Attached files
file | filename |
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EX-23 - MICROS SYSTEMS INC | v183671_ex23.htm |
EX-32.B - MICROS SYSTEMS INC | v183671_ex32b.htm |
EX-31.A - MICROS SYSTEMS INC | v183671_ex31a.htm |
EX-31.B - MICROS SYSTEMS INC | v183671_ex31b.htm |
EX-32.A - MICROS SYSTEMS INC | v183671_ex32a.htm |
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 March 31, 2010
Commission
file number 0-9993
MICROS
SYSTEMS, INC.
Maryland
|
52-1101488
|
(State
of incorporation)
|
(IRS
Employer Identification
Number)
|
7031 Columbia Gateway Drive, Columbia,
Maryland
|
21046-2289
|
(Address
of principal executive offices)
|
(Zip
code)
|
443-285-6000
|
Registrant’s
telephone number, including area
code
|
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 reports), 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the Registrant was required to submit
and post such files).
YES o NO
o
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
Reporting Company o
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES o NO
þ
As of
April 30, 2010, there were issued and outstanding 80,302,969 shares of the
Registrant’s Common Stock, $0.00625 par value.
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
Form
10-Q
For the
three and nine months ended March 31, 2010
PART
I – FINANCIAL INFORMATION
ITEM
1. FINANCIAL
STATEMENTS
2
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited,
in thousands, except per share data)
March 31,
2010
|
June 30,
2009
|
|||||||
|
(1)
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 357,017 | $ | 292,257 | ||||
Short-term
investments
|
163,841 | 146,679 | ||||||
Accounts
receivable, net of allowance for doubtful accounts of $30,891 at March 31,
2010 and $31,892 at June 30, 2009
|
161,683 | 155,212 | ||||||
Inventory,
net
|
38,270 | 39,783 | ||||||
Deferred
income taxes
|
24,138 | 19,870 | ||||||
Prepaid
expenses and other current assets
|
30,022 | 27,238 | ||||||
Total
current assets
|
774,971 | 681,039 | ||||||
Long-term
investments
|
66,486 | 57,823 | ||||||
Property,
plant and equipment, net
|
28,856 | 30,520 | ||||||
Deferred
income taxes, non-current
|
16,938 | 11,456 | ||||||
Goodwill
|
213,706 | 190,739 | ||||||
Intangible
assets, net
|
21,514 | 17,709 | ||||||
Purchased
and internally developed software costs, net of accumulated amortization
of $72,020 at March 31, 2010 and $66,804 at June 30, 2009
|
20,668 | 25,749 | ||||||
Other
assets
|
6,322 | 6,344 | ||||||
Total
assets
|
$ | 1,149,461 | $ | 1,021,379 | ||||
LIABILITIES
AND EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Bank
lines of credit
|
$ | 1,364 | $ | 1,090 | ||||
Accounts
payable
|
43,054 | 38,445 | ||||||
Accrued
expenses and other current liabilities
|
120,777 | 104,821 | ||||||
Income
taxes payable
|
11,929 | 7,944 | ||||||
Deferred
revenue
|
152,529 | 112,146 | ||||||
Total
current liabilities
|
329,653 | 264,446 | ||||||
Income
taxes payable, non-current
|
22,253 | 19,611 | ||||||
Deferred
income taxes, non-current
|
932 | 1,752 | ||||||
Other
non-current liabilities
|
11,942 | 10,539 | ||||||
364,780 | 296,348 | |||||||
Commitments
and contingencies (Note 13)
|
||||||||
Equity:
|
||||||||
MICROS
Systems, Inc. Shareholders' Equity:
|
||||||||
Common
stock, $0.00625 par value; authorized 120,000 shares; issued and
outstanding 79,822 at March 31, 2010 and 80,310 at June 30,
2009
|
499 | 502 | ||||||
Capital
in excess of par
|
114,526 | 127,146 | ||||||
Retained
earnings
|
655,764 | 575,095 | ||||||
Accumulated
other comprehensive income
|
7,536 | 16,254 | ||||||
Total
MICROS Systems, Inc. shareholders' equity
|
778,325 | 718,997 | ||||||
Noncontrolling
interest
|
6,356 | 6,034 | ||||||
Total
equity
|
784,681 | 725,031 | ||||||
Total
liabilities and equity
|
$ | 1,149,461 | $ | 1,021,379 |
(1) See
Note 14, "Revisions to Prior Period Financial Statements" in Notes to Condensed
Consolidated Financial Statements.
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
3
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited,
in thousands, except per share data)
Three Months Ended
March 31,
|
Nine Months Ended
March 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(1)
|
(1)
|
(1)
|
||||||||||||||
Revenue:
|
||||||||||||||||
Hardware
|
$ | 47,207 | $ | 42,757 | $ | 136,306 | $ | 161,875 | ||||||||
Software
|
29,525 | 27,616 | 84,716 | 102,793 | ||||||||||||
Services
|
152,322 | 134,370 | 445,080 | 420,216 | ||||||||||||
Total
revenue
|
229,054 | 204,743 | 666,102 | 684,884 | ||||||||||||
Cost
of sales:
|
||||||||||||||||
Hardware
|
29,999 | 26,284 | 88,415 | 103,462 | ||||||||||||
Software
|
6,102 | 6,028 | 18,534 | 19,764 | ||||||||||||
Services
|
68,643 | 61,776 | 194,038 | 199,090 | ||||||||||||
Total
cost of sales
|
104,744 | 94,088 | 300,987 | 322,316 | ||||||||||||
Gross
margin
|
124,310 | 110,655 | 365,115 | 362,568 | ||||||||||||
Selling,
general and administrative expenses
|
68,317 | 64,349 | 204,796 | 214,457 | ||||||||||||
Research
and development expenses
|
10,450 | 10,260 | 31,169 | 31,355 | ||||||||||||
Depreciation
and amortization
|
4,674 | 4,189 | 12,835 | 12,567 | ||||||||||||
Total
operating expenses
|
83,441 | 78,798 | 248,800 | 258,379 | ||||||||||||
Income
from operations
|
40,869 | 31,857 | 116,315 | 104,189 | ||||||||||||
Non-operating
income (expense):
|
||||||||||||||||
Interest
income
|
922 | 1,696 | 2,884 | 7,514 | ||||||||||||
Interest
expense
|
(75 | ) | (535 | ) | (162 | ) | (817 | ) | ||||||||
Other
income (expense), net
|
524 | 107 | (297 | ) | 527 | |||||||||||
Total
non-operating income, net
|
1,371 | 1,268 | 2,425 | 7,224 | ||||||||||||
Income
before taxes
|
42,240 | 33,125 | 118,740 | 111,413 | ||||||||||||
Income
tax provision
|
12,123 | 9,894 | 37,593 | 37,024 | ||||||||||||
Net
income
|
30,117 | 23,231 | 81,147 | 74,389 | ||||||||||||
Less: net
loss (income) attributable to noncontrolling interest
|
81 | (279 | ) | (674 | ) | (962 | ) | |||||||||
Net
income attributable to MICROS Systems, Inc.
|
$ | 30,198 | $ | 22,952 | $ | 80,473 | $ | 73,427 | ||||||||
Net
income per common share attributable to MICROS Systems, Inc. common
shareholders (2):
|
||||||||||||||||
Basic
|
$ | 0.38 | $ | 0.28 | $ | 1.01 | $ | 0.91 | ||||||||
Diluted
|
$ | 0.37 | $ | 0.28 | $ | 0.99 | $ | 0.89 | ||||||||
Weighted-average
number of shares outstanding:
|
||||||||||||||||
Basic
|
79,713 | 80,382 | 79,721 | 80,499 | ||||||||||||
Diluted
|
81,338 | 81,047 | 81,299 | 81,449 |
The
details of total other-than-temporary impairment losses ("OTTI") of long-term
investments and a reconciliation to OTTI change included in other non-operating
expense are as follows (3):
Three Months Ended
March 31,
|
Nine Months Ended
March 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Increase
(decrease) in other-than-temporary impairment losses
|
$ | 113 | $ | - | $ | 349 | $ | - | ||||||||
Add:
change in non-credit based OTTI recognized in other comprehensive
income
|
(113 | ) | - | 38 | - | |||||||||||
Credit
based OTTI charge recognized in non-operating income
(expense)
|
$ | - | $ | - | $ | 387 | $ | - |
(1) See
Note 14, "Revisions to Prior Period Financial Statements" in Notes to Condensed
Consolidated Financial Statements.
(2) See
Note 7, "Share-based Compensation" in Notes to Condensed Consolidated Financial
Statements.
(3) See
Note 4, "Financial Instruments and Fair Value Measurements" in Notes to
Consolidated Financial Statements.
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
4
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited,
in thousands)
Nine Months Ended
March 31,
|
||||||||
2010
|
2009
|
|||||||
Net
cash flows provided by operating activities
|
$ | 157,818 | $ | 116,941 | ||||
Cash
flows from investing activities:
|
||||||||
Proceeds
from sales of investments (short-term and long-term)
|
216,302 | 105,192 | ||||||
Purchases
of investments (short-term and long-term)
|
(241,246 | ) | (166,881 | ) | ||||
Net
cash paid for acquisitions
|
(29,034 | ) | (32,701 | ) | ||||
Purchases
of property, plant and equipment
|
(6,029 | ) | (10,437 | ) | ||||
Internally
developed software
|
(1,853 | ) | (702 | ) | ||||
Disposal
of property, plant and equipment
|
184 | 215 | ||||||
Net
cash flows used in investing activities
|
(61,676 | ) | (105,314 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Repurchases
of stock
|
(35,905 | ) | (15,431 | ) | ||||
Proceeds
from stock option exercises
|
9,704 | 1,395 | ||||||
Realized
tax benefits from stock option exercises
|
3,581 | 84 | ||||||
Principal
payments on line of credit and long-tem debt related to an
acquisition
|
- | (18,124 | ) | |||||
Other
|
291 | (1,634 | ) | |||||
Net
cash flows used in financing activities
|
(22,329 | ) | (33,710 | ) | ||||
Effect
of exchange rate changes on cash and cash equivalents
|
(9,053 | ) | (33,580 | ) | ||||
Net
increase (decrease) in cash and cash equivalents
|
64,760 | (55,663 | ) | |||||
Cash
and cash equivalents at beginning of year
|
292,257 | 377,072 | ||||||
Cash
and cash equivalents at end of period
|
$ | 357,017 | $ | 321,409 |
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
5
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited,
in thousands)
MICROS Systems, Inc.
