Attached files
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EXCEL - IDEA: XBRL DOCUMENT - MICROS SYSTEMS INC | Financial_Report.xls |
EX-23 - MICROS SYSTEMS INC | v209817_ex23.htm |
EX-32.A - MICROS SYSTEMS INC | v209817_ex32a.htm |
EX-31.B - MICROS SYSTEMS INC | v209817_ex31b.htm |
EX-31.A - MICROS SYSTEMS INC | v209817_ex31a.htm |
EX-32.B - MICROS SYSTEMS INC | v209817_ex32b.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 December 31, 2010
Commission
file number 0-9993
MICROS SYSTEMS, INC.
|
(Exact
name of Registrant as specified in its
charter)
|
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 þ 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
January 31, 2011, there were issued and outstanding 80,838,016 shares of
Registrant’s Common Stock, $0.025 par value.
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
Form
10-Q
For the
three and six months ended December 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)
December 31,
|
June 30,
|
|||||||
2010
|
2010
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 513,861 | $ | 377,205 | ||||
Short-term
investments
|
148,596 | 168,093 | ||||||
Accounts
receivable, net of allowance for doubtful accounts of $30,139 at December
31, 2010 and $28,392 at June 30, 2010
|
145,280 | 153,066 | ||||||
Inventory
|
38,342 | 35,103 | ||||||
Deferred
income taxes
|
18,863 | 19,624 | ||||||
Prepaid
expenses and other current assets
|
32,442 | 27,004 | ||||||
Total
current assets
|
897,384 | 780,095 | ||||||
Long-term
investments
|
57,885 | 59,884 | ||||||
Property,
plant and equipment, net
|
26,913 | 27,349 | ||||||
Deferred
income taxes, non-current
|
15,499 | 13,556 | ||||||
Goodwill
|
225,558 | 213,825 | ||||||
Intangible
assets, net
|
18,349 | 19,590 | ||||||
Purchased
and internally developed software costs, net of accumulated amortization
of $78,490 at December 31, 2010 and $71,985 at June 30,
2010
|
17,845 | 17,468 | ||||||
Other
assets
|
7,150 | 6,524 | ||||||
Total
assets
|
$ | 1,266,583 | $ | 1,138,291 | ||||
LIABILITIES
AND EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Bank
lines of credit
|
$ | - | $ | 1,442 | ||||
Accounts
payable
|
51,165 | 44,783 | ||||||
Accrued
expenses and other current liabilities
|
133,951 | 135,469 | ||||||
Income
taxes payable
|
803 | 5,856 | ||||||
Deferred
revenue
|
125,229 | 124,498 | ||||||
Total
current liabilities
|
311,148 | 312,048 | ||||||
Income
taxes payable, non-current
|
25,973 | 22,737 | ||||||
Deferred
income taxes, non-current
|
4,243 | 2,590 | ||||||
Other
non-current liabilities
|
11,597 | 11,304 | ||||||
352,961 | 348,679 | |||||||
Commitments
and contingencies (Note 11)
|
||||||||
Equity:
|
||||||||
MICROS
Systems, Inc. Shareholders' Equity:
|
||||||||
Common
stock, $0.025 par value; authorized 120,000 shares; issued and outstanding
80,856 at December 31, 2010 and 80,042 at June 30, 2010
|
2,021 | 2,001 | ||||||
Capital
in excess of par
|
139,567 | 117,462 | ||||||
Retained
earnings
|
753,724 | 689,750 | ||||||
Accumulated
other comprehensive income (loss)
|
12,287 | (25,833 | ) | |||||
Total
MICROS Systems, Inc. shareholders' equity
|
907,599 | 783,380 | ||||||
Noncontrolling
interest
|
6,023 | 6,232 | ||||||
Total
equity
|
913,622 | 789,612 | ||||||
Total
liabilities and equity
|
$ | 1,266,583 | $ | 1,138,291 |
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
|
Six Months Ended
|
|||||||||||||||
December 31,
|
December 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenue:
|
||||||||||||||||
Hardware
|
$ | 47,841 | $ | 45,793 | $ | 92,107 | $ | 89,099 | ||||||||
Software
|
33,079 | 30,499 | 60,968 | 55,192 | ||||||||||||
Services
|
166,197 | 149,355 | 327,456 | 292,757 | ||||||||||||
Total
revenue
|
247,117 | 225,647 | 480,531 | 437,048 | ||||||||||||
Cost
of sales:
|
||||||||||||||||
Hardware
|
31,353 | 30,364 | 61,308 | 58,416 | ||||||||||||
Software
|
4,921 | 7,045 | 10,747 | 12,432 | ||||||||||||
Services
|
73,473 | 63,259 | 144,686 | 125,396 | ||||||||||||
Total
cost of sales
|
109,747 | 100,668 | 216,741 | 196,244 | ||||||||||||
Gross
margin
|
137,370 | 124,979 | 263,790 | 240,804 | ||||||||||||
Selling, general and administrative expenses (1)
|
75,515 | 71,359 | 140,190 | 136,478 | ||||||||||||
Research
and development expenses
|
10,931 | 9,703 | 21,718 | 20,720 | ||||||||||||
Depreciation
and amortization
|
4,243 | 4,319 | 8,362 | 8,161 | ||||||||||||
Total
operating expenses
|
90,689 | 85,381 | 170,270 | 165,359 | ||||||||||||
Income
from operations
|
46,681 | 39,598 | 93,520 | 75,445 | ||||||||||||
Non-operating
income (expense):
|
||||||||||||||||
Interest
income
|
1,491 | 912 | 2,685 | 1,963 | ||||||||||||
Interest expense (1)
|
(454 | ) | (87 | ) | (592 | ) | (86 | ) | ||||||||
Other income (expense), net (2)
|
432 | (427 | ) | (376 | ) | (822 | ) | |||||||||
Total
non-operating income, net
|
1,469 | 398 | 1,717 | 1,055 | ||||||||||||
Income
before taxes
|
48,150 | 39,996 | 95,237 | 76,500 | ||||||||||||
Income
tax provision
|
15,649 | 13,334 | 31,042 | 25,471 | ||||||||||||
Net
income
|
32,501 | 26,662 | 64,195 | 51,029 | ||||||||||||
Less: Net
income attributable to noncontrolling interest
|
(173 | ) | (532 | ) | (251 | ) | (755 | ) | ||||||||
Net
income attributable to MICROS Systems, Inc.
|
$ | 32,328 | $ | 26,130 | $ | 63,944 | $ | 50,274 | ||||||||
Net
income per common share attributable to MICROS Systems, Inc. common
shareholders:
|
||||||||||||||||
Basic
|
$ | 0.40 | $ | 0.33 | $ | 0.79 | $ | 0.63 | ||||||||
Diluted
|
$ | 0.39 | $ | 0.32 | $ | 0.78 | $ | 0.62 | ||||||||
Weighted-average
number of shares outstanding:
|
||||||||||||||||
Basic
|
80,748 | 79,700 | 80,479 | 79,724 | ||||||||||||
Diluted
|
82,717 | 81,234 | 82,390 | 81,283 |
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
income (expense)
(2):
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
December 31,
|
December 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Total
other-than-temporary impairment losses (gains)
|
$ | - | $ | (119 | ) | $ | (317 | ) | $ | 236 | ||||||
Adjustment:
|
||||||||||||||||
Change
in non-credit based OTTI recognized in other comprehensive
income
|
- | 119 | - | 151 | ||||||||||||
Change
in credit based OTTI due to redemption
|
- | - | 342 | $ | - | |||||||||||
Change
in non-credit based OTTI due to redemption
|
- | - | 32 | - | ||||||||||||
Credit
based OTTI recognized in non-operating income/expense
|
$ | - | $ | - | $ | 57 | $ | 387 |
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
(1) See
Note 11 "Contingencies" in Notes to Condensed Consolidated Financial
Statements.
