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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Transition Period From ____________to__________
Commission File Number 0-9993
MICROS SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Maryland 52-1101488
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
12000 Baltimore Avenue 20705-1291
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Beltsville, Maryland (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: 301-210-6000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.025 per share
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(Title of Class)
Indicate by a 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 x No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. /_/
At the close of business on August 30, 1996, there were issued and
outstanding 7,948,317 shares of Registrant's Common Stock at $.025 par value.
At such time the aggregate market value of the Registrant's Common Stock held by
nonaffiliates of the Registrant was $198,707,925.
DOCUMENTS INCORPORATED BY REFERENCE
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Portions of the Proxy Statement for the 1996 Annual Meeting of
Shareholders, currently scheduled to be held on November 22, 1996, are
incorporated by reference in Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
INTRODUCTION
MICROS Systems, Inc. was incorporated in the State of Maryland in 1977 as
Picos Manufacturing, Inc. and, in 1978, changed its name to MICROS Systems,
Inc. (References to "MICROS" or the "Company" herein include the operations of
MICROS Systems, Inc. and its subsidiaries on a consolidated basis.) MICROS
Systems, Inc. was a 49% owned investee of Westinghouse Holdings Corporation, a
wholly-owned subsidiary of Westinghouse Electric Corporation ("Westinghouse"),
until September 19, 1995, at which time Westinghouse Holdings Corporation sold
all of its remaining interest in MICROS pursuant to an underwritten secondary
placement. In previous fiscal years, MICROS was a majority-owned subsidiary of
Westinghouse.
MICROS is a leading worldwide designer, manufacturer, supplier and servicer
of point-of-sale ("POS") systems, property management systems ("PMS") and
central reservation systems ("CRS") software for hospitality providers,
including full service and quick service restaurants, restaurants located in
hotels and other lodging establishments, casinos, sports arenas, theme parks,
hotels, motels and resorts.
MICROS POS systems consist of terminals, display devices, printers,
computers and software which provide transaction processing, in-store control
and information management capabilities. The Company's POS systems, which are
installed in over 35,000 independent, national and international full service
restaurants and over 6,000 quick service restaurants, enable users to control
operations and inventory, enhance customer service efficiency, reduce labor
costs, increase productivity and improve planning and reporting. MICROS is a
major supplier of POS systems to full service restaurants or operators of
restaurants such as T.G.I. Friday's, Family Restaurants, Perkins, Planet
Hollywood, Ruby Tuesday's, and Whitbread; to quick service restaurants such as
Arby's, Burger King and Wendy's; and to full service restaurants in hotels such
as Hilton, Hilton International, Hyatt, Inter-Continental, Marriott, Radisson
and Ritz-Carlton. New target markets for the Company's POS systems include
casinos, cruise ships, sports arenas, theme parks, institutional food service
organizations and specialty retail shops. The Company has installed large POS
systems in the Luxor Hotel and Casino, Foxwood Hotel and Casino, and the MGM
Grand Hotel Casino and Theme Park in Las Vegas, Nevada.
The full service restaurant POS market consists of both stand-alone
restaurants and restaurants located in lodging operations in which servers use
guest checks to take orders at tables. The Company's customers in this market
include independent restaurants, franchisees, small chains and large national
and international chains. In the quick service restaurant POS market, the
typical MICROS customer is a franchisee of a national quick service chain
operating multiple restaurants.
The Company's POS products are sold primarily through two channels: (i)
the Direct POS Sales Channel, composed of a Company-owned sales distribution
network consisting of both domestic and foreign sales offices, and the MICROS
major account program directed to large, regional, and international customers;
and (ii) the Indirect POS Sales Channel, which is an independent sales
distribution network consisting of approximately 103 U.S. dealers and 41
foreign distributors.
As of the start of the 1996 fiscal year, MICROS owned a 30% interest in
Fidelio Software GmbH ("Fidelio"), a German company. On November 30, 1995
MICROS exercised its option to acquire the remaining 70% of Fidelio. With the
acquisition of Fidelio, the Company now develops, markets, distributes and
supports PMS products which provide reservation, guest accounting and other
information management capabilities to hotels, resorts and other lodging
establishments. Fidelio also provides CRS software for large chains, hotels,
motels and resorts. The CRS software allows hotels to coordinate, process,
track and analyze worldwide hotel customer reservations. Fidelio has installed
over 13,000 Fidelio PMS and associated systems worldwide such as food and
beverage, including systems
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installed in various Radisson Hotels, Red Roof Inns, and Wyndham, Best Western,
Westin, ITT Sheraton, Ciga, Forte, Hilton International, Inter-Continental,
Kempinski, Mandarin Oriental, Movenpick, Peninsula, Ramada Europe, Shangri-La
and Steigenberger locations. The Company's recently developed POS systems, as
well as many POS systems offered by other suppliers, are compatible with
Fidelio PMS products. Many of the emerging markets for the Company's POS
systems, including casinos, cruise ships and theme parks, are also emerging
markets for Fidelio PMS products.
MICROS also offers service and support for its POS, PMS and CRS products,
including installation, training, hardware and software maintenance, spare
parts, media supplies and consulting services. Service revenue constituted
approximately 33%, 23% and 21% of the Company's total revenue in fiscal 1996,
1995 and 1994, respectively.
PRODUCTS
Point-of-Sale Systems
MICROS markets a wide range of POS systems capable of meeting the
functionality and cost control needs of customers in various segments of the
hospitality industry.
The Company's POS systems consist of terminals, display devices, printers,
computers and software which provide transaction processing, in-store control
and information management capabilities. All proprietary POS hardware is
designed to withstand the elements of the restaurant environment. The
Company's principal POS products are the 8700 Hospitality Management System
("HMS"), the 2700 HMS, the 2700 HMS Keyboard and the 2700 HMS Touchscreen
System. Other products include the 4700 HMS, the 1700 HMS and the MICROS 2400.
Additionally, MICROS introduced in fiscal 1996 the MICROS PC Workstation
("PCWS"). The PCWS is an Intel-based PC, designed for point-of-sale
applications.
The 8700 HMS, introduced in September 1993, is designed for hotels,
resorts, casinos, airports, sports arenas, theme parks and large local and
chain restaurants. It allows the user the flexibility to configure the system
around various hardware and software choices to control restaurant and food
service operations at both the server and management levels. Features of the
8700 HMS include customized workstations, including customized keyboard and
printer configurations, touchscreen capability, flexible guest check printing,
detachable raised or flat keyboards, time and attendance capability with
complete time card detail and labor scheduling, training mode by operators,
check tracking by table or check, automatic credit card authorization with
expiration date verification, extensive revenue center and system-wide
reporting which analyzes sales mix, sales balancing, serving periods, table
turns, time periods, food cost and operator accountability, the ability to
split checks into multiple checks and hardware diagnostic and software
confidence tests. The 8700 HMS POS product has been designed with an "open
system architecture" which allows its use on industry standard PCs as well as
on the Company's proprietary hardware. MICROS made a strategic decision to
offer a PC-based platform in order to complement its proprietary hardware and
to give its customers a wide range of hardware and software options for MICROS
POS systems. The 8700 HMS is operated on an Intel-based PC and utilizes the
SCO Unix operating system, which permits multi-tasking and multi-user
operations. Its architecture gives it the ability to manage any size
restaurant or food service operation.