Shareholders (1)
|
||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||
Capital
|
Other
|
Non-
|
||||||||||||||||||||||||||
Common
Stock
|
in
Excess
|
Retained
|
Comprehensive
|
controlling
|
||||||||||||||||||||||||
Shares
|
Amount
|
of
Par
|
Earnings
|
Income
|
Interest
|
Total
|
||||||||||||||||||||||
Balance,
June 30, 2009
|
80,310 | $ | 502 | $ | 127,146 | $ | 575,095 | $ | 16,254 | $ | 6,034 | $ | 725,031 | |||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||
Net
income
|
- | - | - | 80,473 | - | 674 | 81,147 | |||||||||||||||||||||
Foreign
currency translation adjustments, net of tax of $0
|
- | - | - | - | (8,823 | ) | (352 | ) | (9,175 | ) | ||||||||||||||||||
Non-credit
other-than-temporary losses on long-term investments, net of tax of
$64
|
- | - | - | - | 105 | - | 105 | |||||||||||||||||||||
Total
comprehensive income
|
72,077 | |||||||||||||||||||||||||||
Minority
interest put arrangement
|
- | - | - | 196 | - | - | 196 | |||||||||||||||||||||
Share-based
compensation
|
- | - | 9,804 | - | - | - | 9,804 | |||||||||||||||||||||
Stock
issued upon exercise of options
|
808 | 5 | 9,699 | - | - | - | 9,704 | |||||||||||||||||||||
Repurchases
of stock
|
(1,296 | ) | (8 | ) | (35,897 | ) | - | - | - | (35,905 | ) | |||||||||||||||||
Income
tax benefit from options exercised
|
- | - | 3,774 | - | - | - | 3,774 | |||||||||||||||||||||
Balance,
March 31, 2010
|
79,822 | $ | 499 | $ | 114,526 | $ | 655,764 | $ | 7,536 | $ | 6,356 | $ | 784,681 | |||||||||||||||
MICROS Systems,
Inc. Shareholders (1)
|
||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||
Capital
|
Other
|
Non-
|
||||||||||||||||||||||||||
Common
Stock
|
in
Excess
|
Retained
|
Comprehensive
|
controlling
|
||||||||||||||||||||||||
Shares
|
Amount
|
of
Par
|
Earnings
|
Income
|
Interest
|
Total
|
||||||||||||||||||||||
Balance,
June 30, 2008
|
80,898 | $ | 506 | $ | 131,517 | $ | 479,547 | $ | 60,154 | $ | 5,892 | $ | 677,616 | |||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||
Net
income
|
- | - | - | 73,427 | - | 962 | 74,389 | |||||||||||||||||||||
Foreign
currency translation adjustments, net of tax of $0
|
- | - | - | - | (68,810 | ) | (668 | ) | (69,478 | ) | ||||||||||||||||||
Non-credit
other-than-temporary losses on long-term investments, net of tax of
$1,707
|
- | - | - | - | (2,859 | ) | - | (2,859 | ) | |||||||||||||||||||
Total
comprehensive income
|
2,052 | |||||||||||||||||||||||||||
Minority
interest put arrangement
|
- | - | - | (539 | ) | - | - | (539 | ) | |||||||||||||||||||
Dividends
to non-controlling interest
|
(704 | ) | (704 | ) | ||||||||||||||||||||||||
Share-based
compensation
|
- | - | 11,018 | - | - | - | 11,018 | |||||||||||||||||||||
Stock
issued upon exercise of options
|
81 | - | 1,395 | - | - | - | 1,395 | |||||||||||||||||||||
Repurchases
of stock
|
(595 | ) | (4 | ) | (15,427 | ) | - | - | - | (15,431 | ) | |||||||||||||||||
Income
tax benefit from options exercised
|
- | - | 91 | - | - | - | 91 | |||||||||||||||||||||
Balance,
March 31, 2009
|
80,384 | $ | 502 | $ | 128,594 | $ | 552,435 | $ | (11,515 | ) | $ | 5,482 | $ | 675,498 |
(1) See
Note 14, "Revisions to Prior Period Financial Statements" in Notes to Condensed
Consolidated Financial Statements.
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
6
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS
OF PRESENTATION
|
The
accompanying condensed 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, 2009.
The
accompanying condensed consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and in accordance
with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X,
promulgated by the Securities and Exchange Commission. Accordingly,
they do not include all disclosures required by U.S. generally accepted
accounting principles for complete financial statements.
During January 2010, the Company
uncovered certain fraudulent activities in its subsidiary in Japan that occurred
during the period from fiscal year 2006 to the three months ended December 31,
2009. The Company determined that these fraudulent transactions
resulted in a cumulative overstatement of revenue and net income of
approximately $6.9 million and $4.9 million, respectively, over this
period. The Company concluded that the misstatements did not
materially affect the previously issued financial statements for any of its
prior periods. Appropriate adjustments have been made to prior period
information included in the accompanying condensed consolidated financial
statements and described in these notes to the consolidated financial
statements. See Note 14 below for further detail.
The
condensed consolidated financial statements included in this report reflect all
normal and recurring adjustments that, in the opinion of management, are
necessary for a fair presentation of the financial position of the Company, its
results of operations and cash flows for the interim periods set forth
herein. The results for the three and nine months ended March 31,
2010 are not necessarily indicative of the results to be expected for the full
year or any future periods.
2. ACQUISITIONS
|
On
December 31, 2009, the Company acquired TIG Global, LLC (“TIG Global”), an
online marketer specializing in hotel and destination internet marketing,
headquartered in the Washington, D.C. metropolitan area, for a total cash
purchase price of approximately $29.0 million, net of cash
acquired. Approximately $3.0 million of the total purchase price is
held in escrow and, if specified claims against TIG Global arise, such amounts
may be used to satisfy those claims. The amounts held in escrow, net
of any payments to satisfy any such claims are to be paid in two installments,
at 12 and 18 months after closing. The selling TIG Global members may
receive up to an additional approximately $0.9 million based upon achievement of
specified financial targets for calendar year 2010. Approximately
$0.6 million of the $0.9 million has been included in the purchase price
allocation. In connection with the acquisition, the Company recorded
goodwill of approximately $24.0 million and intangible assets of approximately
$6.8 million, principally comprised of customer relationships which will be
amortized over 10 years. The acquisition of TIG Global has been
included in the Company’s results since the acquisition date of December 31,
2009. The purchase price allocation is not finalized and is subject
to the final working capital adjustments, which are currently not expected to be
material. The pro forma effect of this acquisition was not material
to the consolidated financial position and results of operations presented in
this report.
3. INVENTORY
|
The components of inventory are as
follows:
(in
thousands)
|
March
31, 2010
|
June 30, 2009
|
||||||
Raw
materials
|
$ | 1,653 | $ | 1,889 | ||||
Work-in-process
|
8 | 15 | ||||||
Finished
goods
|
36,609 | 37,879 | ||||||
Total
inventory
|
$ | 38,270 | $ | 39,783 |
7
4.
|
FINANCIAL
INSTRUMENTS AND FAIR VALUE
MEASUREMENTS
|
Short-term and long-term investments
consist of the following:
March 31, 2010
|
June 30, 2009
|
|||||||||||||||
(in thousands)
|
Amortized
Cost Basis
|
Aggregate
Fair Value
|
Amortized
Cost Basis
|
Aggregate
Fair Value
|
||||||||||||
Time
deposit - international
|
$ | 97,350 | $ | 97,350 | $ | 115,762 | $ | 115,762 | ||||||||
Auction
rate securities
|
64,275 | 57,606 | 64,275 | 57,823 | ||||||||||||
U.S.
government
|
66,181 | 66,181 | 25,084 | 25,084 | ||||||||||||
Foreign
corporate debt security
|
8,720 | 8,720 | 4,209 | 4,209 | ||||||||||||
Time
deposit - U.S.
|
470 | 470 | 970 | 970 | ||||||||||||
Other
|
- | - | 654 | 654 | ||||||||||||
Total
investments
|
$ | 236,996 | $ | 230,327 | $ | 210,954 | $ | 204,502 |
Fair
value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (exit price). The following hierarchy prioritizes
the inputs (generally, assumptions that market participants use in pricing an
asset or liability) used to measure fair value based on the quality and
reliability of the information provided by the inputs:
·
|
Level
1 - Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or
liabilities. The Company considers active markets as those in
which transactions for the assets or liabilities occur with sufficient
frequency and volume to provide pricing information on an ongoing
basis.
|
·
|
Level
2 - Quoted prices for similar assets or liabilities in active markets;
quoted prices for identical assets or liabilities in markets that are not
active; inputs that are observable, either directly or indirectly, for
substantially the full term of the asset or liability; or inputs that are
derived principally from or corroborated by observable market data or
other means.
|
·
|
Level
3 - Measured based on prices or valuation models using unobservable inputs
to the extent relevant observable inputs are not available (i.e., where
there is little or no market activity for the asset or
liability).
|
The financial assets accounted for at
fair value were as follows (excludes cash and cash equivalents of approximately
$357.0 million and $292.3 million as of March 31, 2010 and June 30, 2009,
respectively):
(in thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Balance
at March 31, 2010:
|
||||||||||||||||
Short-term
and long-term investments:
|
||||||||||||||||
Time
deposit - international
|
$ | - | $ | 97,350 | $ | - | $ | 97,350 | ||||||||
Auction
rate securities
|
- | - | 57,606 | 57,606 | ||||||||||||
U.S.
government
|
66,181 | - | - | 66,181 | ||||||||||||
Foreign
corporate debt security
|
8,720 | - | - | 8,720 | ||||||||||||
Time
deposit - U.S.
|
- | 470 | - | 470 | ||||||||||||
Total
short-term and long-term investments
|
$ | 74,901 | $ | 97,820 | $ | 57,606 | $ | 230,327 | ||||||||
Balance
at June 30, 2009:
|
||||||||||||||||
Short-term
and long-term investments:
|
||||||||||||||||
Time
deposit - international
|
$ | - | $ | 115,762 | $ | - | $ | 115,762 | ||||||||
Auction
rate securities
|
- | - | 57,823 | 57,823 | ||||||||||||
U.S.
government
|
25,084 | - | - | 25,084 | ||||||||||||
Foreign
corporate debt security
|
4,209 | - | - | 4,209 | ||||||||||||
Time
deposit - U.S.
|
- | 970 | - | 970 | ||||||||||||
Other
|
- | 654 | - | 654 | ||||||||||||
Total
short-term and long-term investments
|
$ | 29,293 | $ | 117,386 | $ | 57,823 | $ | 204,502 |
At March 31, 2010 and June 30, 2009,
the Company’s investments (other than the Company’s investments in auction rate
securities) were recognized at fair value determined based upon observable input
information provided by the Company’s pricing service vendors for identical or
similar assets. For these investments, cost approximates fair
value. See “Auction Rate Securities” below for further discussion on
the valuation of the Company’s investments in auction rate
securities.
During the nine months ended March 31,
2010 and 2009, the Company did not recognize any gains or losses on its
investments, other than related to the Company’s investments in auction rate
securities.
8
The
contractual maturities of investments held at March 31, 2010 are as
follows:
(in thousands)
|
Amortized
Cost Basis
|
Aggregate
Fair Value
|
||||||
Due
within one year
|
$ | 163,840 | $ | 163,840 | ||||
Due
between 1 - 2 years
|
8,881 | 8,881 | ||||||
Due
after 10 years - auction rate securities
|
64,275 | 57,606 | ||||||
Balance
at March 31, 2010
|
$ | 236,996 | $ | 230,327 |
AUCTION
RATE SECURITIES
The Company’s investments in auction
rate securities, carried at estimated fair values, were its only assets valued
on the basis of Level 3 inputs. Auction rate securities are long-term
debt instruments with variable interest rates that are designed to reset to
prevailing market interest rates every 7 to 35 days through the auction
process. The auction rate securities held by the Company are
supported by student loans for which repayment is guaranteed either by the
Federal Family Education Loan Program or insured by AMBAC Financial
Group. Due to the liquidity previously provided by the interest rate
reset mechanism and the short-term nature of the Company’s investment, the
auction rate securities previously (prior to February 2008) were classified as
short-term investments available-for-sale in the Company’s consolidated balance
sheets. Beginning in February 2008, auctions for these securities
failed to obtain sufficient bids to establish a clearing rate and the securities
were not saleable in auction, thereby no longer providing short-term
liquidity. As a result, the auction rate securities have been
classified as long-term investments available-for-sale as of March 31, 2010 and
June 30, 2009 instead of being classified as short-term investments, as was the
case prior to February 2008.
As of March 31, 2010, the Company
updated its assessment as to whether it would likely recover the entire cost
basis of each of the auction rate securities, and, therefore, whether the
securities had incurred an other-than-temporary impairment. Determination of
whether the impairment is temporary or other-than-temporary requires significant
judgment. The primary factors that are considered in assessing the
nature of the impairment include (a) the credit quality of the underlying
security, (b) the extent to which and time period during which the fair value of
each investment has been below cost, (c) the expected holding or recovery period
for each investment, (d) the Company’s intent to hold each investment until
recovery and likelihood that the Company will not be required to sell the
security prior to recovery, and (e) the existence of any evidence of default by
the issuer. The Company engaged an independent valuation firm to perform a
valuation of its auction rate securities in conjunction with the Company's
assessment of any impairment as temporary versus other-than-temporary. The
valuation firm used a discounted cash flow model that considered various inputs
including: (a) the coupon rate specified under the debt instruments,
(b) the current credit ratings of the underlying issuers, (c) collateral
characteristics, (d) discount rates, (e) severity of default and (f) probability
that the securities will be sold at auction or through early
redemption. The valuation firm used a mark to model approach to
arrive at this valuation, which the Company reviewed and with which it
agreed.
