purchased and internally developed software costs (3,693) (3,450) Dividends to minority owners (351) (112) Net cash paid for acquisitions and minority interests (238) (494) ------- ------- Net cash used in investing activities (8,042) (7,121) ------- ------- Cash flows from financing activities: Principal payments on line of credit (3,397) (1,451) Principal payments on long-term debt and capital lease obligation (1,808) (3,155) Proceeds from line of credit 10,500 - Proceeds from issuance of long term debt 2,870 59 Proceeds from issuance of stock 372 99 Income tax benefit from stock options exercised 64 25 ------- ------- Net cash provided by (used in) financing activities 8,601 (4,423) ------- ------- Effect of exchange rate changes on cash (83) - ------- ------- Net decrease in cash and cash equivalents (2,238) (1,261) Cash and cash equivalents at beginning of period 10,864 15,231 ------- ------- Cash and cash equivalents at end of period $ 8,626 $13,970 ======= ======= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 714 $ 943 ======= ======= Income taxes $ 928 $ 2,216 ======= =======
The accompanying notes are an integral part of the consolidated financial statements. 6 - 7 MICROS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Quarter Ended December 31, 1997 (Unaudited) 1. Inventories The components of inventories are as follows (in thousands):
December 31, 1997 June 30, 1997 ----------------- ----------------- Raw materials $ 8,533 $ 7,594 Work-in-process 2,356 3,515 Finished goods 21,599 12,746 ----------------- ----------------- $ 32,488 $ 23,855 ================= =================
2. Earnings per share The Company has adopted SFAS No. 128, "Earnings per Share", for the quarter ending December 31, 1997 and has restated all prior period earnings per share data in accordance with SFAS No. 128. Basic earnings per share excludes the dilutive effect of all outstanding stock options and is computed by dividing net income by the weighted average common shares outstanding. For the quarters ending December 31, 1997 and 1996, the weighted average common shares outstanding were 8,008 and 7,958, respectively. For the six months ended December 31, 1997 and 1996, the weighted average common shares outstanding were 8,003 and 7,952, respectively. Diluted earnings per share reflects the potential dilution that could occur if outstanding stock options were exercised and is computed by increasing the denominator of the basic calculation by the weighted average number of shares to reflect the potential dilutive stock options outstanding. For the quarters ending December 31, 1997 and 1996, the weighted average dilutive number of stock options outstanding were 285 and 97, respectively. For the six months ended December 31, 1997 and 1996, the weighted average number of dilutive stock options outstanding were 266 and 45, respectively. For the three month and six month periods ended December 31, 1997 and 1996, respectively, all options outstanding were included in the above earnings per share calculations as no options were anti-dilutive for these periods. 3. Change in Accounting Principle On November 20, 1997, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board issued consensus ruling 97-13 which requires certain business reengineering and information technology implementation costs that have previously been capitalized to now be expensed as incurred. In addition, any previously capitalized costs which are addressed by EITF-13 must also be written off as a cumulative adjustment in the quarter containing November 20, 1997. As a result of this ruling, the Company recorded a one-time after-tax charge of $0.4 million, or $.05 per common share in the quarter ending December 31, 1997. The charge represents the business process reengineering costs capitalized to date relating to MICROS' installation of a new information system. Prior to this ruling, these costs had been capitalized and were to be amortized over the useful life of the system. 4. 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 will defend against Budgetel's allegations, and has moved 7 - 8 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended December 31, 1997 4. Legal proceedings, continued to have certain of the causes of action dismissed. 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 any resulting liability should not have a material adverse effect on the Company's results of operations or financial position. Item 2. Management's discussion and analysis of financial condition and results of operations Liquidity and Capital Resources The Company has a $25.0 million unsecured committed line of credit which was renewed December 31, 1997 for an additional one year period, expiring on December 31, 1998. In addition, the Company has a DM 15.0 million (approximately $8.3 million at the December 31, 1997 exchange rate) borrowing facility. 