The 2700 HMS, released in March 1989, and the 1700 HMS, introduced in
January 1990, are stand-alone intelligent terminals designed for small to large
full service restaurants and for certain quick service operations. The 2700
HMS is available in both an entry level and premium platform, relies on
proprietary architecture and interfaces with DOS/Windows-based back office
support. The 2700 HMS Touchscreen System, released in September 1991, combines
advanced touchscreen technology with the Company's 2700 HMS POS system. It
offers an easy-touch electronic keypad with up to 60 entry points that can be
customized according to size and characters, dual LCD screens to speed order
entry and reduce operator error, PC compatibility, lead-through prompting and
reprogramming of the system software and keyboards through remote
communications via phone lines.
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The Company's 4700 HMS, introduced in May 1986, is a DOS-based, PC-driven
POS system for operational control of full service dining operations. The
system incorporates modular hardware components that allow for customization
and includes a number of important features to assist users with daily
operations.
The Hand Held Touchscreen terminal ("HHT"), introduced in March 1993, is a
small, hand held, remote order entry touchscreen computer device which allows a
server to enter a guest's food and beverage order at the table or seat-side.
The HHT is best suited for larger operations with distant seating locations
such as sports arenas and pool-side restaurants. The HHT is integrated with
the MICROS 4700 HMS and 8700 HMS.
In the quick service restaurant sector, MICROS markets the MICROS 2400 and
2400 MWS Plus ("MWS+"), which is based primarily on the hardware platform used
in the 2700 HMS with quick service application software. The MICROS 2400
system, introduced in October 1991, features a networked intelligent terminal
architecture. A remote printer and video screen subsystem accommodate a wide
variety of kitchen production and order routing schemes. The system's
applications software meets quick service requirements in the areas of order
entry, drive-thru operation, inventory tracking, employee timekeeping/labor
tracking and data communications and produces a variety of management reports
through an interface with back office PCs. The MWS+ software, introduced in
June 1995, is a PC-based software product which provides for management
analysis of sales and operational trends at quick service restaurants, both at
the store and corporate levels, and permits the integration of point-of-sale
functions with in-store back office, regional and home office management
information system functions.
The Company's design architecture allows existing users of many MICROS POS
products to access new technologies and applications in conjunction with their
existing MICROS POS system. In addition, many MICROS systems interface to
various back office accounting and property management systems, including the
Company's Fidelio PMS products.
Property Management Systems/Central Reservation Systems
For the PMS sector, MICROS, through its Fidelio subsidiary, develops,
markets and distributes a complete line of PMS products. The Front Office
system, installed worldwide in leading international hotel chains, is available
in multiple configurations covering the spectrum of hotels/resorts from the
road-side hotel to the large five-star resort. The Front Office PMS product is
closely integrated with MICROS POS systems for full service restaurants,
including the option for a Guest Folio Print & Check-Out from the Company's
8700 HMS User Work Station/3 terminal in a hotel restaurant. Other PMS
software products include Food & Beverage Management, Sales and Catering,
Cruise-line operations and Casino-PMS.
Fidelio also offers CRS software for hotel chains. The CRS allows hotel
companies to provide instantaneous updating of reservations for member hotels.
The CRS also integrates with site specific property management systems, thereby
permitting an up-to-date status of room and guest reservations and information.
Each CRS generally requires customization in order to meet the specific needs
of each hotel chain. Besides providing the software, and related development,
Fidelio provides consulting, installation and support services. Fidelio views
the CRS software market as an important market for future and sustained
business growth.
SALES, MARKETING AND DISTRIBUTION
The Company considers its direct and indirect global distribution network a
major strength. This network has been built over the past 19 years, and the
Company and its dealers and distributors work closely together in seeking to
identify new customers, products, services and markets and to serve the
Company's existing customer base with enhanced products and services in
accordance with their needs.
The Company's POS products are sold primarily through two channels: (i)
the Direct POS Sales Channel, composed of a Company-owned sales distribution
network consisting of both domestic and foreign sales offices, and the MICROS
major account program directed to large, regional, and international customers;
and (ii) the Indirect POS Sales Channel, which is an independent sales
distribution network consisting of approximately 103 U.S. dealers and 41
foreign distributors.
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Fidelio's products and services are sold mainly through Company
subsidiaries, direct sales offices and international distributors. In the
Western hemisphere, Fidelio distributes through a MICROS subsidiary.
Additionally, Fidelio has approximately 20 international subsidiaries and 5
international distributors. Several of the Fidelio subsidiaries also sell
MICROS POS products and services.
Foreign sales accounted for approximately 48%, 33% and 29% of the Company's
total revenue in fiscal 1996, 1995 and 1994, respectively.
CUSTOMER SERVICE AND SUPPORT
MICROS provides a wide range of support products and services to its
customers. Products include spare parts, media supplies (ribbons, paper,
etc.), active power-line conditioners and uninterruptable power supplies.
Services include installation, operator and manager training, hardware and
software maintenance, network support and consulting. In fiscal 1996, MICROS
installed a new customer service management system developed by Clarify Inc.
This system is an important step on the part of MICROS to expand its support
service capacity and to improve the quality of its support. MICROS plans to
expand the Clarify system to MICROS and Fidelio support offices during fiscal
1997. MICROS believes that its services are an important competitive factor
and differentiator in customer purchasing decisions. Service revenue
constituted approximately 33%, 23% and 21% of MICROS's total revenues in fiscal
1996, 1995 and 1994, respectively.
RESEARCH AND DEVELOPMENT
The products sold by the Company are subject to rapid and continual
technological change. The Company's product development strategy is to provide
compatible systems incorporating the newest technologies. This strategy allows
users to configure systems around various hardware and software choices, adding
new functions to their hospitality information systems that enhance their
operations. Products available from the Company, as well as its competitors,
have increasingly offered a wider range of features and capabilities.
The Company conducts its POS product development at the corporate
headquarters in Beltsville, Maryland. To supplement its own efforts, the
Company on certain projects utilizes outside design services for product
development. In addition, the Company continually examines and evaluates
software and hardware products and designs created by third parties and has
acquired and may in the future acquire rights to such products and designs.
Fidelio's PMS and CRS development are primarily conducted in four locations
around the world: Munich, Germany, Bangalore, India, Naples, Florida and Tel
Aviv, Israel. The multi-location development base allows Fidelio flexibility
in conducting software development on a cost-effective basis maximizing
personnel utilization. Fidelio maintains close relationships with major
software operating companies such as Oracle, Novell and Microsoft. Fidelio's
international offices may also conduct specific product enhancement activities
to meet specific interface needs and customer requests.
The Company estimated that during fiscal 1996, 1995 and 1994, it expended
approximately $9,608,000, $5,044,300 and $3,589,200, respectively, on
engineering design and development of new products and enhancements of existing
products, before the effect of the capitalization of software development
costs. The Company capitalized $2,437,000, $286,200 and $196,900 during fiscal
1996, 1995 and 1994, respectively, while amortizing $1,494,100, $489,900 and
$438,800 to cost of sales in the respective years in accordance with Statement
of Financial Accounting Standards No. 86.
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COMPETITION
The Company believes that its competitive strengths include its established
global distribution and service network, its ability to offer a broad array of
hardware, software and service products to the hospitality industry and its
corporate focus on providing information systems solutions principally to the
hospitality industry.
The markets in which the Company competes are highly competitive. There
are worldwide at least 40 competitors that offer some form of sophisticated POS
system similar to the Company's and over 100 PMS competitors. Competitors in
the POS marketplace include full service providers such as Sulcus (Squirrel
POS), Sharp, Positouch, Par Technology and Panasonic and hardware providers
such as IBM and NCR who market their products in conjunction with independent
software vendors. There are also numerous smaller companies that market
PC-based systems with POS-oriented software.