Based on its fair value assessment, the
Company determined that its investments in auction rate securities as of March
31, 2010 were impaired by approximately $6.7 million as compared to an
impairment of approximately $6.1 million as of December 31, 2009, $6.7 million
as of September 30, 2009 and $6.5 million as of June 30,
2009. Approximately $2.3 million of this impairment at March 31, 2010
was deemed to be other-than-temporary. The assessments also entailed
an evaluation of the amount of the other-than-temporary impairment attributable
to credit loss. The factors considered in making an evaluation of the
amount attributable to credit loss included the following: (a)
default probability and the likelihood of restructuring of the security, (b)
payment structure of the security to determine how the expected underlying
collateral cash flows will be distributed to each security issued from the
structure and (c) performance indicators of the underlying assets in the trust
(including default and delinquency rates). These assumptions are
subject to change as the underlying market conditions change. Based
on its evaluations, the Company determined that approximately $1.7 million of
the cumulative impairment losses were credit based, which is unchanged from the
December 31, 2009 and September 30, 2009 evaluations.
The remaining impairment losses of
approximately $5.0 million (approximately $3.1 million, net of tax) were
recorded in accumulated other comprehensive income as of March 31,
2010.
9
A
reconciliation of changes in the fair value of auction rate securities, and the
related realized and unrealized losses were as follows:
(in thousands)
|
Cost
|
Temporary
Impairment
Loss (1)
|
OTTI -
Non-Credit
Loss (1)
|
OTTI -
Credit Loss
(2)
|
Fair
Value
|
|||||||||||||||
Balance
at June 30, 2009
|
$ | 64,275 | $ | (4,474 | ) | $ | (712 | ) | $ | (1,266 | ) | $ | 57,823 | |||||||
Changes
in losses related to investments
|
- | 140 | 32 | (387 | ) | (215 | ) | |||||||||||||
Balance
at September 30, 2009
|
64,275 | (4,334 | ) | (680 | ) | (1,653 | ) | 57,608 | ||||||||||||
Changes
in losses related to investments
|
- | 463 | 119 | - | 582 | |||||||||||||||
Balance
at December 31, 2009
|
64,275 | (3,871 | ) | (561 | ) | (1,653 | ) | 58,190 | ||||||||||||
Changes
in losses related to investments
|
- | (471 | ) | (113 | ) | - | (584 | ) | ||||||||||||
Balance
at March 31, 2010
|
$ | 64,275 | $ | (4,342 | ) | $ | (674 | ) | $ | (1,653 | ) | $ | 57,606 |
(1) OTTI
means 'other-than-temporary impairment.' The amounts in this column are recorded
in the accumulated other comprehensive income (loss) component of stockholders'
equity.
(2) The
amounts in this column are recorded in the condensed consolidated statement of
operations.
During the nine months ended March 31,
2010, the Company had no sales or redemptions of its auction rate
securities.
The Company plans to continue to
monitor its investments, including the liquidity of and creditworthiness of the
issuers of its auction rate securities, on an ongoing basis for indications of
further impairment and, if an impairment is identified, for proper
classification of the impairment. Based on the Company’s expected
operating cash flows and sources of cash, the Company does not believe that any
reduction in the liquidity of its auction rate securities will have a material
impact on its overall ability to meet its liquidity needs.
5.
|
GOODWILL
AND INTANGIBLE ASSETS
|
During the three months ended September
30, 2009, the Company completed its annual impairment test on its goodwill and
its indefinite-lived trademarks as of July 1, 2009. Based on its
annual impairment test results, the Company determined that no impairment of its
goodwill or indefinite-lived trademarks existed as of July 1, 2009, and
subsequent to July 1, 2009, there have not been any events or changes in
circumstances indicating that it is more likely than not that goodwill or
indefinite-lived trademarks have been impaired.
During the three months ended December
31, 2009, the Company recorded goodwill of approximately $24.0 million in
connection with its acquisition of TIG Global (see Note 2).
6.
|
LINE
OF CREDIT
|
The Company has two credit agreements
(the “Credit Agreements”) that in the aggregate provide a $65.0 million
multi-currency committed line of credit which expires on July 31,
2010. The lenders under the Credit Agreements are Bank of America,
N.A., Wells Fargo, N.A. and US Bank N.A. (“Lenders”). The
international facility is secured by 65% of the capital stock of the Company’s
main operating Ireland subsidiary and 100% of the capital stock of all of the
remaining major foreign subsidiaries. The U.S. facility is secured by
100% of the capital stock of the Company’s major U.S. subsidiaries as well as
inventory and receivables located in the U.S.
For borrowings in U.S. currency, the
interest rate under the Credit Agreements is equal to the higher of the federal
funds rate plus 50 basis points or the prime rate. For borrowings in
foreign currencies, the interest rate is determined by a LIBOR-based formula,
plus an additional margin of 125 to 200 basis points, depending upon the
Company’s consolidated earnings before interest, taxes, depreciation and
amortization for the immediately preceding four calendar
quarters. Under the terms of the Credit Agreements, the Company is
required to pay to the Lenders insignificant commitment fees on the unused
portion of the line of credit. The Credit Agreements also contain
certain financial covenants and restrictions on the Company’s ability to assume
additional debt, repurchase stock, sell subsidiaries or acquire
companies. In case of an event of default, as defined in the Credit
Agreements, including those not cured within the applicable cure period, if any,
the Lenders’ remedies include their ability to declare all outstanding loans,
plus interest and other related amounts owed, to be immediately due and payable
in full, and to pursue all rights and remedies available to them under the
Credit Agreements or under applicable law.
As of March 31, 2010, the Company had
approximately $1.4 million outstanding under the Credit Agreements and has
applied an additional approximately $0.4 million to guarantees.
The Company also has a credit agreement
with a European bank under which the Company may borrow up to EUR 1.0 million
(approximately $1.4 million at the March 31, 2010 exchange
rate). Under the terms of this facility, the Company may borrow in
the form of either a line of credit or term debt. As of March 31,
2010, there were no balances outstanding on this credit facility, but
approximately EUR 0.3 million (approximately $0.5 million at the March 31, 2010
exchange rate) of the credit facility has been used for guarantees.
As of March 31, 2010, the Company had
approximately $64.1 million borrowing capacity under all of the credit
facilities described above. The weighted-average interest rate on the
outstanding balances under the Credit Agreements as of March 31, 2010 was
1.5%.
10
7.
|
SHARE-BASED
COMPENSATION
|
The non-cash share-based compensation
expenses included in the consolidated statements of operations are as
follows:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Selling,
general and administrative
|
$ | 2,267 | $ | 2,953 | $ | 9,405 | $ | 10,364 | ||||||||
Research
and development
|
108 | 233 | 399 | 654 | ||||||||||||
Total
non-cash share-based compensation expense
|
2,375 | 3,186 | 9,804 | 11,018 | ||||||||||||
Income
tax benefit
|
(817 | ) | (825 | ) | (3,222 | ) | (2,644 | ) | ||||||||
Total
non-cash share-based compensation expense, net of tax
benefit
|
$ | 1,558 | $ | 2,361 | $ | 6,582 | $ | 8,374 | ||||||||
Impact
on diluted net income per share
|
$ | 0.02 | $ | 0.03 | $ | 0.08 | $ | 0.10 |
No non-cash share-based compensation
expense has been capitalized for the nine months ended March 31, 2010 and 2009,
as stock options were not granted to employees whose labor cost was capitalized
as software development costs or inventory.
As of March 31, 2010, there was
approximately $14.1 million (net of estimated forfeitures) in non-cash
share-based compensation related to non-vested awards, which is expected to be
recognized in the Company’s consolidated statements of operations over a
weighted-average period of 2.0 years.
8.
|
NET
INCOME PER SHARE
|
Basic net income per common share is
computed by dividing net income available to MICROS Systems, Inc. common
shareholders by the weighted-average number of shares
outstanding. Diluted net income per share includes the dilutive
effect of stock options. The following table provides a
reconciliation of the (i) net income attributable to MICROS Systems, Inc. to the
net income available to MICROS Systems, Inc. common shareholders and (ii) the
weighted-average number of common shares outstanding to the weighted-average
number of common shares outstanding on a diluted basis:
Three Months Ended
March 31,
|
Nine Months Ended
March 31,
|
|||||||||||||||
(in thousands, except per share
data)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Net
income attributable to MICROS Systems, Inc.
|
$ | 30,198 | $ | 22,952 | $ | 80,473 | $ | 73,427 | ||||||||
Effect
of minority put arrangement
|
(36 | ) | (181 | ) | 196 | (539 | ) | |||||||||
Net
income available to MICROS Systems, Inc. common
shareholders
|
$ | 30,162 | $ | 22,771 | $ | 80,669 | $ | 72,888 | ||||||||
Average
common shares outstanding
|
79,713 | 80,382 | 79,721 | 80,499 | ||||||||||||
Dilutive
effect of outstanding stock options
|
1,625 | 665 | 1,578 | 950 | ||||||||||||
Average
common shares outstanding assuming dilution
|
81,338 | 81,047 | 81,299 | 81,449 | ||||||||||||
Basic
net income per share
|
$ | 0.38 | $ | 0.28 | $ | 1.01 | $ | 0.91 | ||||||||
Diluted
net income per share
|
$ | 0.37 | $ | 0.28 | $ | 0.99 | $ | 0.89 | ||||||||
Anti-dilutive
weighted shares excluded from reconciliation
|
2,146 | 5,664 | 1,840 | 4,077 |
Results for the three months ended
March 31, 2010 and 2009 include approximately $2.4 million ($1.6 million, net of
tax) and $3.2 million ($2.4 million, net of tax), in non-cash share-based
compensation expense, respectively. These non-cash share-based
compensation expenses reduced diluted net income per share by $0.02 and $0.03
for the three months ended March 31, 2010 and 2009, respectively.
Results for the nine months ended March
31, 2010 and 2009 include approximately $9.8 million ($6.6 million, net of tax)
and $11.0 million ($8.4 million, net of tax), in non-cash share-based
compensation expense, respectively. These non-cash share-based
compensation expenses reduced diluted net income per share by $0.08 and $0.10
for the nine months ended March 31, 2010 and 2009,
respectively.
11
9.
|
OTHER
COMPREHENSIVE INCOME
|
The components of comprehensive income,
net of tax, were as follows:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Net
income
|
$ | 30,117 | $ | 23,231 | $ | 81,147 | $ | 74,389 | ||||||||
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||
Foreign
currency translation adjustments
|
(19,496 | ) | (15,799 | ) | (9,175 | ) | (69,478 | ) | ||||||||
Unrealized
loss on non-current investments
|
(363 | ) | (167 | ) | 105 | (2,859 | ) | |||||||||
Other
comprehensive loss, net of tax
|
(19,859 | ) | (15,966 | ) | (9,070 | ) | (72,337 | ) | ||||||||
Total
comprehensive income
|
10,258 | 7,265 | 72,077 | 2,052 | ||||||||||||
Less: Net
loss (income) attributable to non-controlling interest
|
81 | (279 | ) | (674 | ) | (962 | ) | |||||||||
Less: Foreign
currency translation adjustments attributable to non-controlling
interest
|
291 | 27 | 352 | 668 | ||||||||||||
Total
comprehensive income attributable to MICROS Systems, Inc.
|
$ | 10,630 | $ | 7,013 | $ | 71,755 | $ | 1,758 |
The unfavorable foreign currency
translation adjustments of approximately $19.5 million and $15.8 million for the
three months ended March 31, 2010 and 2009, respectively, and approximately $9.2
million and $69.4 million for the nine months ended March 31, 2010 and 2009,
respectively, were due to foreign currency exchange rate fluctuations mainly
between the U.S. dollar and the Euro, and between the U.S. dollar and the
British pound sterling. As of March 31, 2010, the Euro has suffered
4% and 6% decreases in value against the dollar since June 30, 2009 and December
31, 2009, respectively. As of March 31, 2010, the British pound
sterling has suffered approximately 8% and 6% decreases in value against the
U.S. dollar since June 30, 2009 and December 31, 2009,
respectively. Approximately $283.1 million and $32.7 million of the
Company’s net assets at March 31, 2010 are denominated in Euros and British
pounds sterling, respectively.