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. For both of these credit agreements, at December 31, 1997, the Company had borrowed approximately $23.4 million and has approximately $9.9 million available. Of the $23.4 million outstanding as of December 31, 1997, $18.3 million represents line of credit borrowings, with the balance representing term debt. The increase in the Company's borrowings during fiscal 1998 stems primarily from an increase in working capital requirements during the latter portion of the second quarter of the fiscal year. The working capital increase was primarily due to inventory build-up associated with delays in product shipments, increased volume for anticipated demand in the last two quarters of the fiscal year and planned safety stock to adequately transition manufacturing from MICROS headquarters to an independent third party. 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 and adjusts its foreign currency positions in an effort to reduce its foreign exchange risk. Net cash used by operating activities for the six months ended December 31, 1997 was $2.7 million. In addition, the Company used $7.5 million for the purchase of property, plant and equipment and internally developed software. Financing activities for the first six months of fiscal 1998 provided $8.6 million, principally representing borrowings of approximately $13.4 million and debt and capital lease repayments of approximately $5.2 million. The Company anticipates that its cash flow from operations along with available lines of credit, in conjunction with other lines of credit or other commercial borrowings for which the Company may be eligible, are sufficient to provide the current working capital needs of the Company. The Company anticipates that its property, plant and equipment expenditures for fiscal 1998 will continue to increase for the remainder of the fiscal year and will be approximately $1.0 million less than its 1997 expenditures. Results of Operations - Second Quarter and Six Month Comparisons The Company recorded income in the second quarter of fiscal 1998, on a diluted basis, of $.61 per common share, before the effect of an accounting change, compared with net income, on a diluted basis, of $.50 per share in the second quarter of fiscal 1997. Income for the six months ended December 31, 1997, on a diluted basis, was $.97 per share, before the effect of an accounting change, compared with net income, on a diluted basis, of $.79 per common share for the first six months of fiscal 1997. The increased income for the quarter was primarily due to higher sales volumes and improved gross margins, partially offset by higher operating expenses, while the increased income for the year to date was primarily due to higher sales volumes also offset by higher operating expenses. Net income, on a diluted basis, for the second quarter and first six months of fiscal 1998 was $.56 and $.92, respectively, including a one-time after-tax charge of $0.4 million, or $.05 per common share. This one-time cost stems from a charge 8 - 9 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended December 31, 1997 Results of Operations - Second Quarter and Six Month Comparisons, Continued taken in the second quarter of fiscal 1998 in conjunction with a ruling issued by the Financial Accounting Standards Board Emerging Issues Task Force, EITF Issue No. 97-13. This ruling required all previously capitalized business process re-engineering costs incurred in conjunction with a technology transformation project to be immediately expensed in the quarter ending December 31, 1997. Additionally, all such future costs are to be expensed as incurred. The charge represents the business process reengineering costs capitalized to date relating to MICROS' installation of a new information system. Prior to this ruling, these costs had been capitalized and were to be amortized over the useful life of the system. Revenue of $66.3 million for the second quarter of fiscal 1998 increased $10.3 million, or 18.4%, compared to the same period last year. For the first six months of fiscal 1998, revenue increased $22.4 million to $125.9 million, or 21.6%, over the same period in fiscal 1997. A comparison of the sales mix for fiscal years 1998 and 1997 is as follows:
Three Months Ended Six Months Ended December 31, December 31, 1997 1996 1997 1996 ---- ---- ---- ---- Hardware 42.6% 43.2% 43.6% 44.0% Software 21.1% 20.9% 19.7% 20.6% Service 36.3% 35.9% 36.7% 35.4% ------ ------ ------ ------ 100.0% 100.0% 100.0% 100.0% ====== ====== ====== ======
While hardware sales represent a smaller proportion of total sales in fiscal 1998 in comparison to the prior year, this category continued to grow in absolute dollars. For the quarter, the increases in software and service sales, relative to total sales are primarily due to continued growth in Fidelio sales. For the year to date, software sales continued to grow in absolute dollars, despite a minor decline as a percentage of total sales. Combined hardware and software revenues for the second quarter of fiscal 1998 increased $6.3 million, or 17.6%, while service revenues increased $4.0 million, or 19.9%, over the same period a year earlier. On a year-to-date basis, hardware and software sales increased $12.8 million, or 19.1%, while service revenues increased $9.6 million, or 26.2%, over the same period a year earlier. Cost of sales, as a percentage of revenue, decreased to 47.9% from 49.5% for the second quarter of fiscal 1998 compared to the second quarter of fiscal 1997. For both the first six months of fiscal 1998 and 1997, cost of sales, as a percentage of revenue, was 49.3%. Cost of