Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended September 30, 2002
Commission file number 0-9993
| MICROS SYSTEMS, INC. |
| (Exact name of Registrant as specified in its charter) |
| MARYLAND | 52-1101488 | ||
| (State of incorporation) |
(I.R.S. Employer Identification Number) |
||
| 7031 Columbia Gateway Drive, Columbia, Maryland 21046-2289 |
| (Address of principal executive offices) (Zip code) |
Registrant’s telephone number, including area code: 443-285-6000
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such report(s)), and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
As of October 31, 2002, there were 17,389,663 shares of Common Stock, $0.025 par value, outstanding.
1
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 2002
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, 2002, as filed with the Securities and Exchange Commission.
2
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share data)
| September 30, | June 30, | ||||||||||
| 2002 | 2002 | ||||||||||
ASSETS |
|||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 61,412 | $ | 66,638 | |||||||
Accounts receivable, net of allowance for
doubtful accounts of $8,992 at
September 30, 2002 and $8,981 at June 30, 2002 |
92,051 | 86,918 | |||||||||
Inventories, net of allowance for obsolescence of
$5,118 at September 30, 2002 and $4,957 at
June 30, 2002 |
32,368 | 31,211 | |||||||||
Deferred income taxes |
6,999 | 7,008 | |||||||||
Prepaid expenses and other current assets |
13,874 | 12,756 | |||||||||
Total current assets |
206,704 | 204,531 | |||||||||
Property, plant and equipment, net of accumulated
depreciation and amortization of
$44,699 at September 30, 2002 and $42,669
at June 30, 2002 |
21,188 | 21,467 | |||||||||
Deferred income taxes, non-current |
20,270 | 20,707 | |||||||||
Goodwill and intangible assets, net of accumulated
amortization of $27,903 at September 30, 2002 and
$28,025 at June 30, 2002 |
31,945 | 32,055 | |||||||||
Purchased and internally developed software costs,
net of accumulated amortization of
$19,531 at September 30, 2002 and $18,248
at June 30, 2002 |
29,872 | 30,303 | |||||||||
Other assets |
4,100 | 3,767 | |||||||||
Total assets |
$ | 314,079 | $ | 312,830 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|||||||||||
Current liabilities: |
|||||||||||
Bank lines of credit |
$ | 18,466 | $ | 18,699 | |||||||
Current portion of capital lease obligations |
150 | 147 | |||||||||
Accounts payable |
24,007 | 25,955 | |||||||||
Accrued expenses and other current liabilities |
34,616 | 34,554 | |||||||||
Income taxes payable |
3,413 | 7,303 | |||||||||
Deferred income taxes |
576 | 547 | |||||||||
Deferred service revenue |
40,158 | 33,841 | |||||||||
Total current liabilities |
121,386 | 121,046 | |||||||||
Capital lease obligations, net of current portion |
280 | 279 | |||||||||
Deferred income taxes, non-current |
9,931 | 9,933 | |||||||||
Other non-current liabilities |
1,284 | 1,232 | |||||||||
Commitments and contingencies |
|||||||||||
Minority interests |
2,287 | 1,978 | |||||||||
Shareholders’ equity: |
|||||||||||
Common stock, $0.025 par; authorized 50,000
shares; issued and outstanding 17,451 at September
30, 2002 and 17,521 at June 30, 2002 |
436 | 438 | |||||||||
Capital in excess of par |
55,176 | 56,867 | |||||||||
Retained earnings |
133,294 | 130,599 | |||||||||
Accumulated other comprehensive loss |
(9,995 | ) | (9,542 | ) | |||||||
Total shareholders’ equity |
178,911 | 178,362 | |||||||||
Total liabilities and shareholders’ equity |
$ | 314,079 | $ | 312,830 | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
3
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
| Three Months Ended September 30, | |||||||||||
| 2002 | 2001 | ||||||||||
Revenue: |
|||||||||||
Hardware and software |
$ | 43,160 | $ | 42,698 | |||||||
Service |
43,351 | 40,813 | |||||||||
Total revenue |
86,511 | 83,511 | |||||||||
Costs and expenses: |
|||||||||||
Cost of sales |
|||||||||||
Hardware and software |
25,276 | 24,346 | |||||||||
