-----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, M80V4sRvb5RGHxJHv1GA+G8AttOjOmISmXOWLwCS33aIH5IFNa4LFOolt1fO/Y+6 rBdICJHCwYcAeblCRoU9DA== 0000950133-99-001913.txt : 19990518 0000950133-99-001913.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950133-99-001913 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99627275 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 March 31, 1999 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 March 31, 1999, there were 16,154,665 shares of Common Stock, $0.025 par value, outstanding. 1 - 2 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 1999 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 and its Forms 10-Q for the quarters ended September 30, 1998 and December 31, 1998 for the fiscal year ending June 30, 1999, as filed with the Securities and Exchange Commission. 2 - 3 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands, except per share data)
March 31, June 30, 1999 1998 ------------- --------------- ASSETS - ------ Current assets: Cash and cash equivalents $19,755 $13,592 Accounts receivable, net of allowance for doubtful accounts of $3,125 at March 31, 1999 and $2,298 at June 30, 1998 101,792 85,436 Inventories 32,488 32,232 Deferred income taxes 4,748 4,715 Prepaid expenses and other current assets 6,581 7,136 ------ ------ Total current assets 165,364 143,111 Property, plant and equipment, net of accumulated Depreciation and amortization of $23,393 at March 31, 1999 and $19,893 at June 30, 1998 18,266 21,764 Deferred income taxes, non-current 4,625 4,644 Goodwill and intangible assets, net of accumulated amortization of $11,450 at March 31, 1999 and $8,883 at June 30, 1998 16,558 17,597 Purchased and internally developed software costs, net of accumulated amortization of $8,691 at March 31, 1999 and $6,654 at June 30, 1998 20,983 16,964 Other assets 385 531 ---- ---- Total assets $226,181 $204,611 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Bank lines of credit $13,003 $26,830 Current portion of long-term debt 533 1,970 Current portion of capital lease obligations 52 280 Accounts payable 24,226 18,968 Accrued expenses and other current liabilities 31,966 29,350 Income taxes payable 12,794 9,158 Deferred income taxes 48 44 Deferred service revenue 19,340 11,112 ------- ------- Total current liabilities 101,962 97,712 Long-term debt, net of current portion 6,333 4,074 Capital lease obligations, net of current portion 372 3,466 Deferred income taxes, non-current 6,682 6,682 Minority interests 1,148 944 ------ ---- Total liabilities 116,497 112,878 -------- -------- Commitments and contingencies Shareholders' equity: Common stock, $0.025 par; authorized shares 50,000 at March 31, 1999 and 30,000 at June 30, 1998; issued and outstanding 16,155 at March 31, 1999 and 16,101 at June 30, 1998 404 403 Capital in excess of par 21,243 20,097 Retained earnings 92,975 75,566 Accumulated other comprehensive income (Note 4) (4,938) (4,333) -------- -------- Total shareholders' equity 109,684 91,733 -------- ------- Total liabilities and shareholders' equity $226,181 $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 March 31, ---------------------------- 1999 1998 ---- ---- Revenue: Hardware and software $54,962 $46,545 Service 30,159 24,536 ------- ------- Total revenue 85,121 71,081 ------- ------- Costs and expenses: Cost of sales Hardware and software 27,986 24,908 Service 13,913 12,442 ------- ------- Total cost of sales 41,899 37,350 Selling, general and administrative expenses 24,082 18,403 Research and development expenses 3,591 3,966 Depreciation and amortization 2,456 2,253 ------- ------- Total costs and expenses 72,028 61,972 ------- ------- Income from operations 13,093 9,109 Non-operating income (expense): Interest income 144 66 Interest expense (496) (538) Other income (expense), net 519 919 ---- ---- Income before taxes, minority interest and equity in net earnings of affiliates 13,260 9,556 Income tax expense 5,303 3,822 ------ ------ Income before minority interest and equity in net earnings of affiliates 7,957 5,734 Minority interest and equity in net earnings of affiliates (269) 115 ------ ---- Net income $7,688 $5,849 ======= ======= Basic net income per common share $0.48 $0.37 ====== ====== Diluted net income per common share $0.45 $0.35 ====== ====== Weighted-average number of shares outstanding: Basic 16,141 16,027 ======= ======= Diluted 17,044 16,754 ======= =======
The accompanying notes are an integral part of the consolidated financial statements. 4 - 5 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except per share data)