Many of the over 100 competitors in the PMS market are small companies with
software designed to run on industry standard personal computers. There are,
however, various major competitors including Sulcus (Lodgistix PMS),
Computerized Lodging Systems (which recently purchased another competitor Hotel
Information Systems), Encore and property management systems developed and
marketed by major hotel chains for their corporate-owned operations and
franchisees.
The central reservation market is highly fragmented, with most central
reservation systems being customized systems for each hotel chain or allied
reservation group. The competitors in this market consist of in-house
development efforts by chains, property management competitors such as Ansazi,
Lodgistix, Springer-Miller, Computerized Lodging Systems and specialized
central reservation providers such as Lexington Services, WizCom International,
Pegasus and JC Penney Telemarketing. The market for central reservation
systems is highly competitive.
MANUFACTURING
The Company's manufacturing program seeks to maintain flexibility and
reduce costs by emphasizing the strategic outsourcing of key product components
and subassemblies. All lower level assemblies such as printed circuit
assemblies, mechanical assemblies and cables are outsourced based on
competitive bidding. The outsourcing process includes evaluating supplier
processes, quality assurance, test capability and management and technical
support structures, as well as price and delivery cycle. Whenever feasible, a
second source is developed to reduce one-supplier dependence. Outsourcing
reduces requirements for manpower, capital equipment and facilities, thus
lowering overhead costs. Most outsourcing contracts are short term (two years
or less) based on quality points or strategic requirements with key price
components traced to monitor cost competitiveness. The Company believes it
maintains good relationships with its suppliers.
The Company's manufacturing operation is located at its corporate
headquarters in Beltsville, Maryland and consists primarily of assembly and
testing of various purchased components, parts and subassemblies. Product
reliability and quality are emphasized through stringent design reviews,
sophisticated computer testing of printed circuit assemblies, final product
testing and numerous quality control audits.
Material sourcing is based on availability, service, cost, delivery and
quality of the purchased items from domestic and international suppliers. Some
items are custom manufactured to the Company's design specifications. MICROS
believes that the loss of its current sources for components would not have a
material adverse effect on the Company's business since other sources of supply
are generally available.
EMPLOYEES
As of June 30, 1996 the Company had approximately 1,289 full-time
employees. Approximately 811, or 63% of these employees are based in the
United States, with the majority of this group based in the Company's
Beltsville, Maryland headquarters, and the balance of this group employed
principally at the Company's regional district offices. Approximately 284, or
22% of the Company's employees are employed in Europe/Africa/Middle East,
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with approximately 173 of this group employed at the Micros/Fidelio
headquarters in Munich, Germany, with the balance of this group employed at the
Company's subsidiary operations throughout Europe. The remaining 194
employees, or 15% of the total, are employed in the Pacific Rim and elsewhere,
in offices including those located in Hong Kong, Malaysia and Australia. On an
aggregate basis, the Company had approximately 914 employees in sales/marketing
and customer support services; 153 employees in product development; 92
employees in operations; and 130 employees in administration and finance. The
Company is not a party to any collective bargaining agreement and none of its
employees is represented by a labor union. MICROS believes its relations with
its employees to be good.
FOREIGN SALES
The Company recorded foreign sales, of approximately $84,667,000 during
fiscal 1996 to customers located primarily in Europe, Africa, the Middle East,
Australia, Asia, and Canada. Comparable sales in fiscal 1995 were
approximately $36,633,000 and in fiscal 1994 were approximately $22,769,000.
See Note 14 of Notes to Consolidated Financial Statements.
PATENTS
The Company holds no patents and believes that its competitive position is
not materially dependent upon patent protection. The technology used in the
design and manufacture of most of the Company's products is generally known and
available to others.
FLUCTUATIONS AND CUSTOMERS
The Company's quarterly operating results have varied in the past and may
vary in the future depending upon such factors as the timing of new product
introductions, changes in the pricing and promotion policies of the Company and
its competitors, market acceptance of new products and enhanced versions of
existing products and the capital expenditure budgets of its customers.
Moreover, the Company has experienced increased seasonality of its business,
given the recent acquisition of Fidelio and the steady historic increase of
international sales. In particular, with the European summer holiday slowdowns
and the winter lull in capital acquisitions in the hospitality industry, the
Company anticipates declines in sales volume for its first and third fiscal
quarters relative to its second and fourth fiscal quarters. Nonetheless, the
Company believes that quarter-to-quarter historic comparisons of its results
are not necessarily meaningful or indicative of future performance.
No single customer accounts for 10% or more of the Company's consolidated
revenues, nor is any portion of the Company's business subject to renegotiation
of profits or termination of contracts or subcontracts at the election of the
U.S. Federal Government.
ENVIRONMENTAL MATTERS
The Company believes that it is in compliance in all material respects with
all applicable environmental laws and does not anticipate that such compliance
will have a material effect on its future capital expenditures, earnings or
competitive position with respect to any of its operations.
BACKLOG
The Company generally has a backlog of less than one month's revenue,
substantially all of which is cancelable at any time prior to shipment,
although historically few orders have been canceled. As of June 30, 1996 and
1995, the backlog totaled approximately $17.9 million and $10.8 million,
respectively.
OTHER
The Company has a $25.0 million multi-currency unsecured committed line of
credit with NationsBank, N.A. ("NationsBank"), effective November 21, 1995, and
expiring on December 31, 1996. The Company has the one-
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time option to convert the line of credit into a three-year secured term loan
upon expiration of the line of credit. Interest due under the line of credit
will be calculated as follows: (i) in the event the advance is in U.S. dollars,
at the option of the Company, either the bank's prime rate minus one half of
one percent (.50%) per annum, or the LIBOR rate plus one and one eighth percent
(1.125%) per annum; or (ii) in the event the advance is made in a currency
other than the U.S. dollar, the LIBOR rate for the applicable denominated
currency selected, plus one and one eighth percent (1.125%) per annum.
Interest due under the three-year secured term loan shall be, at the option of
the Company, the prime rate or the treasury bill rate (adjusted to a constant
maturity of three years) plus two and one quarter percent (2.25%). During
fiscal 1996, the Company had drawn under the existing line of credit DM 30.0
million, which was utilized to fund the acquisition of the remaining stock in
Fidelio at the end of November 1995. Under the terms of the current loan
agreement, the Company may borrow up to $25.0 million less the amount of
outstanding letters of credit. Amounts outstanding under the line are payable
on demand and are not secured by the assets of the Company. The agreement
requires the Company to satisfy certain financial covenants. In addition, the
agreement limits the incurrence of additional indebtedness and restricts the
Company's payment of dividends other than stock dividends.
Prior to November 21, 1995, the Company had another line of credit with
NationsBank, with a borrowing capacity of $15.0 million. There were no
borrowings under the $15.0 million line of credit.
On March 29, 1996, the Company acquired a DM 10.0 million term loan, of
which DM 9.2 million is outstanding at June 30, 1996 (approximately $6.0
million at the June 30, 1996 exchange rate), from Commerzbank. Under the loan,
payments of principal and accrued interest at a fixed rate of 5.3% are due at
the end of each month, beginning April 1996, for the next 36 months. The
Company used the full proceeds to reduce the DM 30.0 million borrowing under
the NationsBank line of credit. Accordingly, as of June 30, 1996, the
borrowing under the NationsBank line of credit was DM 20.0 million
(approximately $13.0 million at the June 30, 1996 exchange rate).
