MICROS SYSTEMS INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2003
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 þ NO o

Indicate by check mark whether the Registrant is an Accelerated Filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

YES þ NO o

As of January 31, 2004, there were 18,368,475 shares of Common Stock, $0.025 par value, outstanding.

MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 2003

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, 2003, as filed with the Securities and Exchange Commission.

MICROS SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)


				December 31,		June 30,
				2003		2003

ASSETS
Current assets:
	Cash and cash equivalents			$	61,288	$	45,682
	Accounts receivable, net of allowance for doubtful accounts of $12,188 at December 31, 2003 and $10,648 at June 30, 2003				91,945		98,700
	Inventories, net of allowance for obsolescence of $6,428 at December 31, 2003 and $5,900 at June 30, 2003				33,780		31,864
	Deferred income taxes				9,160		7,885
	Prepaid expenses and other current assets				17,595		17,860

		Total current assets			213,768		201,991
Property, plant and equipment, net of accumulated depreciation and amortization of $55,798 at December 31, 2003 and $50,931 at June 30, 2003					19,387		20,179
Deferred income taxes, non-current					30,851		32,003
Goodwill and intangible assets, net of accumulated amortization of $31,332 at December 31, 2003 and $29,516 at June 30, 2003					73,516		74,270
Purchased and internally developed software costs, net of accumulated amortization of $27,714 at December 31, 2003 and $23,487 at June 30, 2003					36,650		38,089
Other investments					—		10
Other assets					4,019		3,473

Total assets				$	378,191	$	370,015

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Bank lines of credit			$	2,231	$	10,185
	Current portion of long term debt				—		363
	Current portion of capital lease obligations				138		106
	Accounts payable				25,539		24,177
	Accrued expenses and other current liabilities				49,070		44,240
	Income taxes payable				5,015		10,102
	Deferred income taxes				608		501
	Deferred service revenue				35,908		38,538

			Total current liabilities		118,509		128,212
Capital lease obligations, net of current portion					199		198
Deferred income taxes, non-current					11,504		11,495
Other non-current liabilities					1,278		6,510
Commitments and contingencies
Minority interests					2,448		2,372
Shareholders’ equity:
	Common stock, $0.025 par; authorized 50,000 shares; issued and outstanding 18,236 at December 31, 2003 and 18,018 at June 30, 2003				456		450
	Capital in excess of par				73,160		69,644
	Retained earnings				165,699		152,381
	Accumulated other comprehensive income (loss)				4,938		(1,247	)

			Total shareholders’ equity		244,253		221,228

Total liabilities and shareholders’ equity				$	378,191	$	370,015

The accompanying notes are an integral part of the consolidated financial statements.

MICROS SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)


			Three Months Ended						Six Months Ended
			December 31,						December 31,

			2003			2002			2003			2002

Revenue:
	Hardware		$	34,300		$	32,852		$	68,246		$	62,865
	Software			19,975			17,207			36,764			29,470
	Service			62,979			46,986			118,661			92,464

		Total revenue		117,254			97,045			223,671			184,799

Cost of sales:
	Hardware			24,717			23,525			48,457			45,164
	Software			4,507			3,723			8,840			6,949
	Service			26,958			22,222			53,167			43,698

		Total cost of sales		56,182			49,470			110,464			95,811

		Gross margin		61,072			47,575			113,207			88,988
Selling, general and administrative expenses				38,129			32,682			73,691			62,126
Research and development expenses				7,160			4,248			13,334			9,135
Depreciation and amortization				2,430			2,129			4,747			4,175

		Total operating expenses		47,719			39,059			91,772			75,436

Income from operations				13,353			8,516			21,435			13,552
Non-operating income (expense):
	Interest income			274			420			513			815
	Interest expense			(508	)		(225	)		(698	)		(585	)
	Other income (expense), net			1,535			(5	)		1,641			(664	)

		Total non-operating income (expense)		1,301			190			1,456			(434	)
Income before taxes, minority interests and equity in net earnings of affiliates				14,654			8,706			22,891			13,118
Income tax provision				5,935			3,570			9,271			5,247

Income before minority interests and equity in net earnings of affiliates				8,719			5,136			13,620			7,871
Minority interests and equity in net earnings of affiliates				(148	)		(205	)		(302	)		(245	)

Net income			$	8,571		$	4,931		$	13,318		$	7,626

Net income per common share:
	Basic		$	0.47		$	0.28		$	0.74		$	0.44

	Diluted		$	0.45		$	0.28		$	0.70		$	0.43

Weighted-average number shares outstanding:
	Basic			18,177			17,398			18,107			17,436

	Diluted			19,159			17,612			19,058			17,707

The accompanying notes are an integral part of the consolidated financial statements.

