-----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, Qg7VgVcYvgIVAy72923bzdkg9fnkBhTiTbALEJ6A9sesAuAvjyGAcgbMYPA97pif GpizRTcyVHtif93bWToSjQ== 0000950133-98-003885.txt : 19981118 0000950133-98-003885.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950133-98-003885 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98752089 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 MICROS SYSTEMS, INC. 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 September 30, 1998 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 September 30, 1998, there were 16,119,766 shares of Common Stock, $0.025 par value, outstanding. 1 2 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended September 30, 1998 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. All references to fiscal 1998 share and per share amounts presented in Management's Discussion and Analysis of Financial Condition and Results of Operations and the Notes to Consolidated Financial Statements in this Form 10-Q have been retroactively restated to reflect a two-for-one stock split effected in the form of a stock dividend in the fourth quarter of fiscal 1998. 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, 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)
September 30, June 30, 1998 1998 ---------- ---------- ASSETS Current assets: Cash and cash equivalents $14,196 $13,592 Accounts receivable, net of allowance for doubtful accounts of $2,684 at September 30, 1998 and $2,298 at June 30, 1998 86,158 85,436 Inventories 35,518 32,232 Deferred income taxes 4,759 4,715 Prepaid expenses and other current assets 9,999 7,136 ------- ------ Total current assets 150,630 143,111 Property, plant and equipment, net of accumulated depreciation and amortization of $21,381 at September 30, 1998 and $19,893 at June 30, 1998 22,439 21,764 Deferred income taxes, non-current 5,036 4,644 Goodwill and intangible assets, net of accumulated amortization of $9,726 at September 30, 1998 and $8,883 at June 30, 1998 18,606 17,597 Purchased and internally developed software costs, net of accumulated amortization of $7,260 at September 30, 1998 and $6,654 at June 30, 1998 19,017 16,964 Other assets 434 531 ---- ---- Total assets $216,162 $204,611 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank lines of credit $26,029 $26,830 Current portion of long-term debt 1,510 1,970 Current portion of capital lease obligations 275 280 Accounts payable 19,765 18,968 Accrued expenses and other current liabilities 25,320 29,350 Income taxes payable 8,728 9,158 Deferred income taxes 71 44 Deferred service revenue 18,958 11,112 ------- ------- Total current liabilities 100,656 97,712 Long-term debt, net of current portion 6,880 4,074 Capital lease obligations, net of current portion 3,463 3,466 Deferred income taxes, non-current 6,673 6,682 Minority interests 1,141 944 ------ ---- Total liabilities 118,813 112,878 -------- -------- Commitments and contingencies Shareholders' equity: Common stock, $0.025 par; authorized 30,000 shares; issued and outstanding 16,120 at September 30, 1998 and 16,101 at June 30, 1998 403 403 Capital in excess of par 20,520 20,097 Retained earnings 79,074 75,566 Accumulated other comprehensive income (Note 4) (2,648) (4,333) ------- -------- Total shareholders' equity 97,349 91,733 ------- ------- Total liabilities and shareholders' equity $216,162 $204,611 ========= =========
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 September 30, -------------------------------- 1998 1997 ---- ---- Revenue: Hardware and software $41,467 $37,412 Service 25,172 22,176 -------- -------- Total revenue 66,639 59,588 -------- -------- Costs and expenses: Cost of sales Hardware and software 20,601 18,422 Service 12,855 11,879 -------- -------- Total cost of sales 33,456 30,301 Selling, general and administrative expenses 19,811 18,859 Research and development expenses 3,703 3,158 Office closure costs 427 -- Depreciation and amortization 2,393 1,882 ------- ------- Total costs and expenses 59,790 54,200 -------- -------- Income from operations 6,849 5,388 Non-operating income (expense): Interest income 71 68 Interest expense (716) (300) Other income (expense), net (183) 78 ------ ---- Income before taxes, minority interests and equity in net earnings of affiliates 6,021 5,234 Income taxes 2,408 2,096 ------- ------- Income before minority interests and equity in net earnings of affiliates 3,613 3,138 Minority interests and equity in net earnings of affiliates (105) (123) ------ ------ Net income $3,508 $3,015 ======== ======== Net income per common share: Basic $0.22 $0.19 ======= ======= Diluted $0.21 $0.18 ======= ======= Weighted-average number shares outstanding: Basic 16,115 15,998 ======== ======== Diluted 17,048 16,490 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4 5 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Three Months Ended September 30, 1998 (Unaudited, in thousands)