(2) See
Note 4 "Financial Instruments and Fair Value Measurements" in Notes to Condensed
Consolidated Financial Statements.
4
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited,
in thousands)
Six Months Ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
Net
cash flows provided by operating activities
|
$ | 81,795 | $ | 85,921 | ||||
Cash
flows from investing activities:
|
||||||||
Proceeds
from sales and maturities of investments
|
128,020 | 175,428 | ||||||
Purchases
of investments
|
(98,875 | ) | (156,615 | ) | ||||
Net
cash paid for acquisitions
|
(4,316 | ) | (29,034 | ) | ||||
Purchases
of property, plant and equipment
|
(5,357 | ) | (4,111 | ) | ||||
Internally
developed software costs
|
(2,757 | ) | (933 | ) | ||||
Disposal
of property, plant and equipment
|
52 | 106 | ||||||
Net
cash flows provided by (used in) investing activities
|
16,767 | (15,159 | ) | |||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from stock option exercises
|
16,479 | 6,963 | ||||||
Realized
tax benefits from stock option exercises
|
4,870 | 2,667 | ||||||
Repurchases
of common stock
|
(6,397 | ) | (34,973 | ) | ||||
Proceeds
from line of credit
|
1,131 | - | ||||||
Principal
payments on line of credit
|
(2,658 | ) | - | |||||
Exercise
of non-controlling put option
|
(1,041 | ) | - | |||||
Other
|
(437 | ) | 372 | |||||
Net
cash flows provided by (used in) financing activities
|
11,947 | (24,971 | ) | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
26,147 | 2,492 | ||||||
Net
increase in cash and cash equivalents
|
136,656 | 48,283 | ||||||
Cash
and cash equivalents at beginning of year
|
377,205 | 292,257 | ||||||
Cash
and cash equivalents at end of period
|
$ | 513,861 | $ | 340,540 |
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
5
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited,
in thousands)
MICROS Systems, Inc. Shareholders
|
||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||
Capital
|
Other
|
Non-
|
||||||||||||||||||||||||||
Common Stock
|
in Excess
|
Retained
|
Comprehensive
|
controlling
|
||||||||||||||||||||||||
Shares
|
Amount
|
of Par
|
Earnings
|
Income
|
Interest
|
Total
|
||||||||||||||||||||||
Balance,
June 30, 2010
|
80,042 | $ | 2,001 | $ | 117,462 | $ | 689,750 | $ | (25,833 | ) | $ | 6,232 | $ | 789,612 | ||||||||||||||
Net
income
|
- | - | - | 63,944 | - | 251 | 64,195 | |||||||||||||||||||||
Foreign
currency translation adjustments, net of tax of $0
|
- | - | - | - | 37,452 | 514 | 37,966 | |||||||||||||||||||||
Non-credit
other-than-temporary losses on long-term investments, net of tax of
$410
|
- | - | - | - | 668 | - | 668 | |||||||||||||||||||||
Non-controlling
interest put arrangement
|
- | - | - | 30 | - | - | 30 | |||||||||||||||||||||
Purchase
of minority interest
|
- | - | - | - | - | (682 | ) | (682 | ) | |||||||||||||||||||
Dividends
to non-controlling interest
|
(292 | ) | (292 | ) | ||||||||||||||||||||||||
Share-based
compensation
|
- | - | 6,961 | - | - | - | 6,961 | |||||||||||||||||||||
Stock
issued upon exercise of options
|
959 | 24 | 16,455 | - | - | - | 16,479 | |||||||||||||||||||||
Repurchases
of stock
|
(145 | ) | (4 | ) | (6,393 | ) | - | - | - | (6,397 | ) | |||||||||||||||||
Income
tax benefit from options exercised
|
- | - | 5,082 | - | - | - | 5,082 | |||||||||||||||||||||
Balance,
December 31, 2010
|
80,856 | $ | 2,021 | $ | 139,567 | $ | 753,724 | $ | 12,287 | $ | 6,023 | $ | 913,622 |
MICROS Systems, Inc. Shareholders
|
||||||||||||||||||||||||||||
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 | $ | 2,008 | $ | 125,640 | $ | 575,095 | $ | 16,254 | $ | 6,034 | $ | 725,031 | |||||||||||||||
Net
income
|
- | - | - | 50,274 | - | 755 | 51,029 | |||||||||||||||||||||
Foreign
currency translation adjustments, net of tax of $0
|
- | - | - | - | 10,382 | (61 | ) | 10,321 | ||||||||||||||||||||
Non-credit
other-than-temporary losses on long-term investments, net of tax of
$286
|
- | - | - | - | 468 | - | 468 | |||||||||||||||||||||
Non-controlling
interest put arrangement
|
- | - | - | 233 | - | - | 233 | |||||||||||||||||||||
Dividends
to non-controlling interest
|
- | - | ||||||||||||||||||||||||||
Share-based
compensation
|
- | - | 7,429 | - | - | - | 7,429 | |||||||||||||||||||||
Stock
issued upon exercise of options
|
606 | 15 | 6,948 | - | - | - | 6,963 | |||||||||||||||||||||
Repurchases
of stock
|
(1,262 | ) | (32 | ) | (34,941 | ) | - | - | - | (34,973 | ) | |||||||||||||||||
Income
tax benefit from options exercised
|
- | - | 2,809 | - | - | - | 2,809 | |||||||||||||||||||||
Balance,
December 31, 2009
|
79,654 | $ | 1,991 | $ | 107,885 | $ | 625,602 | $ | 27,104 | $ | 6,728 | $ | 769,310 |
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
6
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited,
in thousands)
Six Months Ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
Net
income
|
$ | 64,195 | $ | 51,029 | ||||
Other
comprehensive income, net of taxes:
|
||||||||
Foreign
currency translation adjustments
|
37,966 | 10,321 | ||||||
Change
in unrealized loss on long-term investments, net of taxes of $410 and
$286
|
668 | 468 | ||||||
Total
other comprehensive income, net of taxes
|
38,634 | 10,789 | ||||||
Comprehensive
income
|
102,829 | 61,818 | ||||||
Comprehensive
income attributable to non-controlling interest
|
(765 | ) | (694 | ) | ||||
Comprehensive
income attributable to MICROS Systems, inc.
|
$ | 102,064 | $ | 61,124 |
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
7
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, 2010.
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.
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 six months ended December 31,
2010 are not necessarily indicative of the results to be expected for the full
year or any future periods. Certain prior period amounts have been
reclassified in the accompanying financial statements to conform to the current
period presentation.