10.
|
RECENT
ACCOUNTING GUIDANCE
|
RECENTLY
ADOPTED ACCOUNTING GUIDANCE
On July 1, 2009, the Company adopted
the authoritative guidance issued by the Financial Accounting Standards Board
(“FASB”) on business combinations. The guidance addresses the manner
in which the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquired business. This guidance also
provides standards for recognizing and measuring the goodwill acquired in the
business combination and for disclosure of information to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. The Company’s acquisition of TIG Global on
December 31, 2009 was accounted for under this guidance.
On July 1, 2009, the Company adopted
authoritative guidance issued by the FASB that changes the accounting and
reporting for non-controlling interests. This guidance requires,
among other things, that: non-controlling interests be reported as a component
of equity; changes in a parent’s ownership interest while the parent retains its
controlling interest be accounted for as equity transactions; and any retained
non-controlling equity investment upon the deconsolidation of a subsidiary
initially be measured at fair value. The adoption of this guidance
did not have a material impact on the Company’s consolidated financial
statements.
On July 1, 2009, the Company adopted
the authoritative guidance issued by the FASB which revises the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset. This
guidance is intended to improve the consistency between the useful life of a
recognized intangible asset and the period of expected cash flows used to
measure the fair value of the asset under other U.S. generally accepted
accounting principles. The adoption of this guidance did not have a
material impact on the Company’s consolidated financial statements.
On July 1, 2009, the Company adopted
authoritative guidance issued by the FASB on fair value measurement for
nonfinancial assets and liabilities, other than non-financial assets and
liabilities that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), which already were subject
to the FASB guidance. The adoption of this guidance did not have a
material impact on the Company’s consolidated financial statements.
In January 2010, the FASB issued
guidance amending the disclosure requirements related to recurring and
nonrecurring fair value measurements. The guidance requires new disclosures on
the transfers of assets and liabilities between Level 1 inputs (quoted prices in
active market for identical assets or liabilities) and Level 2 inputs
(significant other observable inputs) of the fair value measurement hierarchy,
including the reasons and the timing of the transfers. Additionally, the
guidance requires separate disclosure of purchases, sales, issuance, and
settlements of assets and liabilities measured using significant unobservable
inputs (Level 3 fair value measurements). The adoption of this guidance, other
than required additional disclosures on the activities for Level 3 fair value
measurements which is effective for the Company beginning July 1, 2011, did not
have a material impact on the Company’s consolidated financial
statements.
12
RECENT
ACCOUNTING GUIDANCE NOT YET ADOPTED
In
October 2009, the FASB issued authoritative guidance on revenue arrangements
with multiple deliverables that are outside the scope of the software revenue
recognition guidance. Under the guidance, when vendor-specific
objective evidence or third-party evidence of selling price is not available, a
best estimate of the selling price is required to separate deliverables and
allocate arrangement consideration based on the relative selling prices of the
separate deliverables (the “relative selling price method”). The
relative selling price method allocates any discount in the arrangement
proportionately to each deliverable on the basis of each deliverable’s selling
price. The guidance also significantly expands related disclosure
requirements. This standard is effective for the Company beginning
July 1, 2010. The Company is continuing to evaluate the impact that
the adoption of this guidance will have on its consolidated financial
statements.
In October 2009, the FASB also issued
authoritative guidance on revenue recognition for arrangements that include
software elements. Under the guidance, tangible products containing
software components and non-software components that function together to
deliver the tangible product’s essential functionality are excluded from the
scope of software revenue recognition guidance and will be subject to other
relevant revenue recognition guidance. This guidance will become
effective for the Company beginning July 1, 2010. The Company does
not believe the adoption of this guidance will have a material impact on its
consolidated financial statements.
11.
|
SEGMENT
INFORMATION
|
The Company is organized and operates
in four operating segments: U.S., Europe, the Pacific Rim, and Latin
America regions. The Company has identified the U.S. as a separate
reportable segment and has aggregated its three international operating segments
into one reportable segment, international, as the three international operating
segments share many similar economic characteristics. Management
views the U.S. and international segments separately in operating its business,
although the products and services are similar for each segment.
Historically, all of the Company’s new
business acquisitions have been incorporated into the existing operating
segments, based on their respective geographic locations, and are subsequently
operated and managed as part of the applicable operating segment.
The following table summarizes the
Company’s reportable segments:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Revenues
(1):
|
||||||||||||||||
United
States
|
$ | 124,107 | $ | 113,643 | $ | 352,524 | $ | 371,099 | ||||||||
International
|
113,450 | 97,514 | 340,075 | 338,672 | ||||||||||||
Intersegment
eliminations (2)
|
(8,503 | ) | (6,414 | ) | (26,497 | ) | (24,887 | ) | ||||||||
Total
revenues
|
$ | 229,054 | $ | 204,743 | $ | 666,102 | $ | 684,884 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Income
before taxes (1):
|
||||||||||||||||
United
States
|
$ | 19,621 | $ | 18,560 | $ | 57,435 | $ | 56,479 | ||||||||
International
|
28,733 | 19,427 | 80,537 | 72,220 | ||||||||||||
Intersegment
eliminations (2)
|
(6,114 | ) | (4,862 | ) | (19,232 | ) | (17,286 | ) | ||||||||
Total
income before taxes
|
$ | 42,240 | $ | 33,125 | $ | 118,740 | $ | 111,413 |
As of
|
||||||||
(in thousands)
|
March 31, 2010
|
June 30, 2009
|
||||||
Identifiable
assets (3):
|
||||||||
United
States
|
$ | 541,503 | $ | 492,402 | ||||
International
|
607,958 | 528,977 | ||||||
Total
identifiable assets
|
$ | 1,149,461 | $ | 1,021,379 |
(1)
|
Amounts
based on the location of the selling
entity.
|
(2)
|
Amounts
primarily represent elimination of U.S.’s intercompany
business.
|
(3)
|
Amounts
based on the physical location of the
asset.
|
13
12.
|
SHAREHOLDERS’
EQUITY
|
During the period from fiscal year 2002
through fiscal year 2009, the Board of Directors authorized the purchase of up
to an aggregate of 12 million shares of the Company’s common
stock. On August 25, 2009, the Board of Directors authorized the
purchase of an additional two million shares of the Company’s common stock over
the next three years, to be purchased from time to time depending on market
conditions and other corporate considerations as determined by
management. The Company has incurred an aggregate of approximately
$0.3 million in fees related to all stock purchases. As of March 31,
2010, approximately 2.0 million shares remain available for purchase under the
outstanding authorizations.
The following table summarizes the
cumulative number of shares purchased under the purchase authorizations, all of
which have been retired:
Number of
Shares
|
Average
Purchase Price
Per Share
|
Total
Purchase
Value
(in thousands)
|
||||||||||
Total
shares purchased:
|
||||||||||||
As
of June 30, 2009
|
10,717,800 | $ | 19.39 | $ | 207,829 | |||||||
Three
months ended September 30, 2009
|
1,101,200 | $ | 27.55 | 30,336 | ||||||||
Three
months ended December 31, 2009
|
160,350 | $ | 28.92 | 4,637 | ||||||||
Three
months ended March 31, 2010
|
34,520 | $ | 27.00 | 932 | ||||||||
As
of March 31, 2010
|
12,013,870 | $ | 243,734 |
13.
|
CONTINGENCIES
|
There is a case pending in the U.S.
District Court for the Northern District of Georgia, styled Ware v. Abercrombie &
Fitch Stores, Inc. et al.; although the Company is not a party to that
case, the Company may have some obligation to indemnify certain of the
defendants who are the Company’s customers, based on the terms of the Company’s
contracts with those customers. The plaintiff has alleged that the
defendants are infringing a patent relating to the processing of credit card
transactions. The defendants include approximately 107 individual
retailers, 13 of whom are the Company’s customers for retail point-of-sale
software. The Company initially agreed to provide indemnity coverage
to five of the defendants who are the Company’s customers in accordance with
applicable provisions of the contracts between the Company and those
customers. However, one such customer has filed for protection under
the U.S. Bankruptcy Code and the Company is now providing indemnity coverage
only for four of the customers. Through March 31, 2010, the Company’s
legal fees with respect to indemnity coverage for this matter have not been
material, and the Company does not anticipate that its future indemnification
obligations will be material. As previously disclosed, on September
4, 2009, the Court lifted a stay on the proceedings following the issuance by
the United States Patent and Trademark Office of a Reexamination Certificate
upholding the validity of the patent. The Parties have commenced
discovery and claims construction, which are ongoing. Based on
currently available information, the Company does not believe that the Company’s
products infringe the patent and will vigorously defend the action.
On November 26, 2007, Heartland Payment
Systems, Inc. (“Heartland”) filed an action in the U.S. District Court for the
District of New Jersey naming as defendants MICROS Systems, Inc., Merchant Link
LLC, and Chase Paymentech Solutions, LLC. In its complaint, Heartland
claimed that MICROS, Merchant Link, and Paymentech engaged in an
anti-competitive arrangement relating to credit and debit card payment
processing for restaurant point-of-sale systems, and further claimed that this
arrangement violates federal antitrust law and applicable New Jersey state
laws. MICROS had asserted counterclaims, alleging that Heartland has
engaged in tortious activity by defaming and libeling the Company and by
improperly interfering with the Company’s customer contracts and customer
relationships. In March 2010, Heartland and the Company entered into
a settlement agreement. Under the settlement agreement, the parties
agreed to file a stipulation of dismissal of the actions (with prejudice),
provided mutual releases, agreed to joint development and implementation of
interfaces enabling Heartland payment gateways to interoperate with specified
Company products, and agreed to other matters pertaining to their business
relationship. The action was dismissed by the court on March 31,
2010. There is no adverse financial impact to the
Company.
As disclosed in previous filings, on
May 22, 2008, a jury returned verdicts totaling $7.5 million against the Company
in the consolidated actions of Roth Cash Register v. MICROS
Systems, Inc., et al. and Shenango Systems Solutions
v. MICROS Systems, Inc., et al. The cases initially were
filed in 2000 in the Court of Common Pleas of Allegheny County,
Pennsylvania. The complaints both related to the non-renewal of
dealership agreements in the year 2000 between the Company and the respective
plaintiffs. The agreements were non-renewed as part of a
restructuring of the dealer channel. There is no other outstanding
litigation relating to the restructuring of the dealer channel in the year
2000. The plaintiffs alleged that the Company and certain of its
subsidiaries and employees entered into a plan to eliminate the plaintiffs as
authorized dealers and improperly interfere with the plaintiffs' relationships
with their respective existing and potential future clients and customers
without compensation to the plaintiffs. As a result, the plaintiffs
claimed that the Company was liable for, among other things, breach of contract
and tortious interference with existing and prospective contractual
relationships. The Company and the plaintiffs have appealed the
verdicts on various grounds. Oral argument on the appeal took place
on February 24, 2010, before the Superior Court of Pennsylvania. The
court has not yet issued a decision on the appeal. The Company has
established only an immaterial reserve for any potential liability relating to
these matters, as the Company believes that it can present strong arguments to
reverse the verdicts on appeal, and therefore believes that an unfavorable
outcome in these cases is not probable. Nevertheless, even if the
verdicts were not reversed or reduced on appeal, payment of the resulting
obligations would not have a material adverse effect on the Company’s
consolidated financial position or liquidity.
14
The Company is and has been involved in
legal proceedings arising in the normal course of business, and, subject to the
matters referenced above, 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, financial position, or cash
flows.
14.
|
REVISIONS
TO PRIOR PERIOD FINANCIAL
STATEMENTS
|
As previously disclosed in our Form
10-Q for the period ended December 31, 2009, during January 2010, the Company
uncovered certain fraudulent activities in its Japanese subsidiary that occurred
during the period from fiscal year 2006 to the three months ended December 31,
2009. As a result of the Company’s investigation, the Company determined
that fraudulent transactions resulted in a cumulative overstatement of revenue
and net income of approximately $6.9 million and $4.9 million, respectively,
over this period. The transactions served principally to inflate revenue and
cost of sales through the creation of fraudulent revenue documentation and to
understate liabilities for loans executed where the Company was the guarantor
over this period. These off-balance sheet loans were indirectly used to
pay down a portion of the Company's fictitious accounts receivable balances.