Accumulated Common Stock Capital Other -------------------- in Excess Retained Comprehensive Shares Amount of Par Earnings Income Total -------- -------- --------- -------- ------ ----- Balance, June 30, 1998 16,101 $403 $20,097 $75,566 $(4,333) $91,733 Stock issued upon exercise of options 19 -- 339 -- -- 339 Income tax benefit from stock options exercised -- -- 84 -- -- 84 Comprehensive income (Note 4) Net income -- -- -- 3,508 -- -- Foreign currency translation adjustments -- -- -- -- 1,685 -- Total comprehensive income -- -- -- -- -- 5,193 ------ ---- ------- ------- -------- -------- Balance, September 30, 1998 16,120 $403 $20,520 $79,074 $(2,648) $97,349 ====== ==== ======= ======= ======== ========
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)
Three Months Ended September 30, -------------------------------- 1998 1997 ---- ---- Net cash flows from operating activities: $4,927 $3,234 -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment (2,278) (2,266) Internally developed software (2,377) (1,143) Net cash paid for acquisitions (975) (238) ------ ------ Net cash used in investing activities (5,630) (3,647) -------- -------- Cash flows from financing activities: Principal payments on line of credit (4,295) -- Principal payments on long-term debt and capital lease obligations (960) (1,098) Proceeds from lines of credit 3,000 -- Proceeds from issuance of debt 2,995 -- Proceeds from issuance of stock 339 316 Income tax benefit from stock options exercised 84 63 ------- ------ Net cash provided by (used in) financing activities 1,163 (719) ------- ------ Effect of exchange rate changes on cash 144 (366) ----- ------ Net increase (decrease) in cash and cash equivalents 604 (1,498) Cash and cash equivalents at beginning of period 13,592 10,864 -------- -------- Cash and cash equivalents at end of period $14,196 $9,366 ========= ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $990 $367 ======== ====== Income taxes $2,205 $188 ======== ======
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 September 30, 1998 (Unaudited, in thousands, except per share data) 1. Inventories The components of inventories are as follows:
September 30, June 30, 1998 1998 ------------------------ ------------------------ Raw materials $ 5,577 $ 5,415 Work-in-process 2,419 1,762 Finished goods 27,522 25,055 ------------------------ ------------------------ $ 35,518 $ 32,232 ======================== ========================
2. 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. On June 22, 1998, the United States District Court Judge granted MICROS' motion to dismiss four of the seven causes of action. As Budgetel's motion for leave to file an amended complaint was granted, however, it is expected that Budgetel will elect to file a first amended complaint. While the ultimate outcome of litigation is uncertain, and while litigation is inherently difficult to predict, the Company is of the opinion, based upon presently available information and the advice of counsel concerning pertinent legal matters, that resulting liability, if any, should not have a material adverse effect on the Company's results of operations or financial position. 3. Net Income per Share Basic net income per common share is computed by dividing net income by the weighted-average number of shares outstanding. Diluted net income per share includes the dilutive effect of stock options. A reconciliation of weighted average of common shares outstanding assuming dilution is as follows:
Three Months Ended September 30, 1998 1997 ---- ---- Net Income $ 3,508 $ 3,015 ======== ======== Average common shares outstanding 16,115 15,998 Dilutive effect of outstanding stock options 933 492 --- --- Average common shares outstanding assuming dilution 17,048 16,490 ====== ====== Basic Net Income per Share $0.22 $0.19 ===== ===== Diluted Net Income per Share $0.21 $0.18 ===== =====
7 8 MICROS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Quarter Ended September 30, 1998 (Unaudited, in thousands, except per share data) 3. Net Income per Share, continued For both the three month periods ended September 30, 1998 and 1997, one thousand options were excluded from the above reconciliation as these options were anti-dilutive for these periods. 4. Comprehensive Income On July 1, 1998, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." Total comprehensive income is reported in the consolidated statements of shareholders' equity and includes net income and foreign currency translation adjustments. Item 2. Management's discussion and analysis of financial condition and results of operations Liquidity and Capital Resources The Company has a $35.0 million unsecured committed multi-currency line of credit which expires on December 31, 1998. Such line is convertible, at the Company's option, to three-year term debt. Prior to this upcoming expiration date, the Company anticipates that it will renew this line of credit for an additional one year period. In addition, the Company has a credit facility from a European bank in the amount of DM 15.0 million (approximately $9.0 million at the September 30, 1998 exchange rate). Under the terms of this facility, the Company may, at its option, borrow in the form of a line of credit or in the form of term