2.
|
ACQUISITIONS
|
On
October 4, 2010, the Company acquired Fortech Italia S.r.l. (“Fortech”), a
supplier of point of sale software for the specialty retail market,
headquartered in Italy, for a total cash purchase price of approximately $5.1
million, net of cash acquired. Approximately $0.7 million of the
total purchase price has been held back and, if specified claims against Fortech
arise, such amounts may be used to satisfy those claims. The amounts
held back, net of any payments to satisfy any such claims, will be paid to the
Fortech sellers in several installments over the next five years. The selling
Fortech members may receive up to an additional $1.1 million based upon
achievement of specified financial targets for fiscal years ending September 30,
2011 and 2012 and approximately $0.9 million of the $1.1 million has been
included in the purchase price allocation based on fair value. In
connection with the acquisition, the Company recorded goodwill of approximately
$7.3 million and intangible assets of approximately $0.4 million, principally
comprised of customer relationships which will be amortized over 5
years. The acquisition of Fortech has been included in the Company’s
results beginning on the October 4, 2010 acquisition date. The
purchase price allocation is not finalized and is subject to the final working
capital adjustments, which are 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)
|
December 31,
2010
|
June 30,
2010
|
||||||
Raw
materials
|
$ | 2,024 | $ | 1,807 | ||||
Finished
goods
|
36,318 | 33,296 | ||||||
Total
inventory
|
$ | 38,342 | $ | 35,103 |
4.
|
FINANCIAL
INSTRUMENTS AND FAIR VALUE
MEASUREMENTS
|
Short-term and long-term investments
consist of the following:
December 31, 2010
|
June 30, 2010
|
|||||||||||||||
(in thousands)
|
Amortized
Cost Basis
|
Aggregate
Fair Value
|
Amortized
Cost Basis
|
Aggregate
Fair Value
|
||||||||||||
Time
deposit - international
|
$ | 93,006 | $ | 93,006 | $ | 56,270 | $ | 56,270 | ||||||||
Auction
rate securities
|
57,625 | 47,971 | 64,275 | 53,258 | ||||||||||||
U.S.
government debt securities
|
50,113 | 50,113 | 108,323 | 108,323 | ||||||||||||
Foreign
corporate debt securities
|
15,391 | 15,391 | 10,126 | 10,126 | ||||||||||||
Total
investments
|
$ | 216,135 | $ | 206,481 | $ | 238,994 | $ | 227,977 |
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). Under applicable accounting standards, 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:
8
·
|
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; and 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 following table provides
information regarding the financial assets accounted for at fair value and the
type of inputs used to value the assets (excludes cash and cash equivalents of
approximately $513.9 million and $377.2 million as of December 31, 2010 and June
30, 2010):
(in thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Balance
at December 31, 2010:
|
||||||||||||||||
Short-term
and long-term investments:
|
||||||||||||||||
Time
deposit - international
|
$ | - | 93,006 | $ | - | $ | 93,006 | |||||||||
Auction
rate securities
|
- | - | 47,971 | 47,971 | ||||||||||||
U.S.
government debt securities
|
50,113 | - | - | 50,113 | ||||||||||||
Foreign
corporate debt securities
|
15,391 | - | - | 15,391 | ||||||||||||
Total
short-term and long-term investments
|
$ | 65,504 | $ | 93,006 | $ | 47,971 | $ | 206,481 | ||||||||
Balance
at June 30, 2010:
|
||||||||||||||||
Short-term
and long-term investments:
|
||||||||||||||||
Time
deposit - international
|
$ | - | $ | 56,270 | $ | - | $ | 56,270 | ||||||||
Auction
rate securities
|
- | - | 53,258 | 53,258 | ||||||||||||
U.S.
government
|
108,323 | - | - | 108,323 | ||||||||||||
Foreign
corporate debt security
|
10,126 | - | - | 10,126 | ||||||||||||
Total
short-term and long-term investments
|
$ | 118,449 | $ | 56,270 | $ | 53,258 | $ | 227,977 |
At December 31, 2010 and June 30, 2010,
all of the Company’s investments other than the Company’s investments in auction
rate securities were recognized at fair value based upon observable input
information provided by the Company’s pricing service vendors for identical or
similar assets. For these investments, cost approximated fair
value. During the six months ended December 31, 2010 and 2009, the
Company did not recognize any gains or losses on its investments, other than
related to the redemptions of two of its auction rate securities during the six
months ended December 31, 2010. See “Auction Rate Securities” below
for further discussion on the valuation of the Company’s investments in auction
rate securities.
The contractual maturities of
investments held at December 31, 2010 are as follows:
(in thousands)
|
Amortized
Cost Basis
|
Aggregate
Fair Value
|
||||||
Due
within one year
|
$ | 148,596 | $ | 148,596 | ||||
Due
1 - 2 years
|
9,914 | 9,914 | ||||||
Due
after 10 years - auction rate securities
|
57,625 | 47,971 | ||||||
Balance
at December 31, 2010
|
$ | 216,135 | $ | 206,481 |
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 either guaranteed by the
Federal Family Education Loan Program or insured by AMBAC Financial
Group. Before February 2008, based on the liquidity previously
provided by the interest rate reset mechanism and the short-term nature of the
Company’s investment, the auction rate securities 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 December 31, 2010
and June 30, 2010 instead of being classified as short-term investments, as was
the case prior to February 2008.
9
As of December 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 to determine 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 whether any impairment is temporary or 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 assessments,
the Company determined that its investments in auction rate securities as of
December 31, 2010 were impaired by approximately $9.7 million as compared to an
impairment of approximately $11.0 million as of June 30,
2010. Approximately $5.8 million and $6.1 million of this impairment
at December 31, 2010 and June 30, 2010, respectively, were deemed to be
other-than-temporary. The fair value assessment also included 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 holders of the issuer’s securities
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 $5.8 million of the
cumulative other-than-temporary impairment losses as of December 31, 2010 were
credit based. Of this amount, approximately $0.1 million has been
recorded in its consolidated statements of operations for the six months ended
December 31, 2010 and the remaining amount previously was recorded in the
Company’s prior fiscal years’ consolidated statements of
operations.
The remaining cumulative impairment
losses of approximately $3.9 million (approximately $2.4 million, net of tax)
were recorded in accumulated other comprehensive income, net of tax, as of
December 31, 2010.
During the six months ended December
31, 2010, the Company redeemed approximately $6.7 million (at original cost) of
its auction rate securities which had a carrying value of approximately $6.0
million and received approximately $6.4 million. The redemptions
resulted in a recognized gain of less than $0.1 million as the securities
redeemed were previously determined to have a $0.3 million credit based other
than temporary impairment loss.
A reconciliation of changes in the fair
value of auction rate securities, and the related 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, 2010
|
$ | 64,275 | $ | (4,936 | ) | $ | (32 | ) | $ | (6,049 | ) | $ | 53,258 | |||||||
Changes
in losses related to investments
|
- | 797 | - | (57 | ) | 740 | ||||||||||||||
Redemptions
|
(6,650 | ) | 249 | 32 | 342 | (6,027 | ) | |||||||||||||
Balance
at December 31, 2010
|
$ | 57,625 | $ | (3,890 | ) | $ | - | $ | (5,764 | ) | $ | 47,971 |
(1)
Recorded in the accumulated other comprehensive income component of
stockholders' equity.
(2)
Recorded in the condensed consolidated statement of operations.
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
|
The Company completed its annual
impairment tests as of July 1, 2010 on its goodwill and its indefinite-lived
trademarks. Based on its annual impairment test results, the Company
determined an impairment loss existed for one of its subsidiary’s trademarks as
of July 1, 2010 and recognized the associated impairment loss of approximately
$0.1 million during the three months ended September 30, 2010. There
were no other impairment losses related to the Company’s goodwill or other
intangible assets. Subsequent to July 1, 2010, 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.