The Company had concluded, based on its investigation, that the fraud was
solely perpetrated by one employee of the Company's Japanese subsidiary who was
not a member of senior management and that the individual involved expended
significant effort over the period to create a variety of schemes which
deliberately circumvented or manipulated the entity's local controls and
procedures. These schemes were primarily designed to inflate revenues and
cost of sales and to obtain financing from third parties to pay off the accounts
receivable balances in order to prolong the schemes. The Company
terminated the employee upon completion of its investigation.
The following table shows the revised
financial statement line items for the various fiscal periods affected by the
adjustments described above:
FY 2010
|
Fiscal Year Ended June 30, 2009
|
Fiscal Year Ended June 30,
|
||||||||||||||||||||||||||||||
(in thousands, except for EPS)
|
Q1
|
Q1
|
Q2
|
Q3
|
2009
|
2008
|
2007
|
2006
|
||||||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||||||||||
As
previously reported
|
$ | 212,473 | $ | 244,069 | $ | 237,934 | $ | 205,666 | $ | 911,847 | $ | 954,184 | $ | 785,727 | $ | 678,953 | ||||||||||||||||
Adjustment
|
(1,072 | ) | (437 | ) | (1,425 | ) | (923 | ) | (4,122 | ) | (234 | ) | (754 | ) | (720 | ) | ||||||||||||||||
As
revised
|
$ | 211,401 | $ | 243,632 | $ | 236,509 | $ | 204,743 | $ | 907,725 | $ | 953,950 | $ | 784,973 | $ | 678,233 | ||||||||||||||||
Net
income:
|
||||||||||||||||||||||||||||||||
As
previously reported
|
$ | 24,771 | $ | 24,882 | $ | 27,074 | $ | 23,353 | $ | 99,297 | $ | 101,284 | $ | 79,988 | $ | 63,528 | ||||||||||||||||
Adjustment
|
(624 | ) | (584 | ) | (896 | ) | (401 | ) | (3,005 | ) | (547 | ) | (113 | ) | (565 | ) | ||||||||||||||||
As
revised
|
$ | 24,147 | $ | 24,298 | $ | 26,178 | $ | 22,952 | $ | 96,292 | $ | 100,737 | $ | 79,875 | $ | 62,963 | ||||||||||||||||
Basic
EPS:
|
||||||||||||||||||||||||||||||||
As
previously reported
|
$ | 0.31 | $ | 0.31 | $ | 0.33 | $ | 0.29 | $ | 1.22 | $ | 1.23 | $ | 1.00 | $ | 0.82 | ||||||||||||||||
Adjustment
|
(0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.03 | ) | - | - | (0.01 | ) | ||||||||||||||||||
As
revised
|
$ | 0.30 | $ | 0.30 | $ | 0.32 | $ | 0.28 | $ | 1.19 | $ | 1.23 | $ | 1.00 | $ | 0.81 | ||||||||||||||||
Diluted
EPS:
|
||||||||||||||||||||||||||||||||
As
previously reported
|
$ | 0.31 | $ | 0.30 | $ | 0.33 | $ | 0.29 | $ | 1.21 | $ | 1.21 | $ | 0.97 | $ | 0.78 | ||||||||||||||||
Adjustment
|
(0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.04 | ) | (0.01 | ) | - | (0.01 | ) | |||||||||||||||||
As
revised
|
$ | 0.30 | $ | 0.29 | $ | 0.32 | $ | 0.28 | $ | 1.17 | $ | 1.20 | $ | 0.97 | $ | 0.77 |
Based on the materiality guidelines
contained in SEC Staff Accounting Bulletin No. 99, "Materiality" and SEC Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements in Current Year Financial Statements", the Company concluded that
the adjustments to correct for the fraudulent activities are not material to any
of its current financial statements for periods beginning with the year ended
June 30, 2006 and through the three months ended September 30,
2009. However, the Company concluded that the adjustments would be
material to the quarterly results and trend for the three months ended December
31, 2009. Accordingly, the Company determined that it would
revise its previous financial statements to record these adjustments; however,
because the effect of the adjustments were not material to any previously issued
financial statements, the Company determined not to amend its previously filed
Quarterly Reports on Form 10-Q or its Annual Reports on Form 10-K, rather the
Company would make corresponding adjustments to prior periods, as appropriate,
the next time those financial statements are filed.
15
The
Condensed Consolidated Statements of Operations for the three months and nine
months ended March 31, 2009 and the Condensed Consolidated Balance Sheet as of
June 30, 2009 included in this Form 10-Q have been revised as
follows:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||||||||||
March 31, 2009
|
March 31, 2009
|
|||||||||||||||||||||||
(in thousands, except for EPS)
|
As
Previously
Reported
|
Adjustment
|
As Revised
|
As Previously
Reported
|
Adjustment
|
As Revised
|
||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||
Hardware
|
$ | 42,757 | $ | - | $ | 42,757 | $ | 162,596 | $ | (721 | ) | $ | 161,875 | |||||||||||
Software
|
28,322 | (706 | ) | 27,616 | 104,094 | (1,301 | ) | 102,793 | ||||||||||||||||
Services
|
134,587 | (217 | ) | 134,370 | 420,980 | (764 | ) | 420,216 | ||||||||||||||||
Total
|
205,666 | (923 | ) | 204,743 | 687,670 | (2,786 | ) | 684,884 | ||||||||||||||||
COS:
|
||||||||||||||||||||||||
Hardware
|
26,284 | 0 | 26,284 | 104,099 | (637 | ) | 103,462 | |||||||||||||||||
Software
|
6,565 | (537 | ) | 6,028 | 20,963 | (1,199 | ) | 19,764 | ||||||||||||||||
Services
|
61,767 | 9 | 61,776 | 199,090 | 0 | 199,090 | ||||||||||||||||||
Total
|
94,616 | (528 | ) | 94,088 | 324,152 | (1,836 | ) | 322,316 | ||||||||||||||||
Gross
margin
|
111,050 | (395 | ) | 110,655 | 363,518 | (950 | ) | 362,568 | ||||||||||||||||
Selling,
general and administrative expenses
|
64,349 | 0 | 64,349 | 213,545 | 912 | 214,457 | ||||||||||||||||||
Income
before taxes
|
33,520 | (395 | ) | 33,125 | 113,275 | (1,862 | ) | 111,413 | ||||||||||||||||
Income
tax provision
|
9,888 | 6 | 9,894 | 37,005 | 19 | 37,024 | ||||||||||||||||||
Net
income attributable to MICROS Systems, Inc.
|
23,353 | (401 | ) | 22,952 | 75,308 | (1,881 | ) | 73,427 | ||||||||||||||||
Basic
EPS
|
$ | 0.29 | $ | (0.01 | ) | $ | 0.28 | $ | 0.93 | $ | (0.02 | ) | $ | 0.91 | ||||||||||
Diluted
EPS
|
$ | 0.29 | $ | (0.01 | ) | $ | 0.28 | $ | 0.92 | $ | (0.03 | ) | $ | 0.89 |
As of June 30, 2009
|
||||||||||||
(in thousands)
|
As Previously
Reported
|
Adjustment
|
As
Revised
|
|||||||||
Accounts
receivable, net
|
$ | 157,479 | $ | (2,267 | ) | $ | 155,212 | |||||
Deferred
income taxes, current
|
20,283 | (413 | ) | 19,870 | ||||||||
Deferred
income taxes, non-current
|
11,483 | (27 | ) | 11,456 | ||||||||
Total
assets
|
1,024,086 | $ | (2,707 | ) | 1,021,379 | |||||||
Accounts
payable
|
$ | 36,647 | $ | 1,798 | $ | 38,445 | ||||||
Income
taxes payable
|
7,999 | (55 | ) | 7,944 | ||||||||
Retained
earnings
|
579,331 | (4,236 | ) | 575,095 | ||||||||
Accumulated
other comprehensive income
|
16,468 | (214 | ) | 16,254 | ||||||||
Total
MICROS Systems, Inc. shareholders' equity
|
723,447 | (4,450 | ) | 718,997 | ||||||||
Total
liabilities and equity
|
1,024,086 | $ | (2,707 | ) | 1,021,379 |
The adjustments noted above have no
impact on the consolidated statements of cash flows for the relevant periods,
other than to change certain reconciling items in arriving at cash provided by
operations; however, the aggregate amount of cash provided by operations was
unaffected for any of the relevant annual or interim periods.
16
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
We are a leading worldwide designer,
manufacturer, marketer, and servicer of enterprise information solutions for the
global hospitality and specialty retail industries. Our enterprise
solutions comprise three major areas: hotel information systems, restaurant
information systems, and specialty retail information systems. We
also offer a wide range of related services. We distribute our
products and services directly and through a network of independent dealers and
distributors.
We are organized and operate in four
operating segments: U.S., Europe, the Pacific Rim, and Latin America
regions. We have identified our U.S. operating segment as a separate
reportable segment and we have aggregated our three international operating
segments into one reportable segment, international, as the three international
operating segments share many similar economic characteristics. Our
management views the U.S. and international segments separately in operating our
business, although the products and services are similar for each
segment.
We have been adversely affected by the
current global recession. We believe that weakened consumer spending,
coupled with difficulties in obtaining credit (including the cost of credit)
have negatively affected our customers’ abilities to acquire or open new
hospitality and retail venues, and also limited their willingness and ability to
make significant capital expenditures on new systems and system
upgrades. In light of these very challenging and uncertain
conditions, we continue to implement actions to enhance our liquidity and
maintain a solid balance sheet. These actions include: (i) reducing
certain discretionary expenses; (ii) reducing certain rates for third party
contractors; (iii) implementing headcount reductions in certain departments; and
(iv) implementing hiring freezes in certain departments. However,
during the quarter ended March 31, 2010, we have noted signs of improvement in
customer demand as a result of increased revenues compared to the third quarter
of fiscal year 2009.
FORWARD-LOOKING
STATEMENTS
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the condensed consolidated
financial statements and the related notes and other financial information
included elsewhere in this Quarterly Report on Form 10-Q. Statements
contained in this Quarterly Report on Form 10-Q that are not historical facts
are forward looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that
involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of specified factors, including those set forth in Item 1A, “Risk
Factors” in our Annual Report on Form 10-K for the Fiscal Year ended June 30,
2009 and in Part II, Item 1A, “Risk Factors” in this report.
Examples
of such forward-looking statements include:
|
·
|
our
statements about the growth of and conditions in the hospitality and
retail industries generally, and our analysis of the growth and direction
of various sectors within those
industries;
|
|
·
|
our
statements regarding the effects of foreign currency rate fluctuations (in
particular, the Euro) on our financial
performance;
|
|
·
|
our
belief that any existing legal claims or proceedings will not have a
material adverse effect on our results of operations or financial
position;
|
|
·
|
our
expectations regarding effective tax rates in future
periods;
|
|
·
|
our
expectations regarding the impact or lack of impact on our financial
position and results of operations of the application of recent accounting
guidance;
|
|
·
|
our
expectations about the adequacy of our cash flows and our available lines
of credit to meet our working capital needs, and our ability to raise
additional funds if and when
needed;
|
|
·
|
our
expectations about our capital expenditures for future
periods;
|
|
·
|
our
expectations that our exposure to interest rate risk will not materially
change in the future;
|
|
·
|
our
expectation that we will evaluate our need to invest in instruments to
protect against interest rate fluctuations and our exposure to such
interest rate risk;
|
|
·
|
our
expectations regarding valuation and liquidity of auction rate securities
in which we have invested;
|
|
·
|
our
expectations regarding changes in global economic conditions and the
resulting effects on customer
demand.
|
RESULTS
OF OPERATIONS
As previously disclosed in our Form
10-Q for the period ended December 31, 2009, during January 2010, we uncovered
certain fraudulent activities in our Japanese subsidiary which occurred during
the period from fiscal year 2006 to the three months ended December 31,
2009. As a result of our investigation, we determined that fraudulent
transactions resulted in a cumulative overstatement of revenue and net income of
approximately $6.9 million and $4.9 million, respectively, over this period. The
transactions served principally to inflate revenue and cost of sales through the
creation of fraudulent revenue documentation and to understate liabilities for
loans executed where we were the guarantor over this period. These
off-balance sheet loans were indirectly used to pay down a portion of our
fictitious accounts receivable balances. We concluded, based on our
investigation, that the fraud was solely perpetrated by one employee of our
Japanese subsidiary who was not a member of senior management and that the
individual involved expended significant effort over the period to create a
variety of schemes which deliberately circumvented or manipulated the entity's
local controls and procedures. These schemes were primarily designed
to inflate revenues and cost of sales and to obtain financing from third parties
to pay off the accounts receivable balances in order to prolong the
schemes. We terminated the employee upon completion of our
investigation.