Service |
19,822 | 19,097 | |||||||||
Total cost of sales |
45,098 | 43,443 | |||||||||
Selling, general and administrative expenses |
29,444 | 28,680 | |||||||||
Research and development expenses |
4,887 | 4,826 | |||||||||
Depreciation and amortization |
2,046 | 3,755 | |||||||||
Total costs and expenses |
81,475 | 80,704 | |||||||||
Income from operations |
5,036 | 2,807 | |||||||||
Non-operating income (expense): |
|||||||||||
Interest income |
395 | 235 | |||||||||
Interest expense |
(359 | ) | (288 | ) | |||||||
Other expense, net |
(660 | ) | (1,086 | ) | |||||||
Total non-operating expenses |
(624 | ) | (1,139 | ) | |||||||
Income before taxes, minority interests and equity in net
earnings of affiliates |
4,412 | 1,668 | |||||||||
Income tax expense |
1,677 | 667 | |||||||||
Income before minority interests and equity in net
earnings of affiliates |
2,735 | 1,001 | |||||||||
Minority interests and equity in net earnings of affiliates |
(40 | ) | (122 | ) | |||||||
Net income |
$ | 2,695 | $ | 879 | |||||||
Net income per common share: |
|||||||||||
Basic |
$ | 0.15 | $ | 0.05 | |||||||
Diluted |
$ | 0.15 | $ | 0.05 | |||||||
Weighted-average number shares outstanding: |
|||||||||||
Basic |
17,474 | 17,492 | |||||||||
Diluted |
17,807 | 17,722 | |||||||||
The accompanying notes are an integral part of the consolidated financial statements.
4
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Three Months Ended September 30, 2002
(Unaudited, in thousands)
| Accumulated | |||||||||||||||||||||||||
| Capital | Other | ||||||||||||||||||||||||
| Common Stock | in Excess | Retained | Comprehensive | ||||||||||||||||||||||
| Shares | Amount | of Par | Earnings | Loss | Total | ||||||||||||||||||||
Balance, June 30, 2002 |
17,521 | $ | 438 | $ | 56,867 | $ | 130,599 | $ | (9,542 | ) | $ | 178,362 | |||||||||||||
Comprehensive income |
|||||||||||||||||||||||||
Net income |
— | — | — | 2,695 | — | 2,695 | |||||||||||||||||||
Foreign currency translation adjustments |
— | — | — | — | (453 | ) | (453 | ) | |||||||||||||||||
Total comprehensive income |
— | — | — | — | — | 2,242 | |||||||||||||||||||
Stock issued upon exercise of options |
2 | — | 33 | — | — | 33 | |||||||||||||||||||
Stock retired |
(72 | ) | (2 | ) | (1,730 | ) | — | — | (1,732 | ) | |||||||||||||||
Income tax benefit from stock
options exercised |
— | — | 6 | — | — | 6 | |||||||||||||||||||
Balance, September 30, 2002 |
17,451 | $ | 436 | $ | 55,176 | $ | 133,294 | $ | (9,995 | ) | $ | 178,911 | |||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
5
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Condensed and unaudited, in thousands)
| Three Months Ended September 30, | |||||||||||
| 2002 | 2001 | ||||||||||
Net cash flows (used in) provided by operating activities: |
$ | (625 | ) | $ | 3,873 | ||||||
Cash flows from investing activities: |
|||||||||||
Purchases of property, plant and equipment |
(1,833 | ) | (1,419 | ) | |||||||
Proceeds from dispositions of property, plant and equipment |
45 | — | |||||||||
Internally developed software |
(878 | ) | (994 | ) | |||||||
Proceeds from settlement |
— | 200 | |||||||||
Purchase of equity interest in investees |
— | (51 | ) | ||||||||
Net cash paid for acquisitions, minority interests and
contingent earn-out payments |
— | (3,433 | ) | ||||||||
Net cash used in investing activities |
(2,666 | ) | (5,697 | ) | |||||||
Cash flows from financing activities: |
|||||||||||
Principal payments on line of credit |
(158 | ) | (3,006 | ) | |||||||
Proceeds from lines of credit |
— | 10,174 | |||||||||
Principal payments on long-term debt and capital lease
obligations |
(41 | ) | (2,420 | ) | |||||||
Repurchase of stock |
(1,732 | ) | — | ||||||||
Proceeds from issuance of stock |
33 | 304 | |||||||||
Net cash (used in) provided by financing activities |
(1,898 | ) | 5,052 | ||||||||
Effect of exchange rate changes on cash |
(37 | ) | 48 | ||||||||
Net (decrease) increase in cash and cash equivalents |
(5,226 | ) | 3,276 | ||||||||