sales for hardware and software products, as a percentage of related revenue, was 45.7% in the second quarter of fiscal 1998 compared to 49.1% for the same quarter a year earlier and 47.3% compared to 48.8% for the first six months of fiscal 1998 and 1997, respectively. For both the quarter and year to date, these declines are due to a favorable shift in the mix between hardware and software sales. Service costs, as a percentage of service revenue, increased to 51.8% in the second quarter of fiscal 1998 compared to 50.1% in the same quarter in fiscal 1997. Service costs, as a percentage of service revenue, increased to 52.6% in the first six months of fiscal 1998 compared to 50.4% for the same period in fiscal 1997. The increased costs for both the quarter and year-to-date were primarily due to continued expansion of the Company's service organization and the initial costs associated with adding additional personnel. Selling, general and administrative expenses increased $3.6 million, or 21.3%, in the second quarter of fiscal 1998 compared to the same period last year. As a percentage of revenue, selling, general and administrative expenses increased to 30.8% in the second quarter of fiscal 1998 compared to 30.1% in the second quarter 9 - 10 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended December 31, 1997 Results of Operations - Second Quarter and Six Month Comparisons, Continued of fiscal 1997 as costs grew at a rate in excess of sales. For the first six months of fiscal 1998, selling, general and administrative expenses, as a percentage of revenue, were 31.2% compared to 31.7% for the same period a year earlier. The year-to-date decrease is primarily the result of sales growth at a rate in excess of these expenses. Research and development expenses (exclusive of capitalized software development costs), which consist primarily of labor costs, increased $798,000, or 32.4%, in the second quarter of fiscal 1998 compared to the same period a year earlier. Actual research and development expenditures, including capitalized software development costs of $2.6 million in the second quarter of fiscal 1998 and $1.1 million in the second quarter of fiscal 1997, increased $2.2 million, or 63.1%, compared to the same period a year earlier. For the first six months of fiscal 1998, research and development expenses (exclusive of capitalized software development costs),which consist primarily of labor costs, increased $2.0 million, or 45.6%, compared to the same period a year earlier. Actual research and development expenditures for the first six months of fiscal 1998, including capitalized software development costs of $3.7 million, increased $3.4 million, or 51.7%, compared to the same period a year earlier. The increase in absolute dollars for both the three-month and six-month periods is primarily due to increased expenditures in both the POS and hotel businesses. The Company currently anticipates its research and development expenditures to remain at current dollar levels. Income from operations for the second quarter of fiscal 1998 was $8.8 million, or 13.3% of revenue, compared to income of $7.5 million, or 13.4% of revenue, in the same period a year earlier. For the first six months of fiscal 1998, income from operations was $14.2 million compared to income of $11.9 million a year earlier. For both the second quarter and first six months of fiscal 1998, the Company's improved income from operations is primarily due to higher sales and higher gross margins, partially offset by higher operating expenses. Interest income for the second quarter of fiscal 1998 increased $18,000 to $131,000, or 15.9%, compared to $113,000 for the second quarter of fiscal 1997. The increase in interest income for the period is primarily due to higher average cash balances during the quarter. Interest expense increased $1,000 to $372,000 for the second quarter of fiscal 1998 from $371,000 for the same period a year ago. Interest income for the first six months in fiscal 1998 was $199,000 compared to $219,000, a decrease of 9.1%, for the comparable period in fiscal 1997 as a result of a lower average investment balance year to date during fiscal 1998. Interest expense for the first six months in fiscal 1998 was $672,000 compared to $782,000, a decrease of 14.1%, for the comparable period in fiscal 1997 primarily due to the decrease in the Company's overall debt during the first six months of fiscal 1998 in comparison to the same period in fiscal 1997, notwithstanding the increase in debt levels at the end of the second quarter of fiscal 1998. The effective tax rate for both the second quarter of fiscal years 1998 and 1997 as well as the year to date effective tax rate is 40.0%. The cumulative effect of a change in accounting principle relates to a one-time after-tax charge of $412,000, or $.05 per common share. This one-time charge, which was $686,000 on a pre-tax basis, stems from a charge taken in the second quarter of fiscal 1998 in conjunction with a ruling issued by the Financial Accounting Standards Board Emerging Issues Task Force, EITF Issue No. 97-13. This ruling required all previously capitalized business process re-engineering costs incurred in conjunction with a technology transformation project to be immediately expensed in the Company's quarter ending December 31, 1997. Additionally, all such future costs are to be expensed as incurred. The charge represents the business process reengineering costs capitalized to date relating to MICROS' installation of a new management information system. Prior to this ruling, these costs had been capitalized and were to be amortized over the useful life of the system. 