17
Based on the materiality guidelines
contained in SEC Staff Accounting Bulletin No. 99, "Materiality" and SEC Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements in Current Year Financial Statements", we concluded that the
adjustments to correct for the fraudulent activities were not material to any of
our current financial statements for periods beginning with the year ended June
30, 2006 and through the three months ended September 30,
2009. However, we concluded that the adjustments would be material to
the quarterly results and trend for the three months ended December 31,
2009. Accordingly, we determined that we would revise our
previous financial statements to record these adjustments; however because the
effect of the adjustments were not material to any previously issued financial
statements, we determined not to amend our previously filed Quarterly Reports on
Form 10-Q or our Annual Reports on Form 10-K; rather, we would make
corresponding adjustments to other prior periods as appropriate the next time
those financial statements are filed.
The Condensed Consolidated Statement of
Operations for the nine months ended March 31, 2010 included in this Form 10-Q
has been revised to reflect the corrections of the misstatements in the three
months ended September 30, 2009 related to the fraudulent activities in our
Japanese subsidiary described above. The corrections decreased
revenue and net income for the nine months ended March 31, 2010 by approximately
$1.1 million and $0.6 million, respectively. The Condensed
Consolidated Statements of Operations for the three and nine months ended March
31, 2009 also have been revised to reflect corrections of the misstatements in
those respective periods. The corrections decreased revenue for the
three and nine months ended March 31, 2009 by approximately $0.9 million and
$2.8 million, respectively, and decreased net income by approximately $0.4
million and $1.9 million, respectively.
Revenue:
Three Months Ended March 31,
2010:
The
following table provides information regarding the sales mix by reportable
segments (amounts are net of intersegment eliminations, based on location of the
selling entity, and include export sales):
Three Months Ended March 31,
|
||||||||||||||||||||||||
U.S.
|
International
|
Total
|
||||||||||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
||||||||||||||||||
Hardware
|
$ | 26,185 | $ | 24,358 | $ | 21,022 | $ | 18,399 | $ | 47,207 | $ | 42,757 | ||||||||||||
Software
|
10,441 | 11,458 | 19,084 | 16,158 | 29,525 | 27,616 | ||||||||||||||||||
Service
|
74,864 | 66,445 | 77,458 | 67,925 | 152,322 | 134,370 | ||||||||||||||||||
Total
Revenue
|
$ | 111,490 | $ | 102,261 | $ | 117,564 | $ | 102,482 | $ | 229,054 | $ | 204,743 |
The
following table provides information regarding the total sales mix as a
percentage of total revenue:
Three Months Ended
|
||||||||
March 31,
|
||||||||
(in thousands)
|
2010
|
2009
|
||||||
Hardware
|
20.6 | % | 20.9 | % | ||||
Software
|
12.9 | % | 13.5 | % | ||||
Service
|
66.5 | % | 65.6 | % | ||||
Total
|
100.0 | % | 100.0 | % |
For the
three months ended March 31, 2010, total revenue was approximately $229.1
million, an increase of approximately $24.3 million, or 11.9% compared to the
same period last year, reflecting the following:
|
·
|
Hardware,
software and service revenue increased by 10.4%, 6.9% and 13.4%,
respectively, compared to the same period last year. We believe
these changes are a sign of improvement in demand from our customers,
which had declined as a result of adverse global economic
conditions.
|
|
·
|
Favorable
foreign currency exchange rate fluctuations, primarily for Euro and
Australian dollar against the U.S. dollar, positively affected total
revenue by approximately $9.5
million.
|
|
·
|
Service
revenue was also positively affected by additional service revenue
generated by TIG Global, LLC (“TIG Global”), a subsidiary we acquired on
December 31, 2009.
|
For the
three months ended March 31, 2010, the international segment revenue increased
by approximately $15.1 million, an increase of 14.7% compared to the same period
last year, reflecting the following:
|
·
|
Hardware,
software and service revenue increased by 14.3%, 18.1% and 14.0%,
respectively, compared to the same period last year. We believe
these changes are a sign of improvement in demand from our customers,
which had declined as a result of adverse global economic
conditions.
|
18
|
·
|
Favorable
foreign currency exchange rate fluctuations, primarily for Euro and
Australian dollar against the U.S. dollar, positively affected
international revenue by approximately $9.5
million.
|
For the
three months ended March 31, 2010, U.S. segment revenue increased approximately
$9.2 million, an increase of 9.0% compared to the same period last year,
reflecting the following:
|
·
|
Hardware
and service revenue increased by 7.5% and 12.7%, respectively, compared to
the same period last year. We believe these changes are a sign
of improvement in demand from our customers, which had declined as a
result of adverse global economic
conditions.
|
|
·
|
Service
revenue was positively affected by additional service revenue generated by
TIG Global. Software revenue decreased by
8.8%.
|
Nine Months Ended March 31,
2010:
The
following table provides information regarding the sales mix by reportable
segments (amounts are net of intersegment eliminations, based on location of the
selling entity, and include export sales):
Nine Months Ended March 31,
|
||||||||||||||||||||||||
U.S.
|
International
|
Total
|
||||||||||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
||||||||||||||||||
Hardware
|
$ | 69,028 | $ | 86,026 | $ | 67,278 | $ | 75,849 | $ | 136,306 | $ | 161,875 | ||||||||||||
Software
|
32,403 | 38,668 | 52,313 | 64,125 | 84,716 | 102,793 | ||||||||||||||||||
Service
|
213,936 | 206,934 | 231,144 | 213,282 | 445,080 | 420,216 | ||||||||||||||||||
Total
Revenue
|
$ | 315,367 | $ | 331,628 | $ | 350,735 | $ | 353,256 | $ | 666,102 | $ | 684,884 |
The
following table provides information regarding the total sales mix as a
percentage of total revenue:
Nine Months Ended
|
||||||||
March 31,
|
||||||||
(in thousands)
|
2010
|
2009
|
||||||
Hardware
|
20.5 | % | 23.6 | % | ||||
Software
|
12.7 | % | 15.0 | % | ||||
Service
|
66.8 | % | 61.4 | % | ||||
Total
|
100.0 | % | 100.0 | % |
For the
nine months ended March 31, 2010, total revenue was approximately $666.1
million, a decrease of approximately $18.8 million, or 2.7%, compared to the
same period last year, due to the following:
|
·
|
Hardware
and software revenue decreased by 15.8% and 17.6%, respectively, compared
to the same period last year. Service revenue increased by 5.9%
compared to the same period last year. We believe these
decreases primarily were due to a slow down in demand from our customers
as a result of adverse global economic
conditions. However, as noted above, we have observed
improvement in demand from our customers during the three months ended
March 31, 2010.
|
|
·
|
The
decline in total revenue was offset partially by favorable foreign
currency exchange rate fluctuations, primarily for Euro and Australian
dollar against the U.S. dollar, which positively affected total revenue by
approximately $14.8 million.
|
|
·
|
Service
revenue was also positively affected by additional service revenue
generated by TIG Global.
|
For the
nine months ended March 31, 2010, the international segment revenue decreased by
approximately $2.5 million, a decrease of 0.7% compared to the same period last
year, due to the following:
|
·
|
Hardware
and software revenue decreased by 11.3% and 18.4%, respectively, compared
to the same period last year. We believe these decreases
primarily were due to a slow down in demand from our customers as a result
of adverse global economic
conditions.
|
|
·
|
Service
revenue increased by 8.4% compared to the same period last year, of which
approximately 4.7% was due to favorable foreign currency exchange rate
fluctuations.
|
|
·
|
Favorable
foreign currency exchange rate fluctuations, primarily for Euro and
Australian dollar against the U.S. dollar, positively affected
international revenue by approximately $14.8
million.
|
19
For the
nine months ended March 31, 2010, U.S. segment revenue decreased approximately
$16.3 million, a decrease of 4.9% compared to the same period last year, due to
the following:
|
·
|
Hardware
and software revenue decreased by 19.8% and 16.2%, respectively, compared
to the same period last year. We believe these decreases
primarily were due to a slow down in demand from our customers as a result
of adverse global economic
conditions.
|
|
·
|
Service
revenue, including service revenue generated from TIG Global, increased by
3.4% as compared to the same period last
year.
|
Cost
of Sales:
Three Months Ended March 31,
2010:
The
following table provides information regarding the cost of sales:
Three Months Ended March 31,
|
||||||||||||||||
2010
|
2009
|
|||||||||||||||
|
Cost
|
% of Related
|
Cost
|
% of Related
|
||||||||||||
(in thousands)
|
of Sales
|
Revenue
|
of Sales
|
Revenue
|
||||||||||||
Hardware
|
$ | 29,999 | 63.5 | % | $ | 26,284 | 61.5 | % | ||||||||
Software
|
6,102 | 20.7 | % | 6,028 | 21.8 | % | ||||||||||
Service
|
68,643 | 45.1 | % | 61,776 | 46.0 | % | ||||||||||
Total
Cost of Sales
|
$ | 104,744 | 45.7 | % | $ | 94,088 | 46.0 | % |
For the
three months ended March 31, 2010 and 2009, cost of sales as a percentage of
revenue was 45.7% and 46.0%, respectively. This 0.3% decrease in cost
of sales as a percentage of revenue primarily is due to lower service labor
costs resulting from our continued cost cutting efforts, partially offset by an
increase in freight costs on hardware sales.
Nine Months Ended March 31,
2010:
The
following table provides information regarding the cost of sales:
Nine Months Ended March 31,
|
||||||||||||||||
2010
|
2009
|
|||||||||||||||
Cost
|
% of
Related
|
Cost
|
% of
Related
|
|||||||||||||
(in thousands)
|
of Sales
|
Revenue
|
of Sales
|
Revenue
|
||||||||||||
Hardware
|
$ | 88,415 | 64.9 | % | $ | 103,462 | 63.9 | % | ||||||||
Software
|
18,534 | 21.9 | % | 19,764 | 19.2 | % | ||||||||||
Service
|
194,038 | 43.6 | % | 199,090 | 47.4 | % | ||||||||||
Total
Cost of Sales
|
$ | 300,987 | 45.2 | % | $ | 322,316 | 47.1 | % |
For the
nine months ended March 31, 2010 and 2009, cost of sales as a percentage of
revenue was 45.2% and 47.1%, respectively. This 1.9% decrease in cost of sales
as a percentage of revenue primarily is due to lower service labor and travel
costs resulting from our continued cost cutting efforts.
Selling,
General and Administrative (“SG&A”) Expenses:
For the
three months ended March 31, 2010, SG&A expenses increased by approximately
$4.0 million due primarily to foreign currency exchange rate fluctuations which
increased total SG&A expenses by approximately $2.7 million and the increase
in compensation related costs. SG&A as a percentage of revenue
decreased 1.6% to 29.8% for the three months ended March 31, 2010 compared to
the same period last year.
For the
nine months ended March 31, 2010, SG&A expenses decreased by approximately
$9.7 million, primarily due to our global collections efforts, which resulted in
a lower reserve for potential uncollectible accounts receivable and the
collection of certain old receivables that previously were fully reserved
for. We also were able to significantly reduce our non-customer
related travel expenses. These reductions in expenses were partially
offset by foreign currency exchange rate fluctuations which increased total
SG&A expenses by approximately $4.3 million. SG&A expenses as
a percentage of revenue decreased 0.6% to 30.7% for the nine months ended March
31, 2010 compared to the same period last year.