Nine Months Ended March 31, --------------------------- 1999 1998 ---- ---- Revenue: Hardware and software $147,517 $126,143 Service 84,837 70,793 -------- -------- Total revenue 232,354 196,936 -------- -------- Costs and expenses: Cost of sales Hardware and software 75,277 62,591 Service 40,915 36,790 ------- ------- Total cost of sales 116,192 99,381 Selling, general and administrative expenses 66,184 57,648 Research and development expenses 10,899 10,388 Office closure costs 427 -- Depreciation and amortization 7,275 6,206 ------ ------ Total costs and expenses 200,977 173,623 -------- -------- Income from operations 31,377 23,313 Non-operating income (expense): Interest income 330 265 Interest expense (1,786) (1,210) Other income (expense), net 32 926 --- ---- Income before taxes and minority interest, equity in net earnings of affiliates and cumulative effect of accounting change 29,953 23,294 Income tax expense 11,980 9,316 ------- ------ Income before minority interest, equity in net earnings of affiliates and cumulative effect of accounting change 17,973 13,978 Minority interest and equity in net earnings of affiliates (564) (85) ----- ---- Net income before cumulative effect of accounting change 17,409 13,893 Cumulative effect of change in accounting principle, net of tax benefit of $274 -- (412) --- ----- Net income $17,409 $13,481 ======== ======== Basic net income per common share: Income before cumulative effect of accounting change $1.08 $0.87 Cumulative effect of change in accounting principle -- (.03) --- ----- Basic net income per common share $1.08 $0.84 ====== ====== Diluted net income per common share: Income before cumulative effect of accounting change $1.03 $0.84 Cumulative effect of change in accounting principle -- (.03) --- ----- Diluted net income per common share $1.03 $0.81 ====== ====== Weighted-average number of shares outstanding: Basic 16,127 16,014 ======= ======= Diluted 16,982 16,610 ======= =======
The accompanying notes are an integral part of the consolidated financial statements. 5 - 6 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Nine Months Ended March 31, 1999 (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 54 1 906 -- -- 907 Income tax benefit from stock options exercised -- -- 240 -- -- 240 Comprehensive income (Note 4) Net income -- -- -- 17,409 -- -- Foreign currency translation adjustments -- -- -- -- (605) -- Total comprehensive income -- -- -- -- -- 16,804 ------ ---- ------- ------- -------- --------- Balance, March 31, 1999 16,155 $404 $21,243 $92,975 $(4,938) $109,684 ====== ==== ======= ======= ======== =========
The accompanying notes are an integral part of the consolidated financial statements. 6 - 7 MICROS SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed and unaudited - in thousands)
Nine months ended March 31, --------------------------- 1999 1998 ---- ---- Net cash flows provided by (used in) operating activities: $29,767 $(1,716) -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment (4,812) (5,648) Proceeds on dispositions of property, plant and equipment 757 42 Proceeds on sale of subsidiary -- 100 Internally developed software (6,029) (6,722) Dividends to minority owners (69) (351) Net cash paid for acquisitions, minority interests and contingent earn-out payments (1,675) (1,778) ------- ------- Net cash used in investing activities (11,828) (14,357) -------- -------- Cash flows from financing activities: Principal payments on line of credit (17,894) (5,582) Principal payments on long-term debt and capital lease obligation (2,150) (2,386) Proceeds from line of credit 3,898 18,062 Proceeds from issuance of long term debt 2,995 2,852 Proceeds from issuance of stock 907 751 Income tax benefit from stock options exercised 240 200 ---- ---- Net cash (used in) provided by financing activities (12,004) 13,897 -------- ------- Effect of exchange rate changes on cash 228 (357) ---- ----- Net increase (decrease) in cash and cash equivalents 6,163 (2,533) Cash and cash equivalents at beginning of period 13,592 10,864 ------- ------- Cash and cash equivalents at end of period $19,755 $8,331 ======== ======= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $1,741 $1,165 ======= ======= Income taxes $6,232 $3,128 ======= =======
Supplemental schedule of noncash financing and investing activities: During the nine month period ending March 31, 1999, MICROS entered into an amendment to a capital lease for one of the corporate headquarters buildings. In connection with this transaction, the carrying values of the combined land and building of $3.5 million along with the capital lease obligation of $3.2 million were removed from the balance sheet. The accompanying notes are an integral part of the consolidated financial statements. 7 - 8 MICROS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Quarter Ended March 31, 1999 (Unaudited, in thousands, except per share data) 1. Inventories The components of inventories are as follows:
March 31, June 30, 1999 1998 ---------------- --------------- Raw materials $ 4,521 $ 5,415 Work-in-process 2,113 1,762 Finished goods 25,854 25,055 ---------------- --------------- $ 32,488 $ 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. As the United States District Court Judge granted MICROS' motion to dismiss four of the seven causes of action on June 22, 1998, with leave to amend, Budgetel filed a first amended complaint on November 12, 1998. MICROS filed a motion to dismiss the amended complaint on December 7, 1998. While the ultimate outcome of litigation is uncertain, and while litigation is inherently difficult to predict, the Company is of the opinion, based upon presently available information and the advice of counsel concerning pertinent legal matters, that resulting liability, if any, should not have a material adverse effect on the Company's results of operations or financial position. 8 - 9 MICROS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Quarter Ended March 31, 1999 (Unaudited, in thousands, except per share data) 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 Nine Months Ended March 31, March 31, 1999 1998 1999 1998 ---- ---- ---- ---- Net Income $7,688 $5,849 $17,409 $13,481 ====== ====== ======= ======= Average common shares outstanding 16,141 16,027 16,127 16,014 Dilutive effect of outstanding stock options 903 727 855 596 --- --- --- --- Average common shares outstanding assuming dilution 17,044 16,754 16,982 16,610 ====== ====== ====== ====== Basic Net Income per Share $0.48 $0.37 $1.08 $0.84 ===== ===== ===== ===== Diluted Net Income per Share $0.45 $0.35 $1.03 $0.81 ===== ===== ===== =====
For the three and nine-month periods ended March 31, 1999, 9,000 options and 5,000 options, respectively, were excluded from the above reconciliation as these options were anti-dilutive for these periods. For the three and nine-month periods ended March 31, 1998, no options were excluded from the above reconciliation 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. 9 - 10 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 1999 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Company has a $45.0 million unsecured committed multi-currency line of credit, which was renewed and increased from $35.0 million during the second quarter of fiscal 1999 for an additional one-year period, expiring on December 31, 1999. Such line is convertible, at the Company's option, to three-year term debt. In addition, the Company has a credit facility from a European bank in the amount of DM 15.0 million (approximately $8.3 million at the March 31, 1999 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 March 31, 1999, the Company had borrowed approximately $18.5 million and has approximately $34.8 million available. Of the $18.5 million outstanding as of March 31, 1999, $13.0 million represents line of credit borrowings and $5.5 million represents term debt. As of March 31, 1999, the Company's DM-denominated borrowings under these credit facilities amounted to DM 10.0 million (approximately $5.5 million at the March 31, 1999 exchange rate). As the Company has significant international operations, its DM-denominated borrowings do not represent a significant foreign exchange risk. On an overall basis, the Company monitors its cash and debt positions in each currency in an effort to reduce its foreign exchange risk. Net cash provided by operating activities for the nine months ended March 31, 1999 was $29.8 million. The Company used $11.8 million in investing activities, primarily for internally developed software and the purchase of property, plant and equipment. Net financing activities for the first nine months of fiscal 1999 used $12.0 million, primarily for the net repayment of line of credit borrowings. 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 - Third Quarter and Nine Month Comparisons The Company recorded diluted net income of $0.45 per common share in the third quarter of fiscal 1999, compared with diluted net income of $0.35 per common share in the third quarter of fiscal 1998. Net income for the nine months ended March 31, 1999, on a diluted basis, was $1.03 per share compared with $0.81 per common share for the first nine months of fiscal 1998. For the quarter, the increased net income was primarily due to higher sales volumes and gross margins, partially offset by higher operating expenses as a percentage of sales. The year-to-date increase in net income was primarily due to higher sales volumes along with lower operating expenses as a percentage of sales and higher gross margins. Fiscal 1998's year-to-date results include an after-tax charge of $0.4 million, or $0.03 per share, relating to an accounting charge associated with a change in the treatment of capitalized business process re-engineering costs. 