10
6.
|
LINE
OF CREDIT
|
The Company has two credit agreements
(the “Credit Agreements”) that, through July 31, 2010, provided an aggregate
$65.0 million multi-currency committed line of credit. 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. On July 31, 2010, the Credit
Agreements were amended to extend the maturity date until July 31, 2013, with
some further modifications to the terms and conditions, including the addition
and deletion of certain subsidiaries as co-borrowers, a reduction in the overall
limit on the line to $50.0 million (a change made at the Company’s request), and
reduction in certain fees payable to the Lenders under certain
circumstances.
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 December 31, 2010, the Company
had no balance outstanding under the Credit Agreements and applied approximately
$0.4 million to guarantees. A total of approximately $49.6 million
was available for future borrowings as of December 31, 2010.
The Company also has a credit
relationship with a European bank in the amount of EUR 1.0 million
(approximately $1.3 million at the December 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 December 31,
2010, there were no balances outstanding on this credit facility, but
approximately EUR 0.6 million (approximately $0.8 million at the December 31,
2010 exchange rate) of the credit facility has been used for
guarantees.
As of December 31, 2010, the Company
had a borrowing capacity of approximately $50.1 million under all of the credit
facilities described above.
7.
|
SHARE-BASED
COMPENSATION
|
The non-cash share-based compensation
expenses included in the consolidated statements of operations are as
follows:
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
December 31,
|
December 31,
|
|||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Selling,
general and administrative
|
$ | 4,164 | 4,204 | $ | 6,648 | 7,069 | ||||||||||
Research
and development
|
125 | 143 | 251 | 290 | ||||||||||||
Cost
of sales
|
27 | 31 | 62 | 70 | ||||||||||||
Total
non-cash share-based compensation expense
|
4,316 | 4,378 | 6,961 | 7,429 | ||||||||||||
Income
tax benefit
|
(1,866 | ) | (1,464 | ) | (2,655 | ) | (2,406 | ) | ||||||||
Total
non-cash share-based compensation expense, net of tax
benefit
|
$ | 2,450 | $ | 2,914 | $ | 4,306 | $ | 5,023 | ||||||||
Impact
on diluted net income per share attributable to MICROS Systems, Inc.
common shareholders
|
$ | 0.03 | $ | 0.03 | $ | 0.05 | $ | 0.05 |
No non-cash share-based compensation
expense has been capitalized for the six months ended December 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 December 31, 2010, there was
approximately $19.0 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.
11
8.
|
NET
INCOME PER SHARE ATTRIBUTABLE TO MICROS SYSTEMS, INC. COMMON
SHAREHOLDERS
|
Basic net income per share attributable
to MICROS Systems, Inc. common shareholders is computed by dividing net income
available to MICROS Systems, Inc. by the weighted-average number of shares
outstanding. Diluted net income per share attributable to MICROS
Systems, Inc. common shareholders includes the dilutive effect of stock
options. A reconciliation of the net income available to MICROS
Systems, Inc. and the weighted-average number of common shares outstanding
assuming dilution is as follows:
Three Months Ended
December 31,
|
Six Months Ended
December 31,
|
|||||||||||||||
(in thousands, except per share data)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Net
income attributable to MICROS Systems, Inc.
|
$ | 32,328 | $ | 26,130 | $ | 63,944 | $ | 50,274 | ||||||||
Effect
of minority put arrangement
|
— | 173 | 30 | 233 | ||||||||||||
Net
income available to MICROS Systems, Inc. common
shareholders
|
$ | 32,328 | $ | 26,303 | $ | 63,974 | $ | 50,507 | ||||||||
Average
common shares outstanding
|
80,748 | 79,700 | 80,479 | 79,724 | ||||||||||||
Dilutive
effect of outstanding stock options
|
1,969 | 1,534 | 1,911 | 1,559 | ||||||||||||
Average
common shares outstanding assuming dilution
|
82,717 | 81,234 | 82,390 | 81,283 | ||||||||||||
Basic
net income per share attributable to MICROS Systems, Inc. common
shareholders
|
$ | 0.40 | $ | 0.33 | $ | 0.79 | $ | 0.63 | ||||||||
Diluted
net income per share attributable to MICROS Systems, Inc. common
shareholders
|
$ | 0.39 | $ | 0.32 | $ | 0.78 | $ | 0.62 | ||||||||
Anti-dilutive
weighted shares excluded from reconciliation
|
477 | 1,786 | 358 | 1,695 |
Results for the three months ended
December 31, 2010 and 2009 include approximately $4.3 million ($2.4 million, net
of tax) and $4.4 million ($2.9 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 attributable to
MICROS Systems, Inc. common shareholders by $0.03 for the three months ended
December 31, 2010 and 2009.
Results for the six months ended
December 31, 2010 and 2009 include approximately $7.0 million ($4.3 million, net
of tax) and $7.4 million ($5.0 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 attributable to
MICROS Systems, Inc. common shareholders by $0.05 for each of the six month
periods ended December 31, 2010 and 2009.
9.
|
RECENT
ACCOUNTING GUIDANCE
|
On July 1, 2010, the Company adopted
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 adoption of this guidance did
not have a material impact on the Company’s consolidated financial
statements.
On July 1, 2010, the Company adopted
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. The adoption of this guidance
did not have a material impact on the Company’s consolidated financial
statements.
10.
|
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 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. The
Company’s chief operating decision maker is the Company’s Chief Executive
Officer. 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.
12
A summary
of certain financial information regarding the Company’s reportable segments is
set forth below:
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
December 31,
|
December 31,
|
|||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Revenues
(1):
|
||||||||||||||||
United
States
|
$ | 131,492 | $ | 117,026 | $ | 261,573 | $ | 228,416 | ||||||||
International
|
126,765 | 118,530 | 239,940 | 226,626 | ||||||||||||
Intersegment
eliminations (2)
|
(11,140 | ) | (9,909 | ) | (20,982 | ) | (17,994 | ) | ||||||||
Total
revenues
|
$ | 247,117 | $ | 225,647 | $ | 480,531 | $ | 437,048 |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
December 31,
|
December 31,
|
|||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Income
before taxes (1):
|
||||||||||||||||
United
States
|
$ | 25,594 | $ | 19,906 | $ | 53,869 | $ | 37,814 | ||||||||
International
|
30,660 | 27,492 | 56,551 | 51,804 | ||||||||||||
Intersegment
eliminations (2)
|
(8,104 | ) | (7,402 | ) | (15,183 | ) | (13,118 | ) | ||||||||
Total
income before taxes
|
$ | 48,150 | $ | 39,996 | $ | 95,237 | $ | 76,500 |
As of
|
||||||||
(in thousands)
|
December 31,
2010
|
June 30,
2010
|
||||||
Identifiable
assets (3):
|
||||||||
United
States
|
$ | 592,997 | $ | 569,629 | ||||
International
|
673,586 | 568,662 | ||||||
Total
identifiable assets
|
$ | 1,266,583 | $ | 1,138,291 |
|
(1)
|
Amounts
based on the location of the selling
entity.
|
|
(2)
|
Amounts
primarily represent elimination of U.S. and Ireland’s intercompany
business.
|
|
(3)
|
Amounts
based on the physical location of the
asset.
|
11.
|
CONTINGENCIES
|
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 appealed the verdicts
on various grounds. On December 30, 2010, the Superior Court of
Pennsylvania issued an opinion reversing and remanding $4.5 million of the award
and affirming $3.0 million of the award. In January 2011, both the
Company and the plaintiffs filed motions seeking reconsideration of certain
aspects of the appellate court decision and response briefs. During
the three months ended December 31, 2010, the Company reserved an additional
$3.0 million for any potential liability relating to these matters in its
consolidated statements of operations in selling, general and administrative
expenses. The Company has also recognized interest expense of
approximately $0.4 million related to the judgment as the amount payable will be
subject to interest accruing at the statutory rate of 6% per annum.