Further, Fidelio maintains three unsecured committed lines of credit with
BHF Bank, Hypobank and Commerzbank. DM 13.0 million (approximately $8.5
million at the June 30, 1996 exchange rate), is available in the aggregate
under these lines of credit. The balance as of June 30, 1996, was
approximately DM 3.0 million (approximately $1.9 million at the June 30, 1996
exchange rate) which was utilized for general corporate purposes. Certain
Fidelio subsidiaries maintain additional lines of credit, none of which is
considered material.
ITEM 2. PROPERTIES
The Company's executive offices and main administrative and
manufacturing facilities are located in Beltsville, Maryland. The Company
conducts sales, marketing, customer support and product development activities
for its POS operations at this location. The Fidelio headquarters, where the
Company conducts a significant portion of the PMS sales, marketing and customer
support activities, is located in Munich, Germany.
The Beltsville, Maryland campus is composed of three buildings; (i)
one building is approximately 60,000 square feet and is owned by the Company;
(ii) a second building is approximately 90,000 square feet, approximately
44,900 of which is currently leased by the Company through 2009, with options
to increase its leased space during that period and an option to purchase the
entire building for ten dollars in the year 2009; and (iii) a third building of
27,700 square feet which is leased under an operating lease by the Company
through September 1998.
Fidelio's Munich office leases approximately 29,000 square feet
pursuant to a lease expiring at the end of June 1998.
To satisfy other sales, service and support, and product development
needs, the Company leases space in eleven cities domestically, including
Boston, Chicago, Los Angeles and other major metropolitan areas and in over
twenty cities worldwide, including London, Paris, Zurich, Kuala Lumpur and Hong
Kong.
The Company believes that additional space will be available as
needed.
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ITEM 3. LEGAL PROCEEDINGS
MICROS is and has been involved in legal proceedings arising in the
normal course of business. The Company is of the opinion, based upon presently
available information and the advice of counsel concerning pertinent legal
matters, that any resulting liability should not have a material adverse effect
on the Company's results of operations or financial position.
On May 24, 1996, Imperial Hotels Corp. ("Imperial") filed suit
against Executive Technologies of Southwest Florida, Inc. ("ETI"), MICROS and
Fidelio in the Superior Court of the State of California for the County of Los
Angeles. Imperial alleged, among other things, that ETI, an indirect wholly
owned subsidiary of MICROS, breached a software license agreement ETI entered
into with Imperial prior to Fidelio's acquisition of ETI, and prior to MICROS'
acquisition of Fidelio. In particular, Imperial alleges that ETI provided
software that did not comply with specifications, and failed to provide
upgrades to such software. MICROS has removed the matter to Federal District
Court. MICROS will defend against Imperial's allegations, and intends on
filing a counterclaim against Imperial for its failure to pay when due certain
license and maintenance fees.
On August 1, 1996, ETI filed suit against Crested Butte Mountain
Resort, Inc. ("CBMR") in Circuit Court in Collier County, Florida. ETI has
alleged that CBMR breached a development agreement by failing to pay to ETI
when due certain software development fees. On August 14, 1996, CBMR filed
suit against ETI, MICROS and Fidelio in District Court in Gunnison County,
Colorado. In the Colorado action filed by CBMR, CBMR alleges that ETI had
breached the same development agreement under which ETI alleges the default of
CBMR in the Florida court. ETI will seek to have the Colorado action
transferred to the Florida courts and consolidated with the pre-existing
Florida litigation.
While the ultimate outcome of either matter above noted is uncertain,
and while litigation is difficult to predict, the Company does not believe that
either claim, or the claims in the aggregate, will have a material adverse
effect on its business, financial condition, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1996, no matters were submitted to a
vote of security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Price Range of Common Stock
As of August 30, 1996, there were approximately 520 record holders of the
Company's Common Stock, $.025 par value.
Bid and ask prices for the Company's Common Stock (symbol "MCRS") have been
quoted on the National Association of Securities Dealers Automated Quotation
("NASDAQ") system. The following table shows the range of closing bid prices
for the period indicated, as reported by NASDAQ. The quotations represent
prices in the over-the-counter market between dealers in securities, do not
include retail markup, markdown, or commission, and may not necessarily
represent actual transactions.
On August 30, 1996 the closing bid price for the stock was $25.00.
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Bid Prices
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(in dollars)
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High Low
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Year Ended June 30, 1996
7/01/95 - 9/30/95 (First Quarter) 39-1/2 31
10/01/95 - 12/31/95 (Second Quarter) 49-3/4 32-3/4
1/01/96 - 3/31/96 (Third Quarter) 53-3/4 23
4/01/96 - 6/30/96 (Fourth Quarter) 33 20-1/4
Year Ended June 30, 1995
7/01/94 - 9/30/94 (First Quarter) 33-1/2 26-1/4
10/01/94 - 12/31/94 (Second Quarter) 41-1/4 28-3/4
1/01/95 - 3/31/95 (Third Quarter) 38-1/8 28
4/01/95 - 6/30/95 (Fourth Quarter) 35 27-3/4
Year Ended June 30, 1994
7/01/93 - 9/30/93 (First Quarter) 20-1/2 13-1/2
10/01/93 - 12/31/93 (Second Quarter) 26 14-3/4
1/01/94 - 3/31/94 (Third Quarter) 29-1/2 23-1/4
4/01/94 - 6/30/94 (Fourth Quarter) 27-3/4 22-1/2
The Company has never paid a dividend and has no current intention to pay
any dividends. Its current policy is to retain earnings and use funds for the
operation and expansion of its business. In addition, certain indebtedness
restricts the amount of cash dividends which may be payable. The Company is a
party to a line of credit agreement expiring December 31, 1996, which restricts
the payment of dividends other than stock dividends (see Note 5 of Notes to
Consolidated Financial Statements). Future dividend policy will be determined
by the Board of Directors based on the Company's earnings, financial condition,
capital requirements and other existing conditions.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (in thousands except per share
amounts)
Fiscal Years Ended June 30,
-----------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- -------- --------- --------
Statement of Operations Data
Revenue $178,049 $112,021 $79,265 $55,314 $44,328
Income from operations $4,031 $16,542 $12,322 $9,409 $5,784
Net income $2,392 $11,577 $8,687 $5,760 $4,019
Net income per common and common
equivalent
share $0.30 $1.46 $1.10 $0.74 $0.53
Cash dividends -- -- -- -- --
Balance Sheet Data
Working Capital $20,695 $37,029 $27,126 $18,216 $18,400
Total assets $136,836 $89,644 $66,191 $48,207 $37,404
Long-term debt and capital lease (1) $15,524 $5,614 $5,803 $1,780 $1,779
Shareholders' equity $56,195 $53,450 $39,938 $29,970 $23,559
Book value per share $7.07 $6.80 $5.13 $3.92 $3.15
Additional Data
Weighted average number of
common and common equivalent shares
outstanding 8,006 7,952 7,911 7,807 7,640
(1) Including current portion.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Comparison of Fiscal 1996 to Fiscal 1995:
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11
The Company recorded net income of $.30 per common share in fiscal 1996
compared to $1.46 per common share in fiscal 1995. Fiscal 1996 results include
a one-time after tax charge of $8.1 million, or $1.01 per common share, for the
write-off of purchased incomplete software technology acquired in the
acquisition of Fidelio. Excluding this one-time after tax charge, net income
for fiscal 1996 was $1.31 per common share.