10 -- 11 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 1999 Results of Operations - Third Quarter and Nine Month Comparisons, Continued Revenue of $85.1 million for the third quarter of fiscal 1999 increased $14.0 million, or 19.8%, compared to the same period last year. For the first nine months of fiscal 1999, revenue increased $35.4 million to $232.4 million, or 18.0%, over the same period in fiscal 1998. A comparison of the sales mix for fiscal years 1999 and 1998 is as follows:
Three Months Ended Nine Months Ended March 31, March 31, 1999 1998 1999 1998 ---- ---- ---- ---- Hardware 44.3% 44.6% 43.7% 43.9% Software 20.3% 20.9% 19.8% 20.1% Service 35.4% 34.5% 36.5% 36.0% ------ ------ ------ ------ 100.0% 100.0% 100.0% 100.0% ====== ====== ====== ======
For the third quarter and year-to-date, both hardware and software sales continued to increase in absolute dollars over the prior year, but declined as a percentage of sales, primarily due to the continued growth of the Company's service business. Service sales increased in absolute dollars and as a percentage of total sales for the third quarter and nine months year-to-date in comparison to the prior year primarily due to increased installation and support revenues. Combined hardware and software revenues for the third quarter of fiscal 1999 increased $8.4 million, or 18.1%, while service revenues increased $5.6 million, or 22.9%, over the same period a year earlier. On a year-to-date basis, hardware and software sales increased $21.4 million, or 16.9%, while service revenues increased $14.0 million, or 19.8%, over the same period a year earlier. Cost of sales, as a percentage of revenue, decreased to 49.2% for the third quarter of fiscal 1999 from 52.5% for the third quarter of fiscal 1998. For the first nine months of fiscal 1999 and 1998, cost of sales, as a percentage of revenue, was 50.0% and 50.5% respectively. Cost of sales for hardware and software products, as a percentage of related revenue, was 50.1% in the third quarter of fiscal 1999 compared to 53.5% for the same quarter a year earlier and 51.0% compared to 49.6% for the first nine months of fiscal 1999 and 1998, respectively. For the quarter this decrease was the result of improved margins associated with hardware sales, primarily the new lower cost PC Workstation released late in the second quarter of fiscal 1999 and the favorable effect of increased software sales. Year-to-date, hardware and software cost of sales, as a percentage of related revenue, increased as a result of decreased margins associated with hardware sales in the first six months of fiscal 1999, which more than offset the effect of increased software sales. Service costs, as a percentage of service revenue, decreased to 46.1% in the third quarter of fiscal 1999 compared to 50.7% in the same quarter in fiscal 1998. Service costs, as a percentage of service revenue, decreased to 48.2% in the first nine months of fiscal 1999 compared to 52.0% for the same period in fiscal 1998. The third quarter and year-to-date 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. During the third quarter of fiscal 1998, the Company entered into a Service Contractor Agreement with Vanstar Corporation ("Vanstar"), a California-based company, which is in the business of providing certain installation, repair and maintenance services for certain MICROS major account and district customers. MICROS and Vanstar continue to work together in 11 -- 12 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 1999 Results of Operations - Third Quarter and Nine Month Comparisons, Continued an effort to better coordinate and address customer needs in the deployment of Vanstar services. In those regions where the Vanstar services have not been deployed, MICROS is currently servicing its customer base through its existing network of MICROS dealers and MICROS district offices. Selling, general and administrative expenses increased $5.7 million, or 30.9%, in the third quarter of fiscal 1999 compared to the same period last year. As a percentage of revenue, selling, general and administrative expenses increased to 28.3% in the third quarter of fiscal 1999 compared to 25.9% in the third quarter of fiscal 1998 due primarily to increased personnel costs required to meet current and anticipated sales growth. Additionally, the lower selling, general and administrative expenses incurred in the third quarter of fiscal 1998 resulted from certain one-time expense reductions