debt. For both of these credit agreements, at September 30, 1998, the Company had borrowed approximately $33.0 million and has approximately $11.0 million available. Of the $33.0 million outstanding as of September 30, 1998, $26.0 million represents line of credit borrowings and $7.0 million represents term debt. As of September 30, 1998, the Company's DM-denominated borrowings under these credit facilities amounted to DM 16.7 million (approximately $10.0 million at the September 30, 1998 exchange rate.) The increase in the Company's combined credit facility borrowings during fiscal 1999 stems primarily from continued spending for internally developed software, along with increased levels of inventory and accounts receivable. The Company believes it can operate at a lower inventory level and currently believes it can achieve this during fiscal 1999. 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. 8 9 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended September 30, 1998 Liquidity and Capital Resources - Continued Net cash provided by operating activities for the three months ended September 30, 1998 was $4.9 million. The Company used $5.6 million in investing activities, primarily for the purchase of property, plant and equipment and internally developed software. Net financing activities for the first three months of fiscal 1999 provided $1.2 million, primarily through the issuance of term debt. The Company anticipates that its cash flow from operations along with available lines of credit, in conjunction with other lines of credit for which the Company may be eligible or lines of credit to be renewed, are sufficient to provide the working capital needs of the Company for the foreseeable future. The Company anticipates that its property, plant and equipment expenditures for fiscal 1999 will continue to increase for the remainder of the fiscal year but should be lower than fiscal 1998's expenditures of $9.3 million. Results of Operations - First Quarter Comparison The Company recorded diluted net income of $0.21 per common share in the first quarter of fiscal 1999, compared with diluted net income of $0.18 per common share in the first quarter of fiscal 1998. For the quarter, the increased net income was primarily due to higher sales volumes and a slight improvement in gross margins along with lower operating expenses as a percentage of sales. Revenue of $66.6 million for the first quarter of fiscal 1999 increased $7.1 million, or 11.8%, compared to the same period last year. A comparison of the sales mix for fiscal years 1999 and 1998 is as follows:
Three Months Ended September 30, 1998 1997 ---- ---- Hardware 40.4% 44.7% Software 21.8% 18.1% Service 37.8% 37.2% ----- ----- 100.0% 100.0% ====== ======
Both hardware and software sales increased in absolute dollars in fiscal 1999 in comparison to the prior year. Hardware sales declined as a percentage of total sales while software sales increased primarily due to significant sales of certain Fidelio products in fiscal 1999's first quarter. Service sales increased in absolute dollars and as a proportion of total sales for the first quarter in comparison to the prior year primarily due to the continued expansion of the Company's hotel business and the installation and support revenues. Combined hardware and software revenues for the first quarter of fiscal 1999 increased $4.1 million, or 10.8%, while service revenues increased $3.0 million, or 13.5%, over the same period a year earlier. 9 10 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended September 30, 1998 Results of Operations - First Quarter Comparison, Continued Cost of sales, as a percentage of revenue, decreased to 50.2% for the first quarter of fiscal 1999 from 50.9% for the first quarter of fiscal 1998. Cost of sales for hardware and software products, as a percentage of related revenue, was 49.7% in the first quarter of fiscal 1999 compared to 49.2% for the same quarter a year earlier. This increase was the result of decreased margins associated with hardware sales, which more than offset the favorable gross margin effect of increased software sales. Service costs, as a percentage of service revenue, decreased to 51.1% in the first quarter of fiscal 1999 compared to 53.6% in the same quarter in fiscal 1998. The first quarter decrease in comparison to the prior year was due to 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. Selling, general and administrative expenses increased $1.0 million, or 5.1%, in the first quarter of fiscal 1999 compared to the same period last year. As a percentage of revenue, selling, general and administrative expenses decreased to 29.7% in the first quarter of fiscal 1999 compared to 31.7% in the first quarter of fiscal 1998 as sales grew 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 $0.5 million, or 17.3%, in the first quarter of fiscal 1999 compared to the same period a year earlier. Actual research and development expenditures, including capitalized software development costs of $2.4 million in the first quarter of fiscal 1999 and $1.1 million in the