10 -- 11 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended December 31, 1997 Results of Operations - Second Quarter and Six Month Comparisons, Continued 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 and property management information systems products for the hospitality industry, fueled in part by the acquisitions consummated in calendar year 1995. 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 product and service margins to decline. There can be no assurance that the Company will be able to continue to increase sufficiently sales of its higher margin products, including software, 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 3400 QSA and the 3700 POS systems; 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 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; inflationary pressures in the labor markets, especially in the high technology industry; and controlling expenses, including those relating to infrastructure expansion. Other risks are disclosed in the Company's releases and SEC filings. 11 -- 12 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended December 31, 1997 Part II - Other Information Item 1. Legal Proceedings. 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 will defend against Budgetel's allegations, and has moved to have certain of the causes of action dismissed. 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 any resulting liability should not have a material adverse effect on the Company's results of operations or financial position. Item 2. Changes in Securities. An amendment of the Company's Articles of Incorporation to increase the number of shares of common stock that the Company is authorized to issue from 10,000,000 to 30,000,000 shares, and to delete a preemptive rights provision, was approved by the Company's shareholders at the annual meeting held on November 21, 1997. Articles of Amendment were filed with the Maryland State Department of Assessments and Taxation on December 1, 1997. Item 3. No events occurred during the quarter covered by the report that would require a response to this item. Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of shareholders was held on November 21, 1997. A quorum was present and shareholders voted on the following matters: 1. Approval of an Amendment to the Articles of Incorporation The shareholders voted 4,265,098 shares in the affirmative and 2,065,096 shares in the negative with respect to a proposal to adopt an amendment to the Company's Articles of Incorporation. A total of 12,129 shares abstained from the vote. There were 1,032,156 broker non-votes. The amendment increases the number of shares of common stock that the Company is authorized to issue from 10,000,000 to 30,000,000 shares, and deletes a preemptive rights provision. As the requisite number of shares required for approval was obtained, the amendment was approved, and Articles of Amendment were filed with the Maryland State Department of Assessments and Taxation on December 1, 1997. 2. Election of Directors The management of the Company nominated a slate of seven persons to serve on the Board of Directors. No other nominations were made. The nominees received the following votes:
Vote Withheld Nominee For (Abstain) ------- --- ------------- Louis M. Brown, Jr. 7,285,268 89,211 Daniel Cohen 7,285,163 89,316 A.L. Giannopoulos 7,283,908 90,571 F. Suzanne Jenniches 7,282,463 92,016 John G. Puente 7,285,163 89,316 Dwight S. Taylor 7,258,793 115,686 Alan M. Voorhees 7,262,278 112,201
12 -- 13 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended December 31, 1997 Part II - Other Information, continued The entire slate of directors nominated was elected by a majority of the shares present in person or represented by proxy and entitled to vote. 3. Selection of Independent Public Accountants The Board of Directors of the Company selected Price Waterhouse LLP as the independent public accountants for the Company for the fiscal year ending June 30, 1998. A proposal (Proposal 3) to approve the selection of Price Waterhouse LLP was approved by a majority of the shares present in person or represented by proxy and entitled to vote. A total of 7,361,983 shares voted in the affirmative; a total of 7,941 shares voted in the negative; and a total of 4,555 shares abstained from the vote. 4. Approval of Amendment to Stock Option Plan The shareholders voted 5,893,488 shares in the affirmative and 521,522 shares in the negative with respect to an amendment to the 1991 Stock Option Plan. A total of 53,099 shares abstained from the vote, and there were 906,370 broker non-votes. The amendment modifies the 1991 Stock Option Plan in three respects: (i) the number of shares available under the 1991 Stock Option Plan is increased by 600,000, with the aggregate number of shares that can be issued under the plan being 1,750,000; (ii) a limit is