enacted in that quarter. For the first nine months of fiscal 1999, selling, general and administrative expenses, as a percentage of revenue, were 28.5% compared to 29.3% for the same period a year earlier. The year-to-date decrease is due to sales growth at a rate in excess of these expenses. Research and development expenses (exclusive of capitalized software development costs), which consist primarily of labor costs, decreased $0.4 million, or 9.5%, in the third quarter of fiscal 1999 compared to the same period a year earlier. Actual research and development expenditures, including capitalized software development costs of $1.5 million in the third quarter of fiscal 1999 and $3.0 million in the third quarter of fiscal 1998, decreased $1.9 million, or 26.8%, compared to the same period a year earlier. This decrease in absolute dollars for the three-month period is primarily due to decreased expenditures in the Company's hotel business, largely as a result of eliminating high-cost outside software consultants/developers, or replacing such with lower-cost software development employees. For the first nine months of fiscal 1999, research and development expenses (exclusive of capitalized software development costs), which consist primarily of internal and sub-contracted labor costs, increased $0.5 million, or 4.9%, compared to the same period a year earlier. Actual research and development expenditures for the first nine months of fiscal 1999, including capitalized software development costs of $6.0 million in 1999, decreased $0.2 million, or 1.1%, compared to the same period a year earlier. Office closure costs relate to follow-on costs incurred in the first quarter of fiscal 1999 associated with the Company's fourth quarter of fiscal 1998 permanent closure of its facility in Munich, Germany. These costs relate to the relocation of former Munich employees to their new places of employment within the Company. Income from operations for the third quarter of fiscal 1999 was $13.1 million, or 15.4% of revenue, compared to income of $9.1 million, or 12.8% of revenue, in the same period a year earlier. For the first nine months of fiscal 1999, income from operations was $31.4 million compared to income of $23.3 million a year earlier. The third quarter income from operations increased over the prior year's comparable period due to higher sales and increased gross margins, partially offset by higher operating expenses as a percentage of sales. For the first nine months of fiscal 1999, the Company's higher dollar income from operations is primarily due to higher sales, increased gross margins and lower operating expenses as a percentage of sales. Interest expense decreased 7.8% for the third quarter of fiscal 1999 compared to the same period a year ago as the Company repaid some of its debt obligations. Interest expense for the first nine months in fiscal 1999 was $1.8 million compared to $1.2 million, an increase of 47.6%, for the comparable period in fiscal 1998 primarily due to the Company's higher average debt level during the first nine months of fiscal 1999 in comparison to the same period a year ago. 12 -- 13 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31,1999 Results of Operations - Third Quarter and Nine Month Comparisons, Continued The effective tax rate for the third quarter and year-to-date 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. Year 2000 The Company is continuing the process of reviewing 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 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 ("ERP") 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. On March 1, 1999, Micros upgraded the Oracle ERP systems to Release 11.0, Oracle's latest release. This upgrade assured that all critical ERP systems are fully Year 2000 compliant. Internationally, the Company currently intends to adopt Year 2000 compliant Oracle applications at certain central locations. The Company expects to implement appropriate alternative solutions to existing systems by September 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. The Company continues to elicit information where a vendor fails to provide responses, or fails to provide complete responses. 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 13 -- 14 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 1999 Results of Operations - Third Quarter and Nine Month Comparisons, Continued systems in a timely manner and in a way that is compatible with the Company's systems, or fail to disclose problems in their applications or support systems. The Company believes that its current and future actions with suppliers will minimize these risks. 