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.
13
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
and difficulties in obtaining credit have negatively affected our customers’
abilities to acquire or open new hospitality and retail venues, and also limit
their willingness and ability to make significant capital expenditures on new
systems and system upgrades. However, we have experienced some
increase in revenues in the six months ended December 31, 2010, which we believe
reflects a modest improvement in economic conditions. Moreover, we
believe that our customers continued reliance on existing systems has had a
favorable effect on our service revenues. In light of current
uncertain conditions, we continue to limit certain discretionary expenses, and
scrutinize carefully any expansion of our workforce.
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,
2010 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
expectations regarding the effects of continued uncertain economic
conditions on our customers, our distributors, and our business
generally.
|
|
·
|
our
statements regarding the effects of foreign currency rate fluctuations (in
particular, the Euro and British pound sterling) on our financial
performance;
|
|
·
|
our
belief that, subject to the specific matter described in note 11 to the
consolidated financial statements included in this report, 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
standards;
|
|
·
|
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
expectation that further reductions in liquidity of our auction rate
securities will not materially affect our ability to meet our liquidity
needs.
|
14
RESULTS
OF OPERATIONS
Revenue:
Three Months Ended December
31, 2010:
The
following table provides information regarding sales mix by reportable segments
(amounts are net of intersegment eliminations, are based on location of the
selling entity, and exclude export sales):
Three Months Ended December 31,
|
||||||||||||||||||||||||
U.S.
|
International
|
Total
|
||||||||||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
||||||||||||||||||
Hardware
|
$ | 22,859 | $ | 21,879 | $ | 24,982 | $ | 23,914 | $ | 47,841 | $ | 45,793 | ||||||||||||
Software
|
14,981 | 12,621 | 18,098 | 17,878 | 33,079 | 30,499 | ||||||||||||||||||
Service
|
79,540 | 69,034 | 86,657 | 80,321 | 166,197 | 149,355 | ||||||||||||||||||
Total
Revenue
|
$ | 117,380 | $ | 103,534 | $ | 129,737 | $ | 122,113 | $ | 247,117 | $ | 225,647 |
The
following table sets forth the sales mix of Company products and services as a
percent of total revenue:
Three Months Ended
December 31,
|
||||||||
(in thousands)
|
2010
|
2009
|
||||||
Hardware
|
19.4 | % | 20.3 | % | ||||
Software
|
13.4 | % | 13.5 | % | ||||
Service
|
67.2 | % | 66.2 | % | ||||
Total
|
100.0 | % | 100.0 | % |
For the
three months ended December 31, 2010, total revenue was approximately $247.1
million, an increase of approximately $21.5 million, or 9.5% compared to the
same period last year reflecting the following:
|
·
|
Hardware,
software and service revenue increased by 4.5%, 8.5% and 11.3%,
respectively, compared to the same period last year. We believe
the increases were primarily due to an improvement in demand from our
customers as a result of a modest improvement in global economic
conditions. The software revenue increase also reflects a major
rollout of Simphony by a large
customer.
|
|
·
|
The
revenue changes shown in the table above also reflect unfavorable foreign
currency exchange rate fluctuations primarily for the Euro and the British
pound sterling against the U.S. dollar, which negatively impacted total
revenue by approximately $2.9
million.
|
|
·
|
The
total revenue increase also reflects additional service revenue generated
from the continued expansion of our customer base and the additional
revenue generated by Fortech and TIG Global, companies that we acquired in
October 2010 and December 2009,
respectively.
|
International
segment revenue for the three months ended December 31, 2010 increased by
approximately $7.6 million, or 6.2% compared to the same period last year due to
the following:
|
·
|
Hardware,
software and service revenue increased by 4.5%, 1.2% and 7.9%,
respectively, compared to the same period last year. We believe
these changes were primarily due to an improvement in demand from our
customers as a result of a modest improvement in global economic
conditions.
|
|
·
|
The
revenue changes shown in the table above also reflect unfavorable foreign
currency exchange rate fluctuations primarily for the Euro and British
pound sterling against the U.S. dollar, which negatively impacted total
revenue by approximately $2.9
million.
|
|
·
|
The
total revenue increase also reflects additional service revenue generated
from the continued expansion of our customer base and the additional
revenue generated by Fortech, a company we acquired in October
2010.
|
U.S.
segment revenue for the three months ended December 31, 2010 increased
approximately $13.8 million, or 13.4% compared to the same period last year due
to the following:
|
·
|
Hardware,
software and service revenue increased by 4.5%, 18.7% and 15.2%,
respectively, compared to the same period last year. We believe
these changes were primarily due to an improvement in demand from our
customers as a result of a modest improvement in global economic
conditions.
|
|
·
|
The
software revenue increase also reflects a major rollout of Simphony by a
large customer. In addition, the service revenue increase
reflects additional service revenue generated from the continued expansion
of our customer base and the additional service revenue generated by TIG
Global, a company that we acquired in December
2009.
|
15
Six Months Ended December
31, 2010:
The
following table provides information regarding sales mix by reportable segments
(amounts are net of intersegment eliminations, are based on location of the
selling entity, and exclude export sales):
Six Months Ended December 31,
|
||||||||||||||||||||||||
U.S.
|
International
|
Total
|
||||||||||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
||||||||||||||||||
Hardware
|
$ | 45,131 | $ | 42,842 | $ | 46,976 | $ | 46,257 | $ | 92,107 | $ | 89,099 | ||||||||||||
Software
|
23,667 | 21,958 | 37,301 | 33,234 | 60,968 | 55,192 | ||||||||||||||||||
Service
|
164,423 | 139,067 | 163,033 | 153,690 | 327,456 | 292,757 | ||||||||||||||||||
Total
Revenue
|
$ | 233,221 | $ | 203,867 | $ | 247,310 | $ | 233,181 | $ | 480,531 | $ | 437,048 |
The
following table sets forth the sales mix of Company products and services as a
percent of total revenue:
Six Months Ended
December 31,
|
||||||||
(in thousands)
|
2010
|
2009
|
||||||
Hardware
|
19.2 | % | 20.4 | % | ||||
Software
|
12.7 | % | 12.6 | % | ||||
Service
|
68.1 | % | 67.0 | % | ||||
Total
|
100.0 | % | 100.0 | % |
For the
six months ended December 31, 2010, total revenue was approximately $480.5
million, an increase of approximately $43.5 million, or 9.9% compared to the
same period last year reflecting the following:
|
·
|
Hardware,
software and service revenue increased by 3.4%, 10.5% and 11.9%,
respectively, compared to the same period last year. We believe
the increases were primarily due to an improvement in demand from our
customers as a result of a modest improvement in global economic
conditions. The software revenue increase also reflects a major
rollout of Simphony by a large
customer.