imposed on the maximum number of shares subject to grants to any individual in any fiscal year to 100,000 shares; and (iii) a provision allowing the Company to accept the surrender of outstanding options and authorize new options in substitution therefore is deleted. As the requisite number of shares required for approval was obtained, the amendment was approved. Item 5. Other Information On February 11, 1998, the Company and A.L. Giannopoulos, President and Chief Executive Officer, entered into the Second Amendment (the "Second Amendment") to the Employment Agreement, which serves to amend the Employment Agreement dated June 1, 1995, between the Company and Mr. Giannopoulos, as first amended by the First Amendment dated February 6, 1997. The Second Amendment extends the term of the Employment Agreement until June 30, 2002, and provides for compensation for the extension term. Prior to execution of the Second Amendment, the term of the Employment Agreement expired on December 31, 1999. 13 -- 14 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended December 31, 1997 Part II - Other Information, continued Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 3(i) - Articles of Amendment to Articles of Incorporation Exhibit 10 - Material Contracts Exhibit 11 - Computation of Earnings Per Share Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K - None 14 -- 15 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended December 31, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MICROS SYSTEMS, INC. ----------------------- (Registrant) February 13, 1998 s/ Gary C. Kaufman - ----------------- ------------------ Gary C. Kaufman Senior Vice President, Finance and Administration/Chief Financial Officer February 13, 1998 s/ Roberta J. Watson - ----------------- -------------------- Roberta J. Watson Vice President and Controller 15 -- 16 EXHIBIT INDEX
Sequentially Exhibit Numbered Page - ------- ------------- 3(i) Articles of Amendment to Articles of Incorporation 17-19 10 Material Contracts 20-22 11 Computation of Earnings Per Share 23 27 Financial Data Schedule 24
16 -- EX-3.I 2 ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION 1 EXHIBIT 3(i) ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION MICROS SYSTEMS, INC. ARTICLES OF AMENDMENT MICROS Systems, Inc., a Maryland corporation, having its principal office at 12000 Baltimore Avenue, Beltsville, Maryland 20705 (which is hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: The Articles of Incorporation of the Corporation are hereby amended by striking out Article FIFTH thereof in its entirety and inserting in lieu thereof the following: "FIFTH: The total number of shares which the Corporation shall have authority to issue is 30,000,000, all such shares to be common stock, par value $0.025 per share. Dividends may be declared on the common stock and each share of common stock will entitle the holder thereof to one vote in all proceedings in which action should be taken by stockholders of the Corporation." SECOND: The Articles of Incorporation of the Corporation are hereby further amended by striking out Article SEVENTH, subsection (e), thereof in its entirety and inserting in lieu thereof the following: "(e) No holders of stock of the Corporation, of whatever class, shall have any preferential right of subscription to any shares of any class or to any securities convertible into shares of stock of the Corporation, nor any right of subscription to any thereof other than such, if any, as the Board of Directors in its discretion may fix; and any shares of convertible securities which the Board of Directors may determine to offer for subscription to the holders of stock may, as said Board of Directors shall determine, be offered to holders of any class or classes of stock at the time existing to the exclusion of holders of any or all other classes at the time existing." THIRD: The Board of Directors of the Corporation at a meeting duly convened and held on September 24, 1997, adopted a resolution in which was set forth the foregoing amendments to the Articles of Incorporation of the Corporation, declaring that said amendments were advisable and directing that such amendments be submitted for action thereon at the next annual meeting of the stockholders of the Corporation. 17 -- 2 EXHIBIT 3(i) ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION, continued FOURTH: The amendments of the Articles of Incorporation of the Corporation as hereinabove set forth were approved by the affirmative vote of a majority of the total votes eligible to be cast at the annual meeting of stockholders held on November 21, 1997, in accordance with the provisions of Article SEVENTH, subsection (f), of the Articles of Incorporation of the Corporation. FIFTH: (a) Prior to the amendment, the Corporation had authority to issue 10,000,000 shares of common stock with a par value of $.025 per share. (b) After amendment the Corporation has authority to issue 30,000,000 shares of common stock with a par value of $.025 per share. (c) The capital stock of the Corporation is not divided into classes. (d) The aggregate par value of all shares of common stock of the Corporation is $750,000. IN WITNESS WHEREOF, MICROS Systems, Inc. has caused these presents to be signed in