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. As part of the testing effort, MICROS engaged Oracle Corporation ("Oracle") to examine and test certain proprietary time-sensitive software modules. Oracle has completed its examination, having determined that, while there were several immaterial non-compliant items, the code examined was Year 2000 compliant. MICROS has or is in the process of addressing and correcting the issues identified by Oracle. 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 approximately every four weeks. The last update was on May 5, 1999. Year 2000 Compliance Costs To date, the Company has expensed all incremental costs related to the Year 2000 analysis and remediation efforts. Internal and external costs specifically associated with modifying software for the Year 2000 will be charged to expense as incurred. All of these costs are being funded through operating cash flows. Management's current estimate (including the Year 2000 issues identified to date) is that the costs associated with the Year 2000 issue should not have a material adverse effect on the results of operations or financial position of the Company in any given quarter. However, the Company is not certain that it has fully identified such impact or whether the Company can resolve it without disruption of its business or incurring significant expense. To date, not including the costs incurred to upgrade the Company's internal management information systems, the Company has incurred approximately $0.9 million in expenditures related to the Year 2000 issue. Costs capitalized to date to implement the Company's new internal management information systems, which addressed not only the Year 2000 issues, but also a large variety of other required and desired informational and processing needs, are approximately $6.4 million. 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 third and fourth quarters of fiscal 1999. Targets for third quarter have been satisfied, which uncovered certain non-compliant items, all of which have now been repaired, or resources have been identified to repair by the end of June 1999. The status of all of these efforts has been provided on the Company's Year 2000 Internet web page. In the event that the Company determines that it may fail to achieve future milestones, additional internal resources will be focused on completing these projects or developing contingency plans. 14 -- 15 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 1999 Results of Operations - Third Quarter and Nine Month Comparisons, Continued 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. Contingency Plans The Company is currently developing a contingency plan for its products. This plan includes having had Oracle test and verify certain products, and increasing current staffing levels in customer service functions for the three month period commencing December 1, 1999. While the Company believes that its current product set will not have any material Year 2000 issues, the Company anticipates increased call volume during this period. With respect to internal information systems, MICROS does not intend to develop a full contingency plan. Given the complexity of the Company's Oracle enterprise resource planning system, it is neither practical nor cost effective to develop a back-up contingency approach. For this reason, and as noted above, MICROS has thoroughly tested and certified the current internal systems so as to reduce the risk that all problems have been addressed prior to January 1, 2000. Additionally, in order to test further the internal systems, MICROS plans on conducting a "dry run" test in August of 1999 whereby the dates contained in the enterprise resource planning system are scrolled forward to January 1, 2000. However, Year 2000 issues in the Company's enterprise resource planning system, if gone undetected or uncorrected, could have a material adverse impact on the Company's results of operations or financial condition. 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, 1999, 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. 15 -- 16 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 1999 Results of Operations - Third Quarter and Nine Month Comparisons, Continued 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. 16 -- 17 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 1999 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. 