Revenue for fiscal 1996 was $178.0 million, an increase of $66.0 million,
or 58.9%, compared to fiscal 1995 . Sales increased in every distribution
channel worldwide. Sales in the Company's direct distribution channels
increased $60.0 million over fiscal 1995. This increase includes $41.6 million
for PMS hardware, software and related services through the Company's Fidelio
subsidiaries, primarily arising in connection with the acquisition of Fidelio
on November 30, 1995 and continued market penetration of the Company's PMS
distribution offices. Sales of POS hardware, software and related services at
the North American district offices increased $5.9 million over fiscal 1995,
including $3.8 million due to the addition of the Connecticut and Pacific
Northwest offices, while continued market share gains in the Company's five
European POS subsidiaries added $8.4 million in fiscal 1996, including the new
subsidiary in France purchased in August 1995. POS sales through the indirect
sales channels to independent dealers and distributors worldwide increased $6.0
million in fiscal 1996. The indirect sales channel's growth was reduced by the
Company's purchase of certain dealers and distributors. In particular, in
fiscal 1996, MICROS acquired its French distributor, certain Fidelio
subsidiaries, the Pacific Northwest dealer and a Connecticut dealer, all of
which are now part of the direct sales channel.
Hardware and software sales increased 39.5% while service related revenues
increased 123.0%. Service revenue in fiscal 1996 grew faster than
hardware/software revenue due to the acquisition of Fidelio, which has a higher
percentage of service revenue compared to total revenue than does Micros.
Cost of sales, as a percentage of revenue, increased to 50.7% for fiscal
1996 compared to 50.2% for fiscal 1995. Cost of sales for hardware and software
products, as a percentage of related revenue, increased to 52.0% for fiscal
1996 compared to 51.8% for fiscal 1995, primarily due to an increase in sales
volume of lower margin products and certain strategic selling price decreases
on hardware products, partially offset by a favorable shift in sales
distribution from the indirect to direct sales channel, including higher margin
Fidelio software sales. Service costs, as a percentage of related revenue,
increased in fiscal 1996 to 48.2% from 45.0% in fiscal 1995. The increase is
primarily due to higher labor costs for subcontracting installations, and
expansion and upgrade of the service organization to address new and
anticipated needs.
Selling, general and administrative expenses increased $24.2 million, or
73.8%, in fiscal 1996 compared to fiscal 1995. As a percentage of revenue,
selling, general and administrative expenses increased to 32.0% in fiscal 1996
compared to 29.3% in fiscal 1995. The increases are primarily the result of
the continued expansion of the Company's infrastructure, with an increased
emphasis on the sales and service organizations, including the acquisitions of
Fidelio in November 1995, three U.S. sales and service offices and D.A.C.
Systemes/Micros France and AD-Maintenance Informatique in August 1995.
Research and development expenses (exclusive of capitalized software
development costs), which consist primarily of labor costs, increased $2.4
million, or 50.7%, in fiscal 1996 compared to fiscal 1995. Actual research and
development expenditures, including capitalized software development costs of
$2.4 million in fiscal 1996 and $0.3 million in fiscal 1995, increased $4.6
million, or 90.5% in fiscal 1996 compared to fiscal 1995. The increase in
absolute dollars is primarily due to the acquisition of Fidelio in November
1995, and the additional staffing required to develop new POS products,
including the Company's 3700 POS software scheduled to be released in October
1996.
Purchased incomplete software technology was a result of the one-time $14.8
million charge taken in December 1995 associated with the acquisition of
Fidelio.
Income from operations was $4.0 million, or 2.3% of revenue in fiscal 1996,
compared to $16.5 million, or 14.8% of revenue, in fiscal 1995. Excluding the
$14.8 million charge for the purchase of incomplete software technology in the
second quarter, income from operations for fiscal year 1996 was $18.8 million,
or 10.6% of revenue. Higher selling, general and administrative expenses, and
depreciation and amortization expense, in particular those associated with
several of the
11
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acquisitions consummated during the fiscal year, and lower gross margins
adversely impacted income from operations in fiscal 1996.
Interest income decreased $0.3 million, or 29.0% in fiscal 1996 primarily
due to the liquidation of cash investments to purchase Fidelio on November 30,
1995. Interest expense increased $1.3 million in fiscal 1996 primarily due to
the bank lines of credit borrowings outstanding since the end of November 1995
and a term loan outstanding since the end of March 1996.
The effective tax rate for fiscal 1996 is 11.0% compared to 34.9% in fiscal
1995. Excluding the one-time expense for the purchase of incomplete software
technology and the related tax benefit, the effective tax rate for fiscal 1996
would have been 39.0%. The increase in the tax rate is primarily due to the
mix of tax rates on a country-by-country basis and the loss of the U.S.
research and development ("R&D") tax credit effective during fiscal 1996 due to
the expiration of the tax legislation, which provided a 1.5% credit in fiscal
1995. The effective tax rate for fiscal 1997 may be higher than 39.0% due to
the greater proportion of earnings in countries with higher tax rates.
Comparison of Fiscal 1995 to Fiscal 1994:
Revenue for fiscal 1995 was $112.0 million, an increase of $32.8 million,
or 41.3%, compared to fiscal 1994. Sales increased in every distribution
channel worldwide, with a substantial portion of the increase attributable to
the Company's 8700 HMS. Sales through the Company's direct sales channels
increased $26.7 million over fiscal 1994, including sales of POS hardware,
software and services through the Major Accounts channel which increased $9.9
million compared to fiscal 1994 and Property Management System sales through
the Company's three Fidelio subsidiaries which increased $4.6 million. Sales
by the nine North American district offices increased $6.1 million over fiscal
1994, including $1.8 million due to the addition of the Denver and Portland
district offices. Continued market share gains in the Company's four European
POS subsidiaries added $6.0 million in fiscal 1995 compared to fiscal 1994.
Sales through the indirect sales channels to independent dealers and
distributors worldwide increased $6.1 million in fiscal 1995. Hardware and
software sales increased 37.6% while service related revenues increased 55.1%.
Cost of sales, as a percentage of revenue, increased to 50.2% for fiscal
1995 compared to 49.8% for fiscal 1994. Cost of sales for hardware and software
products, as a percentage of related revenue, decreased to 51.8% for fiscal
1995 compared to 52.0% for fiscal 1994, primarily due to higher software sales
as a percent of total sales. Service costs, as a percentage of related
revenue, increased in fiscal 1995 to 45.0% from 41.5% in fiscal 1994. The
increases were primarily due to higher labor costs related to subcontracting
and training labor to meet the volume of 8700 HMS and Fidelio installations and
increased material costs to service maintenance contracts.
Selling, general and administrative expenses increased $10.0 million, or
43.6%, in fiscal 1995 compared to the prior year. As a percentage of revenue,
selling, general and administrative expenses increased to 29.3% in fiscal 1995
compared to 28.8% in fiscal 1994. The increases were primarily the result of
the increased emphasis on the Company's sales and service organizations,
including the addition of three U.S. sales and service offices and increased
sales and service staffing worldwide. In addition, the Company incurred
approximately $437,000 or .4% of revenue in expenses due to the Westinghouse
incentive bonus payments to 11 key officers of the Company. (See Note 12 of
Notes to Consolidated Financial Statements.)