|
|
·
|
The
revenue changes shown in the table above also reflect unfavorable foreign
currency exchange rate fluctuations primarily for the Euro and British
pound sterling against the U.S. dollar, which negatively impacted total
revenue by approximately $5.6
million.
|
|
·
|
The
total revenue increase also reflects additional service revenue generated
from the continued expansion of our customer base and the additional
revenue generated by Fortech and TIG Global, companies that we acquired in
October 2010 and December 2009,
respectively.
|
International
segment revenue for the six months ended December 31, 2010 increased by
approximately $14.1 million, or 6.1% compared to the same period last year due
to the following:
|
·
|
Hardware,
software and service revenue increased by 1.6%, 12.2% and 6.1%,
respectively, compared to the same period last year. We believe
these changes were primarily due to an improvement in demand from our
customers as a result of a modest improvement in global economic
conditions.
|
|
·
|
The
revenue changes shown in the table above also reflect unfavorable foreign
currency exchange rate fluctuations primarily for the Euro and the British
pound sterling against the U.S. dollar, which negatively impacted total
revenue by approximately $5.6
million.
|
|
·
|
The
total revenue increase also reflects additional service revenue generated
from the continued expansion of our customer base and the additional
revenue generated by Fortech.
|
U.S.
segment revenue for the six months ended December 31, 2010 increased
approximately $29.4 million, or 14.4% compared to the same period last year due
to the following:
|
·
|
Hardware,
software and service revenue increased by 5.3%, 7.8% and 18.2%,
respectively, compared to the same period last year. We believe
these changes were primarily due to an improvement in demand from our
customers as a result of a modest improvement in global economic
conditions.
|
|
·
|
The
software revenue increase also reflects a major rollout of Simphony by a
large customer. In addition, the service revenue increase
reflects additional service revenue generated by TIG Global, a company
that we acquired in December 2009, and the additional service revenue
generated from the continued expansion of our customer
base.
|
16
Cost
of Sales:
Three Months Ended December
31, 2010:
The
following table provides information regarding the cost of sales:
Three Months Ended December 31,
|
||||||||||||||||
2010
|
2009
|
|||||||||||||||
(in thousands)
|
Cost
of Sales
|
% of Related
Revenue
|
Cost
of Sales
|
% of Related
Revenue
|
||||||||||||
Hardware
|
$ | 31,353 | 65.5 | % | $ | 30,364 | 66.3 | % | ||||||||
Software
|
4,921 | 14.9 | % | 7,045 | 23.1 | % | ||||||||||
Service
|
73,473 | 44.2 | % | 63,259 | 42.4 | % | ||||||||||
Total
Cost of Sales
|
$ | 109,747 | 44.4 | % | $ | 100,668 | 44.6 | % |
For the
three months ended December 31, 2010 and 2009, cost of sales as a percent of
revenue were 44.4% and 44.6%, respectively. Hardware cost of sales as
a percent of related revenue for the three months ended December 31, 2010
decreased 0.8% compared to the same period last year primarily as a result of
product mix and an overall improvement in margins on substantially all hardware
product sales.
Software
cost of sales as a percent of related revenue decreased approximately 8.2%
compared to the same period last year due to an increase in the sale of
internally developed software which has much higher margin than third party
software. The decrease also reflects a decrease in capitalized
software amortization expense (included in software cost of sales) as a percent
of software revenue as compared to the three months ended December 31,
2009.
Service
costs as a percent of related revenue increased approximately 1.8% compared to
the same period last year because the cost structure for services provided
through TIG Global, a subsidiary we acquired in December 2009, generally is
higher as a percent of its revenue than our overall service costs as a percent
of our overall revenue.
Six Months Ended December
31, 2010:
The
following table provides information regarding the cost of sales:
Six Months Ended December 31,
|
||||||||||||||||
2010
|
2009
|
|||||||||||||||
(in thousands)
|
Cost
of Sales
|
% of Related
Revenue
|
Cost
of Sales
|
% of Related
Revenue
|
||||||||||||
Hardware
|
$ | 61,308 | 66.6 | % | $ | 58,416 | 65.6 | % | ||||||||
Software
|
10,747 | 17.6 | % | 12,432 | 22.5 | % | ||||||||||
Service
|
144,686 | 44.2 | % | 125,396 | 42.8 | % | ||||||||||
Total
Cost of Sales
|
$ | 216,741 | 45.1 | % | $ | 196,244 | 44.9 | % |
For the
six months ended December 31, 2010 and 2009, cost of sales as a percent of
revenue were 45.1% and 44.9%, respectively. Hardware cost of sales as
a percent of related revenue for the six months ended December 31, 2010
increased 1.0% compared to the same period last year primarily as a result of an
overall decrease in margins on substantially all hardware product
sales.
Software
cost of sales as a percent of related revenue decreased approximately 4.9%
compared to the same period last year due to an increase in the sale of
internally developed software which has much higher margin than third party
software. The decrease also reflects a decrease in capitalized software
amortization expense (included in software cost of sales) as a percent of
software revenue as compared to the six months ended December 31,
2009.
Service
costs as a percent of related revenue increased approximately 1.4% compared to
the same period last year because the cost structure for services provided
through TIG Global generally is higher as a percent of its revenue than our
overall service costs as a percent of our overall revenue.
Selling,
General and Administrative (“SG&A”) Expenses:
SG&A
expenses, as a percentage of revenue, for the three months ended December 31,
2010, were 30.6%, a decrease of 1.0% compared to the same period last
year. This decrease was due to increased revenue, and our ability to
manage our overall costs. This decrease was partially offset by a
$3.0 million litigation charge recognized during the three months ended December
31, 2010.
17
SG&A
expenses, as a percentage of revenue, for the six months ended December 31,
2010, were 29.2%, a decrease of 2.0% compared to the same period last
year. This decrease was due to increased revenue, and our ability to
manage our overall costs. This decrease was partially offset by a $3.0 million
litigation charge recognized during the six months ended December 31,
2010.
Research
and Development (“R&D”) Expenses:
R&D
expenses consisted primarily of labor costs less capitalized software
development costs. An analysis of the R&D expenses is as
follows:
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
December 31,
|
December 31,
|
|||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
R&D
labor and other costs
|
$ | 12,292 | $ | 10,436 | $ | 24,475 | $ | 21,653 | ||||||||
Capitalized
software development costs
|
(1,361 | ) | (733 | ) | (2,757 | ) | (933 | ) | ||||||||
Total
R&D expenses
|
$ | 10,931 | $ | 9,703 | $ | 21,718 | $ | 20,720 | ||||||||
%
of Revenue
|
4.4 | % | 4.3 | % | 4.5 | % | 4.7 | % |
The increase in capitalized software
development costs primarily relates to development of the next generation
property management and retail related software.
Depreciation
and Amortization Expenses:
Depreciation
and amortization expenses for the three months ended December 31, 2010 and 2009
were approximately $4.2 million and $4.3 million, respectively.
Depreciation
and amortization expenses for the six months ended December 31, 2010 and 2009
were approximately $8.4 million and $8.2 million, respectively.