20
Research
and Development (“R&D”) Expenses:
R&D
expenses consisted primarily of labor costs less capitalized software
development costs. The following table provides information regarding
R&D activities:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
R&D
labor and other costs
|
$ | 11,370 | $ | 10,729 | $ | 33,022 | $ | 32,057 | ||||||||
Capitalized
software development costs
|
(920 | ) | (469 | ) | (1,853 | ) | (702 | ) | ||||||||
Total
R&D expenses
|
$ | 10,450 | $ | 10,260 | $ | 31,169 | $ | 31,355 | ||||||||
%
of Revenue
|
4.6 | % | 5.0 | % | 4.7 | % | 4.6 | % |
Depreciation
and Amortization Expenses:
Depreciation
and amortization expenses for the three months ended March 31, 2010 and March
31, 2009 were approximately $4.7 million and $4.2 million,
respectively. Depreciation and amortization expenses for the nine
months ended March 31, 2010 increased to approximately $12.8 million, an
approximately $0.3 million increase compared to the same period last year. These
increases were primarily due to additional expenses related to our acquisition
of TIG Global.
Share-Based
Compensation Expenses:
The SG&A and R&D expenses
discussed above include the following allocations of non-cash share-based
compensation expenses:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
SG&A
|
$ | 2,267 | $ | 2,953 | $ | 9,405 | $ | 10,364 | ||||||||
R&D
|
108 | 233 | 399 | 654 | ||||||||||||
Total
non-cash share-based compensation expense
|
2,375 | 3,186 | 9,804 | 11,018 | ||||||||||||
Income
tax benefit
|
(817 | ) | (825 | ) | (3,222 | ) | (2,644 | ) | ||||||||
Total
non-cash share-based compensation expense, net of tax
benefit
|
$ | 1,558 | $ | 2,361 | $ | 6,582 | $ | 8,374 | ||||||||
Impact
on diluted net income per share
|
$ | 0.02 | $ | 0.03 | $ | 0.08 | $ | 0.10 |
As of March 31, 2010, there was
approximately $14.1 million in non-cash share-based compensation cost related to
non-vested awards not yet recognized in our consolidated statements of
operations. This cost is expected to be recognized over a
weighted-average period of 2.0 years.
Non-operating
Income:
Net
non-operating income for the three months ended March 31, 2010 was approximately
$1.4 million compared to approximately $1.3 million for the same period last
year.
Net
non-operating income for the nine months ended March 31, 2010 was approximately
$2.4 million compared to approximately $7.2 million for the same period last
year. The decrease of approximately $4.8 million
reflects:
|
·
|
A
decrease in interest income of approximately $4.6 million due to overall
lower interest earned on cash and cash equivalent balances and investments
(short-term and long-term);
|
|
·
|
The
credit based other-than-temporary impairment losses of approximately $0.4
million for investments in auction rate securities;
and,
|
|
·
|
Foreign
currency exchange loss of less than $0.1 million for the nine months ended
March 31, 2010, compared to foreign currency exchange gain of
approximately $0.6 million for the same period last
year.
|
Income
Tax Provisions:
The effective tax rate for the three
months ended March 31, 2010 and 2009 was 28.7% and 29.9%,
respectively. The effective tax rate for the nine months ended March
31, 2010 and 2009 was 31.7% and 33.2%, respectively.
The decreases in tax rates for the
three and nine month periods ended March 31, 2010 compared to the same periods
last year were primarily attributable to decreases in valuation allowances and
non-deductible withholding taxes, partially offset by an increase in tax due to
earnings from foreign jurisdictions.
We have recognized a decrease in
certain unrecognized tax benefits for the three and nine month periods ended
March 31, 2010 due to the expiration of statues of limitations, which reduced
the effective income tax rate and income tax expense by approximately $1.3
million.
Based on currently available
information, we estimate that the fiscal year 2010 effective tax rate will be
approximately 32.0%. We believe that due to changes in the mix of earnings
among jurisdictions and the impact of certain discrete items recognized during
the future interim reporting periods, there may be some degree of adjustment to
the effective tax rate on a quarterly basis.
21
RECENT
ACCOUNTING STANDARDS
Recently
Adopted Accounting Guidance
On July 1, 2009, we adopted
authoritative guidance issued by the Financial Accounting Standards Board
(“FASB”) on business combinations. The guidance addresses the manner in
which the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquired business. This guidance also
provides standards for recognizing and measuring the goodwill acquired in the
business combination and for disclosure of information to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. Our acquisition of TIG Global on December 31,
2009 was accounted for under this guidance.
On July 1, 2009, we adopted
authoritative guidance issued by the FASB that changes the accounting and
reporting for non-controlling interests. This guidance requires,
among other things, that: non-controlling interests be reported as a component
of equity; changes in a parent’s ownership interest while the parent retains its
controlling interest be accounted for as equity transactions; and any retained
non-controlling equity investment upon the deconsolidation of a subsidiary
initially be measured at fair value. The adoption of this guidance
did not have a material impact on our consolidated financial
statements.
On July 1, 2009, we adopted
authoritative guidance issued by the FASB which revises the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset. This guidance is
intended to improve the consistency between the useful life of a recognized
intangible asset and the period of expected cash flows used to measure the fair
value of the asset under other U.S. generally accepted accounting
principles. The adoption of this guidance did not have a material
impact on our consolidated financial statements.
On July 1, 2009, we adopted
authoritative guidance issued by the FASB on fair value measurement for
nonfinancial assets and liabilities, other than non-financial assets and
liabilities that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), which already were subject
to FASB guidance. The adoption of this guidance did not have a
material impact on our consolidated financial statements.
In January 2010, the FASB issued
guidance amending the disclosure requirements related to recurring and
nonrecurring fair value measurements. The guidance requires new disclosures on
the transfers of assets and liabilities between Level 1 inputs (quoted prices in
active market for identical assets or liabilities) and Level 2 inputs
(significant other observable inputs) of the fair value measurement hierarchy,
including the reasons and the timing of the transfers. Additionally, the
guidance requires separate disclosure of activities on purchases, sales,
issuance, and settlements of the assets and liabilities measured using
significant unobservable inputs (Level 3 fair value
measurements). The adoption of this guidance, other than required
additional disclosures on the activities for Level 3 fair value measurements
which is effective us beginning July 1, 2011, did not have a material impact on
our consolidated financial statements.
Recent
Accounting Guidance Not Yet Adopted
In October 2009, the FASB issued
authoritative guidance on revenue arrangements with multiple deliverables that
are outside the scope of software revenue recognition guidance. Under
the guidance, when vendor-specific objective evidence or third-party evidence of
selling price is not available, a best estimate of the selling price is required
to separate deliverables and allocate arrangement consideration based on the
relative selling prices of the separate deliverables (the “relative selling
price method”). The relative selling price method allocates any
discount in the arrangement proportionately to each deliverable on the basis of
each deliverable’s selling price. The guidance also significantly
expands related disclosure requirements. This standard is effective
for us beginning July 1, 2010. We are continuing to evaluate the
impact that the adoption of this guidance will have on our consolidated
financial statements.
In October 2009, the FASB also issued
authoritative guidance on revenue recognition for arrangements that include
software elements. Under the guidance, tangible products containing
software components and non-software components that function together to
deliver the tangible product’s essential functionality are excluded from the
scope of software revenue recognition guidance and will be subject to other
relevant revenue recognition guidance. This guidance will become
effective for us beginning July 1, 2010. We do not believe the
adoption of this guidance will have a material impact on our consolidated
financial statements.
CRITICAL
ACCOUNTING ESTIMATES
Our
discussion and analysis of our financial condition and results of operations are
based on our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial
statements requires us to make estimates that affect the reported amounts of
assets, liabilities, revenue and expenses. We base our estimates on
historical experience and on various assumptions that we believe to be
reasonable under the circumstances. Actual results may differ from
these estimates.
22
The
following comprise the accounting matters that entail our use of critical
accounting estimates in the preparation of our condensed consolidated financial
statements:
· Revenue
recognition;
· Allowance
for doubtful accounts;
· Inventory;
· Financial
instruments and fair value measurements;
· Capitalized
software development costs;
· Valuation
of long-lived assets and intangible assets
· Goodwill
and indefinite-lived intangible assets;
· Share-based
compensation; and
· Income
taxes.
We have
reviewed our critical accounting estimates and the related disclosures with our
Audit Committee. Critical accounting estimates are described further
in our Annual Report on Form 10-K for the year ended June 30, 2009 in Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” under the heading “Critical Accounting Estimates.”
LIQUIDITY
AND CAPITAL RESOURCES
Sources
and Uses of Cash
The following summarizes our condensed
consolidated statement of cash flows:
Nine Months Ended
|
||||||||
March 31,
|
||||||||
(in thousands)
|
2010
|
2009
|
||||||
Net
cash provided by (used in):
|
||||||||
Operating
activities
|
$ | 157,818 | $ | 116,941 | ||||
Investing
activities
|
(61,676 | ) | (105,314 | ) | ||||
Financing
activities
|
(22,329 | ) | (33,710 | ) |
Operating
activities:
Net cash
provided by operating activities for the nine months ended March 31, 2010
increased approximately $40.9 million compared to the nine months ended March
31, 2009. This increase was primarily due to an improved leverage on
expense payments for the nine months ended March 31, 2010 as compared to the
same period last year.
Investing
activities:
Net cash
flows used in investing activities for the nine months ended March 31, 2010 was
approximately $61.7 million, principally reflecting approximately $29.0 million
used in connection with the acquisition of TIG Global on December 31,
2009. We also used approximately $24.9 million to purchase
investments, net of cash received from sale of investments and approximately
$7.9 million to purchase property, plant and equipment and for internally
developed software to be licensed to others.
Financing
activities:
Net cash
used in financing activities for the nine months ended March 31, 2010 was
approximately $22.3 million, principally reflecting stock repurchases of
approximately $35.9 million. This amount was partially offset by
proceeds from stock option exercises of approximately $9.7 million and realized
tax benefits from stock option exercises of approximately $3.6
million.
Capital
Resources
During
the nine months ended March 31, 2010, the foreign exchange rate fluctuations,
primarily EURO against the U.S. dollar, negatively affected our cash and cash
equivalents’ balance by approximately $9.1 million. Our cash and cash
equivalents’ balance of approximately $357.0 million at March 31, 2010 is an
increase of approximately $64.8 million from the June 30, 2009
balance. All cash and cash equivalents are being retained for the
operation and expansion of the business, as well as for the repurchase of our
common stock.
We have two credit agreements (the
“Credit Agreements”) that in the aggregate provide a $65.0 million
multi-currency committed line of credit, which expires on July 31,
2010. As of March 31, 2010, we had approximately $1.4 million
outstanding under the Credit Agreements and had applied an additional
approximately $0.4 million to guarantees. We also have a credit
relationship with a European bank in the amount of EUR 1.0 million
(approximately $1.4 million at the March 31, 2010 exchange rate). As
of March 31, 2010, there were no balances outstanding on this credit facility,
but approximately EUR 0.3 million (approximately $0.5 million at the March 31,
2010 exchange rate) of the credit facility has been used for
guarantees. As of March 31, 2010, we had approximately $64.1 million
borrowing capacity under all of the credit facilities described
above. The weighted-average interest rate on the outstanding balances
under the Credit Agreements as of March 31, 2010 was 1.5%.
23
We do not currently invest in financial
instruments designed to protect against interest rate fluctuations, although we
will continue to evaluate the need to do so in the future.
We believe that our cash and cash
equivalents, short-term investments, cash generated from operations and our
available lines of credit are sufficient to provide our working capital needs
for the foreseeable future. In light of current economic conditions
generally and in light of the overall performance of the stock market beginning
in 2008, we cannot assure that funds would be available from other sources if
required in connection with acquisitions or any unanticipated and substantial
cash needs. We currently anticipate that our property, plant and
equipment expenditures for fiscal year 2010 will be approximately $11
million.