Research and development expenses (exclusive of capitalized software
development costs), which consist primarily of labor costs, increased $1.4
million, or 40.3%, in fiscal 1995 compared to fiscal 1994. Actual research and
development expenditures, including capitalized software development costs of
$286,200 in fiscal 1995 and $196,900 in fiscal 1994, increased $1.5 million, or
40.5%, in fiscal 1995 compared to fiscal 1994.
Income from operations was $16.5 million, or 14.8% of revenue in fiscal
1995, an increase of 34.2% over the prior year when income from operations was
$12.3 million, or 15.5% of revenue. Income from operations in fiscal 1995, as
a percentage of revenue, excluding the additional $437,000 in costs incurred
due to the Westinghouse incentive bonus payments, was 15.2%.
12
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Interest income increased $521,300 or 80.0%, in fiscal 1995 as a result of
an increase in interest rates on investments and an increase in investment
balances. Interest expense increased $180,500 to $368,800 in fiscal 1995 from
$188,300 in fiscal 1994, primarily as a result of interest on the capital lease
entered into by the Company in January 1994.
Summary
The Company has recently experienced rapid revenue growth at a rate that it
believes has significantly exceeded that of the global market for point-of-sale
computer systems and property management information systems products for the
hospitality industry. Although the Company currently anticipates continued
revenue growth at a rate in excess of such market, and therefore an increase in
its overall market share, it does not expect to maintain growth at recent
levels and there can be no assurance that any particular level of growth can be
achieved. In addition, due to the competitive nature of the market, the
Company recently has experienced greater gross margin pressure on its products
than it has in the past, and the Company expects this trend to continue. There
can be no assurance that the Company will be able to increase sufficiently
sales of its higher margin products, including software and services, to
prevent declines in the Company's overall gross margin.
Moreover, some of the statements contained herein not based on historic
facts are forward looking statements that involve risks and uncertainties.
Past performance is not necessarily a strong or reliable indicator of future
performance. Actual results could differ materially from past results,
estimates or projections. Some of the additional risks and uncertainties are:
product demand and market acceptance; adverse economic or political conditions;
unexpected currency fluctuations; impact of competitive products and pricing on
margins; product development delays and technological difficulties; and
controlling expenses. Other risks are disclosed in the Company's releases and
SEC filings.
Liquidity and Capital Resources
Effective January 1, 1994, the Company had a $10.0 million unsecured
committed line of credit with its bank which expired February 9, 1995. On this
same date, the Company obtained a $15.0 million unsecured committed line of
credit with its bank which replaced the expired $10.0 million line of credit.
On November 21, 1995, the Company obtained a $25.0 million unsecured committed
line of credit which expires on December 31, 1996 and which replaces the $15.0
million line of credit. As a result of the Fidelio acquisition the Company
obtained additional lines of credit from three European banks aggregating DM
13.0 million (approximately $8.5 million at the June 30, 1996 exchange rate).
There were no borrowings by MICROS under any of the lines of credit during
fiscal 1995 and 1994. During fiscal 1996, the Company borrowed against all of
these lines of credit. At June 30, 1996, the Company had borrowed approxi-
mately $14.9 million and has approximately $18.6 million available. As
the Company has significant international operations, its DM-denominated
borrowings do not represent a significant foreign exchange risk. The Company
does not engage in any foreign exchange hedging.
Net cash provided by operating activities was $8.7 million for fiscal 1996
versus $13.0 million for fiscal 1995. Proceeds from the issuance of stock
under the Company's stock option plan provided $646,000 for fiscal 1996 and
$353,400 for fiscal 1995. The income tax benefit from the exercise of
disqualified stock options provided $329,100 for fiscal 1996 and $361,100 for
fiscal 1995. During fiscal 1996, the Company used $32.8 million for investing
activities, including $27.0 million used for business acquisitions and $4.8
million used for the purchase of property, plant, and equipment. During fiscal
1995, the Company used cash of $6.9 million in investing activities, including
$2.6 million for the purchase of property, plant and equipment, $3.2 million
for the purchase of short-term investments, $205,700 for the purchase of net
district assets and $3.5 million primarily for the purchase of an additional
15% interest in Fidelio, offset by $3.2 million in net proceeds from the
repayment of a loan to Fidelio and $210,100 in dividends from affiliates. In
addition, capitalized software development costs were $2,437,000 in fiscal 1996
compared to $286,200 in fiscal 1995.
In fiscal 1996, the Company obtained a DM 10.0 million term loan that was
used to repay DM 10.0 million on its $25.0 million line of credit. The
Company repaid approximately $1.0 million of term debt during fiscal 1996. As
a result,
13
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the cash position of the Company at June 30, 1996 was $15.2 million. All cash
is being held for the operation and expansion of the business.
The Company believes it can meet its liquidity and capital requirements
through a combination of its unused borrowing capacity and cash provided by
operations. It anticipates that its property, plant and equipment requirements
for fiscal 1997 are comparable to its fiscal 1996 expenditures.
Financial indicators of the Company's liquidity and capital resources as of
June 30, 1996 and 1995 were:
In thousands, except ratios 1996 1995
------------------------------------ ---- ----
Cash and cash equivalents $15,231 $23,215
======= =======
Short term investments $0 $3,170
== ======
Available lines of credit $33,500 $15,000
Outstanding lines of credit 14,947 --
------ --
Unused bank line of credit $18,553 $15,000
======= =======
Working capital $20,695 $37,029
======= =======
Long-term debt and capital lease
obligation:
Current $5,362 $363
Non-current 10,162 5,251
------ -----
Total $15,524 $5,614
======= ======
Shareholders' equity $56,195 $53,450
======= =======
Current ratio 1.31 2.25
==== ====
Inflation
The Company has not experienced any significant impact as a result of
inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) 1 in Part IV.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Position
-------------------- -------------------------------------
T. Paul Armstrong Senior Vice President and General Manager, Table Service Restaurant Group
Louis M. Brown, Jr Director and Chairman of the Board
Daniel A. Cohen Director
Jeffery B. Edwards President, Fidelio Software GmbH
A.L. Giannopoulos Director, President and Chief Executive Officer
Fredrick F. Goebel General Manager, Quick Service Restaurant Group
Daniel G. Interlandi Senior Vice President and General Manager, Leisure and Entertainment Group
Gary C. Kaufman Senior Vice President, Finance and Administration/Chief Financial Officer
Ronald J. Kolson Executive Vice President/Chief Operating Officer
Thomas L. Patz General Counsel
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John G. Puente Director
Alan M. Voorhees Director
Roberta J. Watson Vice President and Controller
Edward T. Wilson Director
Directors of the Registrant are elected for a term of one year.
- -------------------------------------------------
Directors and Executive Officers of the Registrant during fiscal year 1996:
T. Paul Armstrong, 38, joined the Company in July 1981 as a software
engineer. In December 1983, he was promoted to the position of Director,
Systems Engineering. In November 1989 he was promoted to Vice President,
Research and Development. In October 1993, Mr. Armstrong was named Vice
President and Product Manager, Full Service Products. In July 1995, Mr.
Armstrong was promoted to Senior Vice President, Research and Development, and
in April 1996, he was made Senior Vice President and General Manager for the
Table Service Restaurant Group. Mr. Armstrong is a graduate of Cambridge
University, England.
Louis M. Brown, Jr., 53, has been a Director of the Company since 1977.
Mr. Brown held the position of President/Chief Executive Officer from January
1986 until his appointment as Chairman of the Board in January 1987. He also
serves as President and a director of IDEAS, Inc., a supplier of high
technology, custom-engineered products and services. Mr. Brown serves as
President/Chief Executive Officer and as a director of Autometric, Inc. and
Chairman of Planning Systems, Inc. He is a graduate of The Johns Hopkins
University (B.E.S.-E.E.).