Share-Based
Compensation Expenses:
The following table shows the non-cash
share-based compensation expenses we recognized in SG&A, cost of sales and
R&D expenses discussed above:
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
December 31,
|
December 31,
|
|||||||||||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
SG&A
|
$ | 4,164 | $ | 4,204 | $ | 6,648 | $ | 7,069 | ||||||||
R&D
|
125 | 143 | 251 | 290 | ||||||||||||
Cost
of sales
|
27 | 31 | 62 | 70 | ||||||||||||
Total
non-cash share-based compensation expense
|
4,316 | 4,378 | 6,961 | 7,429 | ||||||||||||
Income
tax benefit
|
(1,866 | ) | (1,464 | ) | (2,655 | ) | (2,406 | ) | ||||||||
Total
non-cash share-based compensation expense, net
of tax benefit
|
$ | 2,450 | $ | 2,914 | $ | 4,306 | $ | 5,023 | ||||||||
Impact
on diluted net income per share attributable to MICROS Systems, Inc.
common shareholders
|
$ | 0.03 | $ | 0.03 | $ | 0.05 | $ | 0.05 |
As of December 31, 2010, there was
approximately $19.0 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 December 31, 2010, was
approximately $1.5 million compared to approximately $0.4 million for the same
period last year. The increase of approximately $1.1 million is
primarily due to an increase in interest income of approximately $0.6 million,
foreign currency exchange gains of approximately $0.2 million for the three
months ended December 31, 2010 compared to foreign currency exchange losses of
less than $0.3 million for the same period last year.
Net
non-operating income for the six months ended December 31, 2010, was
approximately $1.7 million compared to approximately $1.1 million for the same
period last year. The increase of approximately $0.6 million is
primarily due to an increase in interest income of approximately $0.7
million.
18
Income
Tax Provisions:
The effective tax rate for the three
months ended December 31, 2010 and 2009 was 32.5% and 33.3%,
respectively. The effective tax rate for the six months ended
December 31, 2010 and 2009 was 32.6% and 33.3%, respectively. The
decreases in tax rates for the three and six month periods ended December 31,
2010 compared to the same periods last year were primarily attributable to the
changes in the aggregate valuation allowances and non-deductible compensation,
partially offset by the earnings mix among jurisdictions.
Based on
currently available information, we estimate that the fiscal year 2011 effective
tax rate will be approximately 32%. We believe that due to changes in the
mix of earnings among jurisdictions, the fluctuation of earnings, and the impact
of certain discrete items recognized during the interim reporting periods, there
may be some degree of adjustment to the effective tax rate on a quarterly
basis.
RECENT
ACCOUNTING STANDARDS
On July
1, 2010, we adopted the accounting 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 adoption of this guidance did not have a material impact
on our consolidated financial statements.
On July
1, 2010, we adopted the accounting 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. The adoption
of this guidance did not 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. The following comprise the categories of critical
accounting estimates that we used 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;
· Income
taxes.
We have
reviewed our critical accounting estimates and the related disclosures with our
Audit Committee. Critical accounting estimates are described in
greater detail in our Annual Report on Form 10-K for the year ended June 30,
2010 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
Our condensed consolidated statement of
cash flows summary is as follows:
Six Months Ended
December 31,
|
||||||||
(in thousands)
|
2010
|
2009
|
||||||
Net
cash provided by (used in):
|
||||||||
Operating
activities
|
$ | 81,795 | $ | 85,921 | ||||
Investing
activities
|
16,767 | (15,159 | ) | |||||
Financing
activities
|
11,947 | (24,971 | ) |
19
Operating
activities:
Net cash
provided by operating activities for the six months ended December 31, 2010
decreased approximately $4.1 million compared to the six months ended December
31, 2009. This decrease was primarily due to performance based
compensation payments made during the six months ended December 31, 2010 and
inventory build-up since June 30, 2010 in anticipation of customer roll outs,
partially offset by an increase in net income as compared to the same period
last year.
Investing
activities:
Net cash
flows provided by investing activities for the six months ended December 31,
2010 were approximately $16.8 million reflecting approximately $29.1 million we
used to purchase investments, net of cash received from the sale of investments
(including approximately $6.4 million received from the redemption of two of our
auction rate securities.) We also used approximately $4.3 million
related to acquisitions and an additional $8.1 million to purchase property,
plant and equipment, and internally developed software to be licensed to
others.
Net cash
flows used in investing activities for the six months ended December 31, 2009
were approximately $15.2 million reflecting approximately $29.0 million used in
connection with the acquisition of TIG Global on December 31,
2009. Additionally, approximately $5.0 million was used to purchase
property, plant and equipment, and internally developed software to be licensed
to others. These amounts were partially offset by approximately $18.8
million received from the sale of investments, net of cash used to purchase
investments.
Financing
activities:
Net cash
provided by financing activities for the six months ended December 31, 2010 was
approximately $11.9 million, principally reflecting proceeds from stock option
exercises of approximately $16.5 million and realized tax benefits from stock
option exercises of approximately $4.9 million, partially offset by
approximately $6.4 million used to purchase our stock, debt repayment of
approximately $2.7 million and our purchase of stock of approximately $1.0
million following exercise of a put option held by former owners of a business
we acquired.
Net cash
used in financing activities for the six months ended December 31, 2009 was
approximately $25.0 million, principally reflecting stock repurchases of
approximately $35.0 million. This amount was partially offset by
proceeds from stock option exercises of approximately $7.0 million and realized
tax benefits from stock option exercises of approximately $2.7
million.
Capital
Resources
At
December 31, 2010, the favorable foreign exchange rate fluctuations primarily
for the Euro against the U.S. dollar positively affected our cash and cash
equivalents’ balance by approximately $26.1 million. Our cash and
cash equivalents’ balance of approximately $513.9 million at December 31, 2010
is an increase of approximately $136.7 million from the June 30, 2010 balance
and an increase of approximately $76.7 million from the September 30, 2010
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, through July 31, 2010, provided an aggregate $65.0
million multi-currency committed line of credit. On July 31, 2010,
the Credit Agreements were amended to extend the maturity date until July 31,
2013, with some further modifications to the terms and conditions, including the
addition and deletion of certain subsidiaries as co-borrowers, a reduction in
the overall limit on the line to $50.0 million (a change made at our request),
and reduction in certain fees payable to the lenders under certain
circumstances. As of December 31, 2010, we had no balance outstanding
under the Credit Agreements and had applied 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 $1.3 million at the December 31,
2010 exchange rate). As of December 31, 2010, there were no balances
outstanding on this credit facility, but approximately EUR 0.6 million
(approximately $0.8 million at the December 31, 2010 exchange rate) of the
credit facility has been used for guarantees. As of December 31,
2010, we had a borrowing capacity of approximately $50.1 million under all of
the credit facilities described above. See Note 6 “Line of Credit,”
in the Notes to the Condensed Consolidated Financial Statements included in this
report for further information about our credit facilities.
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. Based on our expected operating cash
flows and sources of cash, we do not believe that any limitations on liquidity
of our auction rate securities will have a material impact on our overall
ability to meet our liquidity needs. In light of current economic
conditions generally and in light of the overall performance of the stock market
in recent periods, we cannot assume that funds would be available from other
sources if we were required to fund significant acquisitions or any
unanticipated and substantial cash needs. We currently anticipate
that our property, plant and equipment expenditures for fiscal year 2011 will be
approximately $12 million.