first quarter of fiscal 1998, increased $1.8 million, or 41.4%, compared to the same period a year earlier. The increase in absolute dollars for the three-month period is primarily due to increased expenditures in the Company's hotel business and to a lesser extent, increased expenditures in the Company's POS business. Office closure costs relate to follow-on costs associated with the Company's fourth quarter of fiscal 1998 permanent closure of its facility in Munich, Germany. These costs relate to the relocation of former Munich employees to their new places of employment within the Company. Income from operations for the first quarter of fiscal 1999 was $6.8 million, or 10.3% of revenue, compared to income of $5.4 million, or 9.0% of revenue, in the same period a year earlier. For the first quarter of fiscal 1999, the Company's higher dollar income from operations is primarily due to higher sales and improved gross margins, along with lower operating expenses as a percentage of sales. Interest expense increased $0.4 million to $0.7 million, or 138.7%, for the first quarter of fiscal 1999 from $0.3 million for the same period a year ago as the Company increased its debt obligations to fund its internal software development efforts and to meet its working capital requirements. The effective tax rate for the first quarter of both fiscal years 1999 and 1998 is 40.0%. The Company has not experienced any significant shift in its mix of earnings that would require a change in its effective tax rate. 10 11 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended September 30, 1998 Results of Operations - First Quarter Comparison, Continued Year 2000 The Company is currently in the process of performing a review of its business systems, and is querying its customers, vendors and resellers with respect to Year 2000 compliance issues. The "Year 2000 Issue" is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have a time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in normal business activities. In 1997, the Company created a corporate-wide Year 2000 project team representing all business units of the Company. The team was divided into three segments, each of which was tasked with analyzing one of the following three sets of issues: (i) Year 2000 compliance issues with respect to Company internal information technology systems and non-information technology systems; (ii) Year 2000 compliance issues with respect to the information systems of certain key Company vendors and suppliers; and (iii) Year 2000 compliance issues with respect to Company products that the Company sells and licenses to its worldwide customer base. Year 2000 Compliance Issues with respect to Company Internal Systems The Company's Management Information Systems Department assumed all Year 2000 obligations associated with testing, analyzing and implementing the Company's internal information systems. Although these activities were not formally assigned to the MIS department until 1997, the department had nonetheless embraced such as part of its implementation of new enterprise resources planning systems in 1996. This implementation involved replacing all internal information systems with Oracle Applications Release 10.7. As part of this implementation, the Company required certification that all Oracle products were Year 2000 compliant, which such certification has been provided. The Company is in the process of verifying the Year 2000 compliance of certain Oracle products, which is expected to be completed by March 31, 1999. Internationally, the Company currently intends to adopt Year 2000 compliant Oracle applications at certain central locations. The Company expects to render appropriate upgrades to existing systems by July of 1999 at the non-central international offices, where deemed appropriate or necessary. Year 2000 Compliance Issues with respect to the Information Systems of Certain Key Company Vendors and Suppliers In addition to internal Year 2000 activities and the review and remediation of the Company's internal information systems, the Company is in contact with its key suppliers and vendors to assess their compliance. The Company has received to date certain assurances from these suppliers and vendors that any Year 2000 issues from which they suffer will not materially adversely affect MICROS. There can, however, be no absolute assurance that there will not be a material adverse effect on the Company if third parties do not convert their systems in a timely manner and in a way that is compatible with the Company's systems. The Company believes that its current and future actions with suppliers will minimize these risks. 