Daniel A. Cohen, 41, has been a Director of the Company since November
1992. He is Managing Director of Fidelio MICROS France, S.A., a subsidiary of
MICROS Systems, Inc. and distributor of the Company's products. Formerly, Mr.
Cohen was Managing Director and principal shareholder of D.A.C. Systemes/MICROS
France. Mr. Cohen founded D.A.C. Systemes in 1986 and took over the
distribution of MICROS products in France, having previously worked for the
Company's former distributor in France and having previously started
representation of MICROS in Israel. In 1992, the Company acquired a 15%
equity interest in D.A.C. Systemes, and the name was changed to D.A.C.
Systemes/MICROS France. An additional 8% equity interest was acquired by the
Company in fiscal 1994, and the remainder of the stock was acquired by the
company in fiscal 1996. Mr. Cohen is a graduate of the Hotel School of
Lausanne, Switzerland, from which he holds a Masters degree in Hotel
Administration.
Jeffrey B. Edwards, 41, was named President of Fidelio Software GmbH, the
Company's wholly-owned subsidiary with headquarters in Munich, Germany, in
April 1996. Mr. Edwards has been with the Company since 1994 when he was hired
as President of Fidelio Software Corporation, the U.S. subsidiary of Fidelio
Software GmbH. Previously, Mr. Edwards was President and CEO of Action
Software Corporation, and COO of Lodgistix, and provided consulting services to
various hospitality industry clients. He holds a B.S. degree from the
University of Oregon.
A.L. Giannopoulos, 56, has been a Director since March 1992 and was elected
President and Chief Executive Officer in May 1993. Effective as of June 1,
1995, Mr. Giannopoulos resigned as General Manager of the Westinghouse
Information and Security Systems Divisions having been with Westinghouse for 30
years and was hired by the Company pursuant to an Employment Agreement to
terminate December 31, 1999. In prior assignments at Westinghouse, Mr.
Giannopoulos was General Manager of the Automation Division and National
Industrial Systems Sales Force, Industries Group. Mr. Giannopoulos is a
graduate of Lamar University with a Bachelor of Science degree in Electrical
Engineering.
Frederick F. Goebel, 37, joined the company in March 1996 as General
Manager Quick Service Restaurant Group. For the twelve years prior to coming
to MICROS, Mr. Goebel was employed at Par Microsystems Corporation where he
held various management positions in its Fast Food Division. Mr. Goebel is a
graduate of
15
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Clarkson College of Technology, now Clarkson University, with a Bachelor of
Science degree in Management and Marketing.
Daniel G. Interlandi, 43, began his career with MICROS in 1980. He has
held key sales and management positions at the Company involving district
operations, distributors, major accounts, customer service, and served as
Product Manager for Full Service Products. He was promoted to Vice President,
Full Service Products in May 1993 and to Senior Vice President, Sales &
Marketing in September 1993. In April 1996 he was appointed Senior Vice
President and General Manager, Leisure and Entertainment Group. Mr.
Interlandi is a 1975 graduate of Knox College.
Gary C. Kaufman, 46, served as a Director of the Company from January 1991
until May 1994 when he was appointed to Vice President, Finance and
Administration/Chief Financial Officer. Subsequent to June 30, 1996, he was
promoted to Senior Vice President, Finance and Administration/Chief Financial
Officer. Previously, Mr. Kaufman was Division Controller for Westinghouse
Security and Network Services Divisions, having been with Westinghouse for 20
years in various financial positions. Mr. Kaufman is a graduate of the
University of Dayton with a Bachelor of Science degree in Accounting and is
also a Certified Public Accountant.
Ronald J. Kolson, 42, joined the Company in April 1984 as Controller. In
September 1987 he was promoted to Vice President, Finance and
Administration/Chief Financial Officer. In 1994, he was promoted to his
present position of Executive Vice President/Chief Operating Officer. Mr.
Kolson is a graduate of The Pennsylvania State University with a Bachelor of
Science Degree in Accounting and is also a Certified Public Accountant.
Thomas L. Patz, 36, joined the Company in August 1995 as General Counsel.
Previously, Mr. Patz was Assistant General Counsel of Westinghouse Electric
Corporation. Mr. Patz is a 1982 graduate of Brown University with a Bachelor
of Arts degree in English, and a 1985 graduate of the University of Virginia
School of Law with a degree of Juris Doctor. Mr. Patz is a member of the
Maryland State Bar.
John G. Puente, 66, has been a Director since May 1996. He is the Chairman
of Telogy Networks, Inc., a developer of communications software products. Mr.
Puente is also on the board of directors of Orion Network Systems, a company
which provides satellite services and facilities. Previously, he was Chairman
and CEO of Orion. Prior to joining Orion, Mr. Puente was Vice Chairman of
M/A-Com, a supplier of microwave components and systems to the
telecommunications industry. He was a founder and Chairman of Digital
Communications Corporation (now Hughes Network Systems) and SouthernNet, a
fiber optic long distance company which merged to form Telecom USA and was
later acquired by MCI. Mr. Puente is a graduate of Polytechnic Institute of
New York and now serves on the Board of Trustees of that institution, and he
holds a Masters degree from Stevens Institute of Technology. He is Chairman of
the Board of Trustees of Capitol College.
Alan M. Voorhees, 73, has been a Director of the Company since 1982. He is
Chairman of Summit Enterprises, Inc. of Virginia, a privately-held investment
company. Mr. Voorhees also is the Chairman of the Board of Autometric, Inc.,
and IDEAS, Inc., a supplier of high technology, custom-engineered products and
services, and a member of the Board of Directors of Atlantic Southeast
Airlines, Inc. Mr. Voorhees is a graduate of Rensselaer Polytechnic Institute
and holds a Masters degree from Massachusetts Institute of Technology.
Roberta J. Watson, 35, joined the Company in November 1987 as Manager of
Accounting. In March 1990, she was promoted to the position of Controller, and
in November 1994, she was promoted to Vice President and Controller. Ms.
Watson holds a Bachelor of Science degree in Accounting from the State
University of New York and is a Certified Public Accountant.
Edward T. Wilson, 55, has been a Director of the Company since 1981. He is
currently a private investment advisor and President of the Fund for Fine Arts.
Previously, Mr. Wilson held senior management positions in domestic and
international banking with Riggs National Bank, The Bank of America and in
trade relations with the U.S. Chamber of Commerce and the U.S. Commerce
Department. Mr. Wilson holds a doctorate in international relations from The
Johns Hopkins University.
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17
Information relating to filings made pursuant to Section 16 of the
Securities Exchange Act of 1934 will be set forth in the Company's Proxy
Statement, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION AND TRANSACTIONS
The information required by Item 11 will be set forth in the Company's
Proxy Statement under the caption "Executive Compensation", and such
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is the number of shares of the Company's Common Stock and
the percentage of the total outstanding shares beneficially owned by each
director of the Company, the Chief Executive Officer, the four other most
highly compensated executive officers, all directors and executive officers as
a group, and all persons beneficially owning 5% or more of the Company's Common
Stock as of August 30, 1996. Also set forth below is the address of each 5%
beneficial owner.