Financial indicators of our liquidity
and capital resources as of March 31, 2010 and June 30, 2009, were as
follows:
(in thousands, except ratios)
|
March 31,
2010
|
June 30,
2009
|
||||||
Cash
and cash equivalents and short-term investments (1)
|
$ | 520,858 | $ | 438,936 | ||||
Available
credit facilities
|
$ | 66,351 | $ | 66,403 | ||||
Outstanding
credit facilities
|
(1,364 | ) | (1,090 | ) | ||||
Outstanding
guarantees
|
(894 | ) | (778 | ) | ||||
Unused
credit facilities
|
$ | 64,093 | $ | 64,535 | ||||
Working
capital (2)
|
$ | 445,318 | $ | 416,593 | ||||
MICROS
Systems, Inc.’s shareholders’ equity
|
$ | 778,325 | $ | 718,997 | ||||
Current
ratio (3)
|
2.35 | 2.58 |
(1)
|
Does
not include approximately $57.6 million and $57.8 million invested in
auction rate securities, classified as long-term investments in our
condensed consolidated balance sheet as of March 31, 2010 and June 30,
2009, respectively. Cash and cash equivalents and short term
investments at March 31, 2010 also does not include other long-term
investments of approximately $8.9
million.
|
(2)
|
Current
assets less current liabilities.
|
(3)
|
Current
assets divided by current liabilities. Does not include the
Company’s long-term debt which consists of approximately $0.3 million and
$0.1 million in non-current portion of capital leases as March 31, 2010
and June 30, 2009, respectively.
|
ITEM
3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Currency
exchange rate risk
We recorded foreign sales, including
exports from the United States, of approximately $350.7 million and $353.3
million during the nine months ended March 31, 2010 and 2009, respectively, to
customers located primarily in Europe, Asia and Latin America. See
Note 11 “Segment Information” in the Notes to Condensed Consolidated Financial
Statements as well as Item 2 (Management’s Discussion and Analysis of Financial
Condition and Results of Operations) above for additional geographic
data.
Our international business and presence
expose us to certain risks, such as currency, interest rate and political
risks. With respect to currency risk, we transact business in
different currencies primarily through our foreign subsidiaries. The
fluctuation of currency exchange rates impacts our sales and
profitability. Frequently, sales and the costs associated with those
sales are not denominated in the same currency.
We transacted business in approximately
39 currencies in both the nine months ended March 31, 2010 and the nine months
ended March 31, 2009. The relative currency mix for the three and
nine months ended March 31, 2010 and 2009 were as follows:
% of Reported Revenue (1)
|
Exchange Rates to
|
|||||||||||||||||||||||
Three Months Ended
March 31,
|
Nine Months Ended
March 31,
|
U.S. Dollar as of
March 31,
|
||||||||||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
||||||||||||||||||
United
States Dollar
|
54 | % | 55 | % | 52 | % | 54 | % | 1.0000 | 1.0000 | ||||||||||||||
European
Euro
|
20 | % | 21 | % | 21 | % | 21 | % | 1.3509 | 1.3286 | ||||||||||||||
British
Pound Sterling
|
7 | % | 6 | % | 7 | % | 7 | % | 1.5173 | 1.4347 | ||||||||||||||
Australian
Dollar
|
2 | % | 2 | % | 2 | % | 2 | % | 0.9174 | 0.6952 | ||||||||||||||
Singapore
Dollar
|
2 | % | 1 | % | 2 | % | 1 | % | 0.7148 | 0.6575 | ||||||||||||||
Swiss
Franc
|
2 | % | 2 | % | 2 | % | 2 | % | 0.9484 | 0.8785 | ||||||||||||||
Canadian
Dollar
|
1 | % | 1 | % | 1 | % | 1 | % | 0.9846 | 0.7931 | ||||||||||||||
Mexican
Peso
|
1 | % | 1 | % | 1 | % | 1 | % | 0.0809 | 0.0706 | ||||||||||||||
Sweden
Krona
|
1 | % | 1 | % | 1 | % | 1 | % | 0.1385 | 0.1217 | ||||||||||||||
Thailand
Baht
|
1 | % | 1 | % | 1 | % | 1 | % | 0.0309 | 0.0282 | ||||||||||||||
All
Other Currencies
(2)
|
9 | % | 9 | % | 10 | % | 9 | % | 0.1616 | 0.1486 | ||||||||||||||
Total
|
100 | % | 100 | % | 100 | % | 100 | % |
24
(1)
|
Calculated
using weighted average exchange rates for the fiscal
period.
|
(2)
|
The
“% of Reported Revenue” for “All Other Currencies” is calculated based on
the weighted average three month and nine month exchange rates (as
applicable) for all other currencies. The “Exchange Rates to U.S. Dollar
as of March 31” for ‘All Other Currencies’ represents the weighted average
March 31 exchange rates for all other currencies. Weighting is
based on the nine month revenue for each country or region whose currency
is included in the ‘All Other Currencies’ category. Revenues
from each currency included in “All Other Currencies” were less than 1% of
our total revenues for the three month period ended March 31,
2010.
|
A 10% increase or decrease in the value
of the Euro and British pound sterling in relation to the U.S. dollar in the
nine months ended March 31, 2010 would have affected our total revenues by
approximately $18.6 million, or 2.8%. The sensitivity analysis
assumes a weighted average 10% change in the exchange rate during the period
with all other variables being held constant. This sensitivity
analysis does not consider the effect of exchange rate changes on cost of sales,
operating expenses, or income taxes, and accordingly, is not necessarily an
indicator of the effect of potential exchange rate changes on our net
income.
Interest
rate risk
Our committed lines of credit bear
interest at a floating rate, which exposes us to interest rate
risks. We manage our exposure to this risk by minimizing, to the
extent feasible, overall borrowing and monitoring available financing
alternatives. At March 31, 2010, we had total borrowings of
approximately $1.4 million, and had not entered into any instruments to hedge
the resulting exposure to interest-rate risk. We believe that
the fair value of the debt equals its carrying value at March 31, 2010 and June
30, 2009. Our exposure to fluctuations in interest rates will
increase or decrease in the future with increases or decreases in the
outstanding amount under our lines of credit. As our total borrowing
at March 31, 2010 was approximately $1.4 million, a 1% change in interest rate
would have resulted in an immaterial impact on our condensed consolidated
financial position, results of operations and cash flows. Our cash equivalents
and our portfolio of marketable securities, including auction rate securities,
are subject to market risk due to changes in interest rates. Fixed
interest rate securities may have their market value adversely affected due to a
rise in interest rates, while floating rate securities may produce less income
than expected if interest rates fall. Should interest rates fluctuate
by 1%, the change in value of our marketable securities would not have been
material as of March 31, 2010, and the change in our interest income would not
have been material for the three and nine months ended March 31,
2010.
To minimize our exposure to credit risk
associated with financial instruments, we place our temporary cash investments
with high-credit-quality institutions, generally with bond rating of “A” and
above. However, see Note 4 “Financial Instruments and Fair Value
Measurements” in the Notes to Condensed Consolidated Financial Statements for a
discussion regarding auction rate securities.
Finally, we are subject to, among
others, those environmental and geopolitical risks, and economic, pricing,
financial, and other risks described in Item 1A, “Risk Factors,” in our annual
report on Form 10-K for the year ended June 30, 2009, and Part II, Item 1A,
“Risk Factors,” in this report.
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
In
February 2010, we concluded that our prior period financial statements should be
revised to reflect adjustments necessitated by fraudulent activities perpetrated
by a single employee in our Japanese subsidiary. Our decision to
revise our financial statements was based on our investigation of these
matters. Based upon our current controls and procedures, we have also
concluded that there are currently no material weaknesses in our controls and
procedures related to our international operations. Additional
information regarding this matter and the impact on our financial statements is
included in this report in Note 14 to the accompanying financial
statements.
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, subject to the foregoing, our disclosure controls and procedures
as of the end of the period covered by this report are functioning effectively
to provide reasonable assurance that the information required to be disclosed by
us in reports filed under the Securities Exchange Act of 1934 is (i) recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms and (ii) accumulated and communicated to our management,
including the Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding disclosure.
Change
in Internal Control over Financial Reporting
No change
in our internal control over financial reporting occurred during our most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
25
PART
II – OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
Refer to Note 13 to the condensed
consolidated financial statements of this Form 10-Q for information regarding
certain pending legal proceedings.
ITEM
1A. RISK FACTORS.
In addition to other information
presented in this report, including the risk factors set forth below, you should
consider carefully the factors discussed in Item 1A, “Risk Factors” in our
Annual Report on Form 10-K for the year ended June 30, 2009.
We have experienced declines in total
revenues that we believe are attributable to reduced demand resulting from
current global economic conditions. Economic conditions that are
beyond our control, including the global recession, tightening of the credit
markets, reductions in consumer spending, and fluctuations in exchange rates,
have resulted in decreases in demand for our products and
services. Our primary customers – the hospitality, restaurant, and
retail industries – are highly sensitive to economic, political, and
environmental disturbances and uncertainty, all of which are not only outside of
our and our customers’ control, but also are difficult to predict with any
accuracy. In particular, weakened consumer spending, coupled with
difficulties many businesses are encountering in obtaining credit, have
negatively affected our customers’ operating results, which we believe has had
an adverse impact on their ability to acquire or open new hospitality and retail
venues, as well as their ability to make significant capital expenditures for
the systems that we sell. We believe these constraints may cause and
in some cases may have already caused our customers to maintain their existing
systems rather than purchase newer systems. While our revenues for
the quarter ended March 31, 2010 indicate that customer demand may be
increasing, we cannot assure that this trend will continue.
Continued weakness in domestic and
foreign economies may cause some of our distributors and customers to become
illiquid and delay payments, or may otherwise adversely affect our ability to
collect on their accounts, which would result in higher levels of bad debt
expense. Although adverse changes in the financial condition of our
customers and distributors have not had a material effect on our financial
condition or operating results, continued adverse economic conditions may
require that we institute protective measures such as financial reviews,
modified customer credit limits and identification of alternative vendors, and
ultimately could materially adversely affect our business.
Current economic conditions may limit
the availability of funds other than those generated by our operations or
available under our credit facilities.
While we believe that our cash and cash
equivalents, additional cash generated from operations, and available lines of
credit will be sufficient to fund our working capital needs for the foreseeable
future, current economic conditions, including the overall performance of the
stock market beginning in 2008, may limit the availability of funds from other
sources if we encounter an extraordinary need for external
capital. Additionally, our credit agreements expire on July 31, 2010,
and we cannot be assured of renewal of those agreements on favorable
terms. These factors also affect us indirectly, to the extent that
they serve to limit our customers’ ability to purchase our systems and
services.
ITEM
6. EXHIBITS
3(i)
|
Articles
of Incorporation of the Company are incorporated herein by reference to
Exhibit 3 to the Annual Report on Form 10-K of the Company for the Fiscal
Year ended June 30, 1990.
|
3(i)(a)
|
Amendment
to Articles of Incorporation is incorporated herein by reference to
Exhibit 3(i) to the Quarterly Report on Form 10-Q of the Company for the
period ended March 31, 1997.
|
3(i)(b)
|
Amendment
to Articles of Incorporation is incorporated herein by reference to
Exhibit 3(i) to the Quarterly Report on Form 10-Q of the Company for the
period ended March 31, 1998.
|
3(i)(c)
|
Amendment
to Articles of Incorporation is incorporated herein by reference to
Exhibit 3(i) to the Form 8-K filed on November 16,
2007.
|
3(ii)
|
By-laws
of the Company, as amended, are incorporated herein by reference to
Exhibit 3(ii) to the Quarterly Report on Form 10-Q of the Company for the
period ended December 31, 2008.
|
23
|
Consent
of Houlihan Smith & Co., Inc. (filed
herewith).
|
31(a)
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a)under the
Securities Exchange Act of 1934 (filed
herewith).
|
31(b)
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934 (filed
herewith).
|
32(a)
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(b) under the
Securities Exchange Act of 1934 and 18 U.S.C. 1350 (filed
herewith).
|
32(b)
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(b) under the
Securities Exchange Act of 1934 and 18 U.S.C. 1350 (filed
herewith).
|
26
SIGNATURES
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)
|
||
Date: May
6, 2010
|
By:
|
/s/ Cynthia A. Russo
|
Cynthia A. Russo | ||
Executive
Vice President and Chief Financial Officer
(on
behalf of the Registrant and as principal financial
and
accounting
officer)
|
27