its name and on its behalf by its President and its corporate seal to be hereunto affixed and attested by its Secretary on the __ day of November, 1997. ATTEST MICROS SYSTEMS, INC. - -------------------------- ---------------------------------- Judith F. Wilbert By: A.L. Giannopoulos Secretary Its: President and Chief Executive Officer THE UNDERSIGNED, President and Chief Executive Officer of MICROS Systems, Inc., who executed on behalf of the Corporation the foregoing Articles of Amendment of which this is made a part, hereby acknowledges in the name and on behalf of said Corporation that the foregoing Articles of Amendment to be the corporate act of said Corporation, and hereby certifies that to the best of his knowledge, information, and belief the matters and facts set forth therein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. ----------------------------- A.L. Giannopoulos President and Chief Executive Officer 18 -- 3 EXHIBIT 3(i) ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION, continued STATE OF MARYLAND, COUNTY OF PRINCE GEORGES, To wit: I HEREBY CERTIFY that on this __ day of November, 1997, before me, the subscriber, a Notary Public in and for the State and County aforesaid, personally appeared A.L. Giannopoulos, President of the Corporation and made oath in due form of law that he executed the above on behalf of the Corporation, being authorized to do so, and executed same in my presence. AS WITNESS My Hand and Notarial Seal. My commission expires: ------------------------------ Judith F. Wilbert Notary Public 19 -- EX-10 3 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10 MATERIAL CONTRACTS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Second Amendment to the Employment Agreement is effective the first day of February, 1998 (the "Second Amendment"), by and between MICROS SYSTEMS, INC., a Maryland corporation, with offices located at 12000 Baltimore Avenue, Beltsville, Maryland 20705 (hereinafter referred to as the "Company"), and A. L. GIANNOPOULOS, whose address is 6125 Wooded Run Drive, Columbia, Maryland 21044 (hereinafter referred to as the "Executive"). WHEREAS, the Executive and the Company entered into an Employment Agreement dated June 1, 1995, as amended by the First Amendment dated February 6, 1997 (the agreement as amended hereinafter referred to as the "Agreement"); and WHEREAS, the parties hereto would like to amend the Agreement pursuant to this Second Amendment in an effort both: (i) to reflect the rapid growth experienced by the Company, and the current status of the Company and the Executive relative to other similarly positioned entities; (ii) to reward the Executive for achieving financial objectives; and (iii) to solidify the long-term management structure of the Company. NOW, THEREFORE, the Company and the Executive, for good and valuable consideration, and pursuant to the terms, conditions, and covenants contained herein, hereby agree as follows: 1. Section 3 of the Agreement, captioned "Term", shall be deleted in its entirety and the following new language inserted in lieu thereof: "The term of this Agreement shall commence upon the day and year first above written ("Commencement Date") and shall continue until June 30, 2002, unless sooner terminated, as provided herein." 2. Section 4 of the Agreement, captioned "Salary", is amended by deleting the salary chart therein in its entirety and inserting the following in lieu thereof:
- ------------------------------------------------------------------ Period Salary - ------------------------------------------------------------------ Commencement Date through June 30, 1995 $32,170 - ------------------------------------------------------------------ July 1, 1995 through June 30, 1996 $203,000 - ------------------------------------------------------------------ July 1, 1996 through June 30, 1997 $250,000 - ------------------------------------------------------------------ July 1, 1997 through June 30, 1998 $262,500 - ------------------------------------------------------------------ July 1, 1998 through June 30, 1999 $275,000 - ------------------------------------------------------------------ July 1, 1999 through June 30, 2000 $445,500 - ------------------------------------------------------------------ July 1, 2000 through June 30, 2001 $500,500 - ------------------------------------------------------------------ July 1, 2001 through June 30, 2002 $577,500 - ------------------------------------------------------------------
20 -- 2 EXHIBIT 10 MATERIAL CONTRACTS, continued 3. Section 5 of the Agreement, captioned "Bonuses", is amended in the following two respects: A. The target bonus chart contained therein is deleted in its entirety and the following is inserted in lieu thereof:
- -------------------------------------------------------------------- Fiscal Year Ending Target Bonus - -------------------------------------------------------------------- June 30, 1995 $110,000 - -------------------------------------------------------------------- June 30, 1996 $120,000 - -------------------------------------------------------------------- June 30, 1997 $150,000 - -------------------------------------------------------------------- June 30, 1998 $163,500 - -------------------------------------------------------------------- June 30, 1999 $177,000 - -------------------------------------------------------------------- June 30, 2000 $250,000 - -------------------------------------------------------------------- June 30, 2001 $300,000 - -------------------------------------------------------------------- June 30, 2002 $350,000 - --------------------------------------------------------------------