11 12 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended September 30, 1998 Results of Operations - First Quarter Comparison, Continued Year 2000 Compliance Issues with respect to Company Products that the Company Sells and Licenses to its Worldwide Customer Base Finally, the Company is currently in the process of completing the testing of its existing product offerings. The testing includes an analysis of both standard products, currently offered, and all custom products that have been offered or developed since 1995, which the Company currently supports. The testing is not performed with respect to any legacy products that the Company does not currently sell or support. In the event that the testing determines that a product may not be Year 2000 compliant, the Company has or will develop either a fix, or a migration path to a product that is Year 2000 compliant. While certain potential issues have been identified to date, the expense of upgrading product applications to be Year 2000 compliant has not been material. The Company maintains a site on its web page which details the products that the Company will test or has tested, and the Year 2000 compliance status thereof. The site is updated routinely. Year 2000 Compliance Costs Through fiscal 1998, the Company has expensed all incremental costs related to the Year 2000 analysis and remediation efforts. Internal and external costs specifically associated with modifying software for the Year 2000 will be charged to expense as incurred. All of these costs are being funded through operating cash flows. The Company believes it is diligently addressing the Year 2000 issues and that it will satisfactorily resolve significant Year 2000 problems. The Company anticipates completing substantially all of its Year 2000 projects during fiscal 1999, with major completion milestones being targeted for the second and fourth quarters of fiscal 1999. In the event that the Company determines that it may fail to achieve these milestones, additional internal resources will be focused on completing these projects or developing contingency plans. Based on preliminary reviews from presently available information, it is believed that with the Company's current installation of a new business operating system, and the significant capital equipment purchases in recent years to upgrade the Company's technological capabilities, the additional costs of addressing potential problems are not expected to have a material adverse impact on the Company's results of operations, liquidity and capital resources. However, if the Company, its large customers, or significant suppliers are unable to resolve such processing issues in a timely manner, it could have a material impact on the results of operations, liquidity or capital resources of the Company. Moreover, the Company's expectations with respect to future costs and the timely completion of its Year 2000 modifications are subject to uncertainties that could cause actual results to differ materially from what has been discussed above. Factors that could influence the amount of future costs and the effective timing of remediation efforts include the success of the Company in identifying systems that contain two-digit year codes, the nature and amount of testing required to upgrade or replace each of the affected systems, and the success of the Company's key suppliers in addressing the Year 2000 issue. Euro Conversion On January 1, 1999, certain member nations of the European Economic and Monetary Union ("EMU") will adopt 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 12 13 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended September 30, 1998 Results of Operations - First Quarter Comparison, Continued 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 September 30, 1998, of the eleven countries currently admitted to the EMU, the Company has subsidiary operations in six of those countries and distributor relationships in the remaining five countries. MICROS is currently addressing Euro related issues and its impact on information systems, currency exchange rate risk, taxation, contracts, competition and pricing. Action plans currently being implemented are expected to result in compliance with all laws and regulations; however, there can be no certainty that such plans will be successfully implemented or that external factors will not have an adverse effect on the Company's operations. Moreover, there is still some uncertainty with respect to the interpretation of certain Euro regulations, and the impact of the regulations on the Company's Euro implementation. Any costs associated with the adoption of the Euro will be expensed as incurred and the Company currently does not expect these costs to be material to its results of operations, financial condition or liquidity. 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. Although the Company currently anticipates continued revenue growth at a rate in excess of such market, and therefore an increase in its overall market share, it does not expect to maintain growth at recent levels and there can be no assurance that any particular level of growth can be achieved. In addition, due to the competitive nature of the market, the Company continues to experience gross margin pressure on its products and service offerings, and the Company expects this to continue. There can be no assurance that the Company will be able to continue to increase sufficiently sales of its higher margin products, including software and services, to prevent future declines in the Company's overall gross margin. Moreover, some of the statements contained herein not based on historic facts are forward looking statements that involve risks and uncertainties. Past performance is not necessarily a strong or reliable indicator of future performance. Actual results could differ materially from past results, estimates or projections. Some of the additional risks and uncertainties are: product demand and market acceptance, including demand and acceptance for the new 3400 QSA and the new 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; 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, 1998. 