17 -- 18 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 1999 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. As the United States District Court Judge granted MICROS' motion to dismiss four of the seven causes of action on June 22, 1998, with leave to amend, Budgetel filed a first amended complaint on November 12, 1998. MICROS filed a motion to dismiss the amended complaint on December 7, 1998. While the ultimate outcome of litigation is uncertain, and while litigation is inherently difficult to predict, the Company is of the opinion, based upon presently available information and the advice of counsel concerning pertinent legal matters, that resulting liability, if any, should not have a material adverse effect on the Company's results of operations or financial position. Items 2 through 4. No events occurred during the quarter covered by the report that would require a response to any of these items. Item 5. Other Information In anticipation of its move to new corporate headquarters in the Spring of 2000, MICROS has altered its real estate portfolio in two respects. First, MICROS entered into an amendment to a capital lease for one of the corporate headquarters buildings located at 12050 Baltimore Avenue, Beltsville, Maryland. As part of a comprehensive agreement, MICROS agreed to waive certain purchase rights of the facility embodied in the original capital lease, including the right to purchase the facility in 2009 for $10.00. MICROS also entered into a standard operating lease with the owner of the facility pursuant to which MICROS agreed to continue to rent portions of the facility until March 31, 2000. In consideration of MICROS' entering into the agreements, MICROS received a one-time cash payment from the owner of the facility. As of February 1999, the Company's carrying values of the combined land and building along with the capital lease obligation were $3.5 million and $3.2 million, respectively. During the third quarter of fiscal 1999, the Company removed these items from its balance sheet at a small gain, which will be recognized over a 14 month period beginning February 1999, after consideration of proceeds and transaction costs. Second, MICROS has entered into a Real Estate Purchase Agreement pursuant to which MICROS will sell one of the corporate headquarters buildings located at 12000 Baltimore Avenue, Beltsville, Maryland. It is currently anticipated that this sale will be consummated in June of 1999, after which MICROS shall lease the space for a term of seven months, renewable on a month to month basis. As of March 31, 1999, the Company's carrying values of the combined land and building along with the long term debt collateralized by that property was $2.3 million and $0.9 million, respectively. During the fourth quarter of fiscal 1999, upon consummation of the transaction, the Company will remove these items from its balance sheet at a small gain, after consideration of proceeds and transaction costs. 18 -- 19 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 1999 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 19 -- 20 MICROS SYSTEMS, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 31, 1999 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 17, 1999 /s/ Gary C. Kaufman - ------------------------ --------------- Gary C. Kaufman Senior Vice President, Finance and Administration/Chief Financial Officer May 17, 1999 /s/ Roberta J. Watson - ------------------------ ----------------- Roberta J. Watson Vice President and Controller 20 -- 21 EXHIBIT INDEX
Sequentially Exhibit Numbered Page - ------- ------------- 11. Computation of Earnings Per Share 22 27. Financial Data Schedule N/A
21 -- EX-11 2 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 and nine month periods ending March 31, 1998 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 March 31, 1999 1998 ---------- --------- Weighted-average number of common shares 16,141 16,027 Dilutive effect of outstanding stock options 903 727 --- --- Weighted-average number of common and common equivalent shares outstanding 17,044 16,754 ====== ====== Net income $7,688 $5,849 ====== ====== Basic net income per common share $0.48 $0.37 ===== ===== Diluted net income per common share $0.45 $0.35 ===== ===== Nine months ended March 31, 1999 1998 ---------- -------- Weighted-average number of common shares 16,127 16,014 Dilutive effect of outstanding stock options 855 596 --- --- Weighted-average number of common and common equivalent shares outstanding 16,982 16,610 ====== ====== Net income $17,409 $13,481 ======= ======= Basic net income per common share $1.08 $0.84 ===== ===== Diluted net income per common share $1.03 $0.81 ===== =====
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 MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JUN-30-1999 MAR-31-1999 19,755 0 104,917 3,125 32,488 165,364 41,659 23,393 226,181 101,962 7,290 0 0 404 109,280 226,181 147,517 232,354 75,277 125,700 0 0 1,786 29,953 11,980 17,409 0 0 0 17,409 1.08 1.03
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