B. The last paragraph of Section 5 is deleted in its entirety and the following is inserted in lieu thereof: "Any bonus required to be paid pursuant to this Section 5 shall be paid by the Company to the Executive within ninety (90) days following the close of the fiscal year of the Company to which such bonus applies." 4. Section 6 of the Agreement, captioned "Stock Option", shall be amended by adding at the end of the existing text the following new text: "All grants to the Executive hereunder on or after January 1, 1998, whether under the Company Plan or any successor employee stock option plan, shall provide for full vesting of all grants on the first year anniversary of such grant, unless earlier vesting is permitted under the applicable plan, or unless a different vesting regimen is required pursuant to governing law." 5. The first paragraph of Section 16(c)(3) of the Agreement shall be deleted in its entirety and the following new language inserted in lieu thereof: "Payment Upon Termination By The Company. If the Company terminates the Executive's employment for any reason other than Good Cause, the Executive shall be entitled to receive from the Company and the Company shall pay to the Executive in one lump sum, within fifteen (15) days following the Executive's termination of employment, all of the salary and Target Bonus payments provided for in Sections 4 and 5 of this Agreement for the period beginning on the date of the Executive's termination of employment and ending on June 30, 2002." 6. The first paragraph of Section 16(c)(4) of the Agreement shall be deleted in its entirety and the following new language inserted in lieu thereof: "Payment Upon Termination By The Executive. If the Executive terminates his employment with the Company for Good Reason, other than Good Reason described in Section 16(a)(3)a), he shall be entitled to receive from the Company and the Company shall pay to the Executive in one lump sum, within fifteen (15) days following the date of the Executive's termination of employment, all of the salary and Target Bonus payments provided for in Sections 4 and 5 of this Agreement for the period beginning on the date of the Executive's termination and ending on June 30, 2002. If the Executive terminates his employment with the Company for the Good Reason described in Section 16(a)(3)a), then and in such event, he shall be entitled to receive from the Company and the Company shall pay to the Executive in one lump sum, within fifteen (15) days following the date of the Executive's termination of employment, an amount equal to the lesser of (i) all of the salary and Target Bonus payments provided for in Sections 4 and 5 of this Agreement for the period beginning on the date of the Executive's termination and ending on June 30, 2002, or (ii) all of the salary and Target Bonus payments 21 -- 3 EXHIBIT 10 MATERIAL CONTRACTS, continued provided for in Sections 4 and 5 of this Agreement for the period commencing on the date of the Executive's termination and ending on the third anniversary of the date of the Executive's termination." 7. All other provisions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Second Amendment as of the dates indicated below, the effective date of this Second Amendment being the first day of February, 1998. COMPANY: ATTEST: MICROS SYSTEMS, INC. By: (SEAL) - ------------------ ---------------------- Louis M. Brown, Jr. Chairman [Corporate Seal] EXECUTIVE: WITNESS: (SEAL) - ------------------ -------------------------- A. L. GIANNOPOULOS 22 -- EX-11 4 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE MICROS SYSTEMS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Unaudited - in thousands, except per share data)
Three months ended December 31, 1997 1996 ------ ------ Weighted-average number of common shares 8,008 7,958 Dilutive effect of outstanding stock options 285 97 ------ ------ Weighted-average number of common and common equivalent shares outstanding 8,293 8,055 ====== ====== Net income $4,616 $4,011 ====== ====== Net income per common and common equivalent share $ 0.56 $ 0.50 ====== ====== Six months ended December 31, 1997 1996 ------ ------ Weighted-average number of common shares 8,003 7,952 Dilutive effect of outstanding stock options 266 45 ------ ------ Weighted-average number of common and common equivalent shares outstanding 8,269 7,997 ====== ====== Net income $7,631 $6,338 ====== ====== Net income per common and common equivalent share $ 0.92 $ 0.79 ====== ======
23 -- EX-27 5 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 DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JUN-30-1998 DEC-31-1997 8,626 0 69,187 2,247 32,488 119,751 37,905 17,184 176,679 85,824 10,851 0 0 200 77,856 176,679 79,598 125,855 37,683 73,969 0 0 672 13,737 5,494 8,243 0 0 (412) 7,631 0.95 0.92
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