MICROS SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Six Months Ended December 31, 2003
(Unaudited, in thousands)


														Accumulated
									Capital					Other
			Common Stock						in Excess			Retained		Comprehensive
			Shares			Amount			of Par			Earnings		Income (Loss)			Total

Balance, June 30, 2003				18,018		$	450		$	69,644		$	152,381	$	(1,247	)	$	221,228
Comprehensive income:
	Net income			—			—			—			13,318		—			13,318
	Foreign currency translation adjustments			—			—			—			—		6,185			6,185

		Total comprehensive income		—			—			—			13,318		6,185			19,503
Stock issued upon exercise of options				405			10			7,143			—		—			7,153
Repurchases of stock				(187	)		(4	)		(6,833	)		—		—			(6,837	)
Income tax benefit from stock options exercised				—			—			3,206			—		—			3,206

Balance, December 31, 2003				18,236		$	456		$	73,160		$	165,699	$	4,938		$	244,253

The accompanying notes are an integral part of the consolidated financial statements.

MICROS SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Condensed and unaudited, in thousands)


				Six Months Ended December 31,

				2003			2002

Net cash flows provided by operating activities:				$	30,284		$	7,856

Cash flows from investing activities:
	Purchases of property, plant and equipment				(3,128	)		(3,233	)
	Proceeds from dispositions of property, plant and equipment				3			71
	Internally developed software				(2,322	)		(1,828	)
	Proceeds from sale of subsidiary				—			286
	Purchases of other investments				(500	)		—

		Net cash used in investing activities			(5,947	)		(4,704	)
Cash flows from financing activities:
	Principal payments on line of credits				(11,544	)		(12,887	)
	Proceeds from lines of credit				3,279			2,240
	Principal payments on pre-acquisition shareholder loan				(363	)		—
	Principal payments on long-term debt and capital lease obligations				(48	)		(93	)
	Dividends to minority owners				(161	)		—
	Repurchases of stock				(6,837	)		(3,510	)
	Proceeds from issuance of stock				7,153			129

			Net cash used in financing activities		(8,521	)		(14,121	)

Effect of exchange rate changes on cash					(210	)		15

Net increase (decrease) in cash and cash equivalents					15,606			(10,954	)
Cash and cash equivalents at beginning of period					45,682			66,638

Cash and cash equivalents at end of period				$	61,288		$	55,684

The accompanying notes are an integral part of the consolidated financial statements.

MICROS SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended December 31, 2003
(Unaudited, $ in thousands, except per share data)


1.		Basis of Presentation

		The accompanying consolidated financial statements of MICROS Systems, Inc. and its subsidiaries (collectively, the “Company”) have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2003. Certain information and footnote disclosures which are normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations. The information reflects all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the financial position of the Company, and its results of operations for the interim periods set forth herein. The results for the three- and six- months ended December 31, 2003 are not necessarily indicative of the results to be expected for the full year or any future period. Certain amounts previously reported have been reclassified to conform to current year presentation.

2.		Stock-based compensation

		The Company has incentive and non-qualified stock options outstanding that were granted to directors, officers, and other employees pursuant to authorization by the Board of Directors. The exercise price of all options equals the market value on the date of the grant. Substantially all of the options granted are exercisable pursuant to a three-year vesting schedule whereby one-third of the options vest upon the first anniversary of the grant, the second third of the options vest upon the second anniversary of the grant, and the final third of the options vest upon the third anniversary of the grant. Currently, all outstanding options expire ten years from the date of grant.

		The Company applies the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” in accounting for the stock option awards. The Company has not recognized any related compensation expense in the consolidated statements of operations because the fair value of the stock underlying the options granted did not exceed the exercise price of the options on the date of grant. If compensation expense had been determined based on the weighted-average estimate of the fair value of each option granted consistent with the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148, the Company’s net income would be reduced to pro forma amounts as follows:


	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2003			2002			2003			2002

Net income - as reported	$	8,571		$	4,931		$	13,318		$	7,626
Add: stock-based compensation expense included in reported net income, net of tax		—			—			—			—
Deduct: total stock-based employee compensation expense determined under the fair value method, net of tax		(1,219	)		(1,321	)		(2,487	)		(3,313	)