20
Financial indicators of our liquidity
and capital resources as of December 31, 2010 and June 30, 2010, were as
follows:
(in thousands, except ratios)
|
December 31,
2010
|
June 30,
2010
|
||||||
Cash
and cash equivalents and short-term investments (1)
|
$ | 662,457 | $ | 545,298 | ||||
Available
credit facilities
|
$ | 51,337 | $ | 66,223 | ||||
Outstanding
credit facilities
|
— | (1,442 | ) | |||||
Outstanding
guarantees
|
(1,257 | ) | (1,187 | ) | ||||
Unused
credit facilities
|
$ | 50,080 | $ | 63,594 | ||||
Working
capital (2)
|
$ | 586,236 | $ | 468,047 | ||||
MICROS
Systems, Inc.’s shareholders’ equity
|
$ | 907,599 | $ | 783,380 | ||||
Current
ratio (3)
|
2.88 | 2.50 |
|
(1)
|
Does
not include approximately $57.9 million and $60.0 million classified as
long-term investments in our Consolidated Balance Sheet as of December 31,
2010 and June 30, 2010, respectively, of which approximately $48.0 million
and $53.3 million are invested in auction rate securities,
respectively.
|
|
(2)
|
Current
assets less current liabilities.
|
|
(3)
|
Current
assets divided by current liabilities. The Company does not
have any long-term debt.
|
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 $247.3 million and $233.2
million during the six months ended December 31, 2010 and 2009, respectively, to
customers located primarily in Europe, Asia and Latin America. See
Note 10 “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 currencies
impacts sales and profitability. Frequently, sales and the costs
associated with those sales are not denominated in the same
currency.
We
transacted business in approximately 40 and 39 currencies in the six months
ended December 31, 2010 and 2009, respectively. The relative currency
mix for the three and six months ended December 31, 2010 and 2009 was as
follows:
% of Reported Revenue (1)
|
Exchange Rates to U.S.
|
|||||||||||||||||||||||
Three Months Ended
December 31,
|
Six Months Ended
December 31,
|
Dollar as of
December 31,
|
||||||||||||||||||||||
Revenues by currency (1)
|
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
||||||||||||||||||
United
States Dollar
|
53 | % | 51 | % | 54 | % | 52 | % | 1.0000 | 1.0000 | ||||||||||||||
European
Euro
|
20 | % | 21 | % | 20 | % | 22 | % | 1.3370 | 1.4316 | ||||||||||||||
British
Pound Sterling
|
7 | % | 7 | % | 7 | % | 7 | % | 1.5599 | 1.6163 | ||||||||||||||
Swiss
Franc
|
2 | % | 2 | % | 2 | % | 2 | % | 1.0703 | 0.9658 | ||||||||||||||
Australian
Dollar
|
2 | % | 2 | % | 2 | % | 1 | % | 1.0219 | 0.8983 | ||||||||||||||
Canadian
Dollar
|
1 | % | 2 | % | 1 | % | 1 | % | 1.0024 | 0.9512 | ||||||||||||||
Singapore
Dollar
|
1 | % | 1 | % | 1 | % | 1 | % | 0.7793 | 0.7116 | ||||||||||||||
Mexican
Peso
|
1 | % | 1 | % | 1 | % | 1 | % | 0.0810 | 0.0765 | ||||||||||||||
Sweden
Krona
|
1 | % | 1 | % | 1 | % | 1 | % | 0.1488 | 0.1397 | ||||||||||||||
Thailand
Baht
|
1 | % | 1 | % | 1 | % | 1 | % | 0.0333 | 0.0300 | ||||||||||||||
Japanese
Yen
|
1 | % | 1 | % | 1 | % | 1 | % | 0.0123 | 0.0107 | ||||||||||||||
All
Other Currencies
(2)
|
10 | % | 10 | % | 9 | % | 10 | % | 0.1850 | 0.1891 | ||||||||||||||
Total
|
100 | % | 100 | % | 100 | % | 100 | % |
(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 six month exchange rates (as
applicable) for all other currencies. The “Exchange Rates to U.S. Dollar”
for “All Other Currencies” represents the weighted average December 31,
2010 and 2009 exchange rates for the currencies. Weighting is
based on the six month revenue for each country or region whose currency
is included in “All Other Currencies.” Revenues from each
currency included in “All Other Currencies” were less than 1% of our total
revenues for the relevant period.
|
A 10%
increase or decrease in the value of the Euro and British pound sterling in
relation to the U.S. dollar in the six months ended December 31, 2010 would have
affected our total revenues by approximately $12.8 million, or
2.7%. 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.
21
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 by monitoring
available financing alternatives. At December 31, 2010, we had no
borrowings and had not entered into any instruments to hedge the resulting
exposure to interest-rate risk. 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 we
had no borrowing as of December 31, 2010, a 1% change in interest rate would
have resulted in no 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 impacted 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 December
31, 2010, and the change in our interest income would be an increase of
approximately $3.3 million based on the cash, cash equivalents and short term
investment balances as of December 31, 2010 for the six month period then
ended.
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 an Annual Report on Form 10-K for the fiscal year ended June 30,
2010 and in Part II, Item 1A, “Risk Factors” in this report.
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
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 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.
PART
II – OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
Refer to Note 11 to the condensed
consolidated financial statements included in this report 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, 2010.
Global economic conditions
have had and may continue to have adverse effects on our
business.
We have
experienced reduced growth rates as compared to historic periods in total
revenues that we believe are attributable in part to uncertain global economic
conditions. Economic conditions that are beyond our control,
including the global recession, tight credit markets, reductions in consumer
spending, and fluctuations in exchange rates, have resulted in demand for our
products and services below historic trends.
22
In addition, 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.
Further, weakened consumer spending,
coupled with difficulties many businesses continue to encounter 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 on 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.
In
addition, 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
uncertain 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.
While we
believe that our cash and cash equivalents, additional cash generated from
operations, and available lines of credit will be sufficient to provide working
capital needs for the foreseeable future, current economic conditions, including
the overall performance of the stock market, may limit the availability of funds
from other sources if we encounter an extraordinary need for external
capital. 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 Current Report on 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 Capital Advisors, LLC (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).
|
101
|
The
following materials from MICROS Systems’ Inc.’s quarterly report on Form
10-Q for the quarter ended December 31, 2010, formatted in XBRL
(eXtensible Business Reporting Language): (i) Condensed Consolidated
Balance Sheets at December 31, 2010 and June 30, 2010, (ii) Condensed
Consolidated Statements of Operations for the three and six months ended
December 31, 2010 and 2009, (iii) Condensed Consolidated Statements of
Cash Flows for the six months ended December 31, 2010 and 2009, (iv)
Condensed Consolidated Statements of Shareholders’ Equity for the six
months ended December 31, 2010 and 2009, (v) Condensed Consolidated
Statements of Comprehensive Income for the six months ended December 31,
2010 and 2009, (vi) Notes to Condensed Consolidated Financial Statements,
tagged as blocks of text.
|
23
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.
UMICROS
SYSTEMS, INC.
|
|
(Registrant)
|
|
Date: February
3, 2011
|
U/s/ Cynthia A. Russo
|
Cynthia
A. Russo
|
|
Executive
Vice President and
|
|
Chief
Financial Officer
|
|
Date: February
3, 2011
|
U/s/ Michael P. Russo
|
Michael
P. Russo
|
|
Vice
President and Corporate
Controller
|
24