Cash and cash equivalents at beginning of period |
66,638 | 26,456 | |||||||||
Cash and cash equivalents at end of period |
$ | 61,412 | $ | 29,732 | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
6
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended September 30, 2002
(Unaudited, in thousands, except per share data)
| 1. | Inventories | |
| The components of inventories are as follows: |
| September 30, | June 30, | |||||||
| 2002 | 2002 | |||||||
Raw materials |
$ | 6,449 | $ | 6,850 | ||||
Work-in-process |
619 | 986 | ||||||
Finished goods |
25,300 | 23,375 | ||||||
| $ | 32,368 | $ | 31,211 | |||||
| 2. | New accounting standards | |
| In July 2002, The Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 nullifies the guidance in Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” Under EITF No. 94-3, an entity recognized a liability for an exit cost on the date that the entity committed itself to an exit plan. In SFAS No. 146, the FASB acknowledges that an entity’s commitment to a plan does not, by itself, create a present obligation to the other parties that meets the definition of a liability and requires that a liability for a cost that is associated with an exit or disposal activity be recognized when the liability is incurred. It also establishes that fair value is the objective for the initial measurement of the liability. SFAS No. 146 will be effective for exit or disposal activities that are initiated after December 31, 2002. The Company believes that the adoption of SFAS No. 146 will not have a material effect on the Company’s consolidated financial statements. | ||
| In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which was adopted by the Company in fiscal year 2002. This Statement supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”, for the disposal of a segment of a business. SFAS No. 144 expands the reporting of discontinued operations to include any component of an entity with operations and cash flows that can be clearly distinguished from the rest of the Company. This Statement also requires that any net assets to be disposed of by sale be reported at the lower of carrying value or fair market value less costs to sell. The adoption of SFAS No. 144 had no impact on the Company’s consolidated financial statements. | ||
| In June 2001, the FASB issued SFAS No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that all business combinations initiated after June 30, 2002, be accounted for under the purchase method and requires certain acquired intangible assets to be recognized as assets apart from goodwill. SFAS No. 142 requires that intangible assets with finite lives be amortized while goodwill and intangible assets with indefinite lives not be amortized but be tested annually for impairment. The Company adopted SFAS 142 on July 1, 2002, and at that time, ceased amortizing goodwill. Going forward, the Company will review goodwill for potential impairment on an annual basis. |
7
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended September 30, 2002
(Unaudited, in thousands, except per share data)
| The following table represents the impact of SFAS 142 on net income, basic and diluted net income per share had SFAS 142 been in effect in the first quarter of fiscal 2002: |
| For the Three Months Ended | |||||||||
| September 30, | |||||||||
| 2002 | 2001 | ||||||||
Net income |
|||||||||
Reported net income |
$ | 2,695 | $ | 879 | |||||
Goodwill amortization, net of tax |
— | 1,115 | |||||||
Adjusted net income |
$ | 2,695 | $ | 1,994 | |||||
Basic net income per share |
|||||||||
Reported net income per share |
$ | 0.15 | $ | 0.05 | |||||
Goodwill amortization, net of tax |
— | 0.06 | |||||||
Adjusted basic net income per share |
$ | 0.15 | $ | 0.11 | |||||
Diluted net income per share |
|||||||||
Reported net income per share |
$ | 0.15 | $ | 0.05 | |||||
Goodwill amortization, net of tax |
— | 0.06 | |||||||
Adjusted diluted net income per share |
$ | 0.15 | $ | 0.11 | |||||
Weighted average shares outstanding |
|||||||||