13 14 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended September 30, 1998 Item 3. Quantitative and Qualitative Disclosures About Market Risk 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 25 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. While the Company has not to date invested in financial instruments designed to protect against currency fluctuations, the Company will continue to evaluate the need to do so in the future. Additionally, the Company is subject to interest rate fluctuations in foreign countries to the extent that the Company elects to borrow in the local foreign currency. In the past, this has not been an issue of concern as the Company has the capacity to elect to borrow in other currencies with more favorable interest rates. While the Company has not to date invested in financial instruments designed to protect against interest rate fluctuations, the Company will continue to evaluate the need to do so in the future. Finally, the Company is subject to political risk, especially in developing countries with uncertain or unstable political structures or regimes. The Company is also subject to the effects of, and changes in, laws and regulations, other activities of governments, agencies and similar organizations, especially in light of the current weak Asian economic conditions, which may prompt certain legislative reform. 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. 14 15 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended September 30, 1998 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. On June 22, 1998, the United States District Court Judge granted MICROS' motion to dismiss four of the seven causes of action. As Budgetel's motion for leave to file an amended complaint was granted, however, it is expected that Budgetel will elect to file a first amended complaint. While the ultimate outcome of litigation is uncertain, and while litigation is inherently difficult to predict, the Company is of the opinion, based upon presently available information and the advice of counsel concerning pertinent legal matters, that resulting liability, if any, should not have a material adverse effect on the Company's results of operations or financial position. Items 2 through 4. No events occurred during the quarter covered by the report that would require a response to any of these items. Item 5. Other Information None. 15 16 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended September 30, 1998 Part II - Other Information, continued Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 11 - Computation of Earnings Per Share Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K - None
16 17 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended September 30, 1998 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) November 16, 1998 /s/ Gary C. Kaufman - ------------------ ------------------- Gary C. Kaufman Senior Vice President, Finance and Administration/Chief Financial Officer November 16, 1998 /s/ Roberta J. Watson - ------------------ --------------------- Roberta J. Watson Vice President and Controller
17 18 EXHIBIT INDEX
Sequentially Exhibit Numbered Page - ------- ------------- 11. Computation of Earnings Per Share 19 27. Financial Data Schedule N/A
18 EX-11 2 MICROS SYSTEMS COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE MICROS SYSTEMS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share data) Share and per share amounts shown for the three month period ending September 30, 1997 have been retroactively restated to reflect a two-for-one stock split, effected in the form of a stock dividend, paid June 23, 1998:
Three Months Ended September 30, 1998 1997 ---- ---- Weighted-average number of common shares 16,115 15,998 Dilutive effect of outstanding stock options 933 492 --- --- Weighted-average number of common and common equivalent shares outstanding 17,048 16,490 ------ ------ Net income $3,508 $3,015 ====== ====== Basic net income per common share $0.22 $0.19 ===== ===== Diluted net income per common share $0.21 $0.18 ===== =====
EX-27 3 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 SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JUN-30-1999 SEP-30-1998 14,196 0 88,842 2,684 35,518 150,630 43,820 21,381 216,162 100,657 12,128 0 0 403 96,946 216,162 41,467 66,639 20,601 39,189 0 0 716 6,021 2,408 3,508 0 0 0 3,508 0.22 0.21
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