Number of
Shares
of Common Stock
Beneficially
Owned as
of August 30, Percent of
Individual or Group (1) 1996 (2) Class
----------------------- -------- -------------
Louis M. Brown, Jr 26,000 (3) Less than 1%
Director, Chairman of the Board
Daniel Cohen 10,000 Less than 1%
Director
A. L. Giannopoulos 9,333 (4) Less than 1%
Director, President and Chief Executive Officer
John G. Puente 2,000 Less than 1%
Director
Alan M. Voorhees 20,000 (5) Less than 1%
Director
Edward T. Wilson 17,000 (6) Less than 1%
Director
T. Paul Armstrong 18,001 (7) Less than 1%
Senior Vice President, General Manager for the Full
Service Division
Daniel Interlandi 12,967 (8) Less than 1%
Senior Vice President Sales and Marketing
Gary C. Kaufman 5,167 (9) Less than 1%
Senior Vice President, Finance and Administration,
Chief Financial Officer
Ronald J. Kolson 49,000 (10) Less than 1%
Executive Vice President Chief Operating Officer
Directors and Executive 187,634 (11) 2.3%
Officers as a Group (14 persons, including the
above-named persons)
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116 467,000 5.8%
RCM Capital Management
4 Embarcadero Center, Suite 3000
San Francisco, CA 94111 786,913 9.8%
SAFECO Asset Management Company
SAFECO Plaza
Seattle, WA 98185 996,000 12.4%
State of Wisconsin Investment Board
P.O. Box 7842
Madison, WI 53707 407,500 5.1%
17
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Strong Funds
P.O. Box 2936
Milwaukee, WI 53201 421,625 5.3%
(1) As of August 30, 1996, CEDE & Co., nominee for Stock Clearing
Corporation, Box 20, Bowling Green Station, New York, New York, a central
certificate service, held of record 7,740,353 shares (97.4%) of the outstanding
shares of Common Stock. Those shares are believed to be owned beneficially by a
large number of beneficial owners and, except as indicated in this table, the
Company is not aware of any other individual or group owning beneficially more
than 5% of the outstanding Common Stock.
(2) Information with respect to beneficial ownership is based on
information furnished by each shareholder. Sole voting and sole investing power
is exercised by each individual.
(3) Includes options to purchase 5,000 shares exercisable within 60 days.
(4) Includes options to purchase 7,333 shares exercisable within 60 days.
(5) Does not include 30,000 shares held by irrevocable trusts created for
the benefit of the adult children of Mr. Voorhees, with respect to which he
disclaims any beneficial interest.
(6) Does not include 23,500 shares held in custody for the children of
Mr. Wilson, with respect to which he disclaims any beneficial interest.
(7) Includes options to purchase 14,667 shares exercisable within 60
days.
(8) Includes options to purchase 12,667 shares exercisable within 60
days.
(9) Includes options to purchase 4,667 shares exercisable within 60 days.
Mr. Kaufman disclaims any beneficial interest in 600 shares of Common Stock,
not included here, held in custody for his dependent children.
(10) Includes options to purchase 7,000 shares exercisable within 60 days.
(11) Includes stock options for the purchase of 67,000 shares of Common
Stock which are exercisable as of or within 60 days of August 30, 1996 and
assumes 8,015,317 shares outstanding upon the exercise of such options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Westinghouse, as an incentive to 11 key officers to remain with the Company
for a period of two years following June 1, 1995, agreed to make payments to
such officers aggregating up to approximately $1.25 million, payable in three
equal installments promptly after such date and on the first and second
anniversaries of such date (subject to the officer remaining employed by the
Company on the relevant payment date). In June 1995, the first installment of
$409,100 was paid for these key officers of the Company. In June 1996, the
second installment of $360,800, reduced by $48,300 from the June 1995 payment
due to the resignation of one of the eleven key officers, was paid by
Westinghouse. The final installment is to be paid in June 1997. Even though
such payments are entirely funded by Westinghouse and will not require any use
of the Company's cash, for accounting purposes, they are required to be
reflected as compensation expense in the Company's financial statements.
The Company has purchased certain raw materials and has contracted for
certain sub-assembly operations through Westinghouse to take advantage of more
competitive pricing available through off-shore manufacturing locations. The
Company estimates that it has purchased approximately $195,000, $964,700 and
$1,691,200, in such materials and labor from Westinghouse during fiscal 1996,
1995 and 1994, respectively. The fiscal 1996 activity represents only
purchases for the period from July through September 1995, as no related party
relationship existed after September 1995.
18
19
During fiscal 1996, 1995 and 1994, the Company also purchased from
Westinghouse and its subsidiaries approximately $170,000, $877,600 and
$667,400, respectively, for other products and services provided to the
Company, including insurance coverage, office space, consulting, office
furniture, and telecommunications services. In fiscal 1996, the Company's
purchases were limited to telecommunications services and represents purchases
for the period from July through September 1995, as no related party
relationship existed after September 1995.
During fiscal 1996, 1995 and 1994, the Company sold approximately $344,000,
$1,208,200 and $1,107,500, respectively, in products to D.A.C. Systemes/MICROS
France, under the same terms and conditions offered to other
independently-owned dealers/distributors of the Company. D.A.C.
Systemes/MICROS France was principally owned by Daniel Cohen, a Director of the
Company, until August 25, 1995, when MICROS acquired controlling interest. The
fiscal 1996 activity covers only the period from July through August 1995,
since sales are eliminated as intercompany after that date.
During fiscal 1996, 1995 and 1994, the Company compensated Louis M. Brown,
Jr., Chairman of the Board, $216,500, $182,900 and $154,000, respectively, for
consulting services provided to the Company. Effective June 30, 1995, the
Company and Mr. Brown entered into a Consulting Agreement pursuant to which Mr.
Brown is to provide on the average 20 hours per week of consulting services to
the Company terminating on June 30, 2000 in exchange for a base salary
commencing at $150,000 plus a target bonus of $70,000, with annual adjustments.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
No.
---
(a) The following documents are filed as a part of this report:
1. Financial Statements:
Report of Independent Accountants 22
Consolidated balance sheets as of June 30, 1996 and 1995 23
Consolidated statements of operations for the years ended June 30, 1996,
1995 and 1994 24
Consolidated statements of shareholders' equity for the years ended June
30, 1996, 1995 and 1994 25
Consolidated statements of cash flows for the years ended June 30, 1996,
1995 and 1994 26
Notes to consolidated financial statements 28
2. Financial Statement Schedules:
Schedule II, Valuation and qualifying accounts and reserves 41
All other schedules are omitted because they are not applicable, or not
required, or the required information is included in the financial
statements or notes thereto.
3. Exhibits:
2.1 Purchase and Transfer Agreement dated November 30, 1995, is
incorporated herein by reference to Exhibit 2.1 to the Form
8-K filed December 14, 1995.
2.2 Agreement dated May 12, 1993 is incorporated herein by
reference to Exhibit 2.2 to the Form 8-K filed December 14,
1995.
19
20
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
3(i). Articles of Incorporation of the Company as in effect on the date
hereof is 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(ii). By-laws of the Company as in effect on the date hereof is
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.
10a1. Amendment and Restatement of MICROS Systems, Inc. Stock Option Plan
is incorporated herein by reference to Exhibit 4.1 to the
Registration Statement on Form S-8 of the Company filed on February
16, 1990.*
10a2. First Amendment to the Amendment and restatement of MICROS Systems,
Inc. Stock Option Plan constituting Exhibit 10a1 hereto is
incorporated herein by reference to Exhibit 4.2 to the Registration
Statement on Form S-8 of the Company filed on February 16, 1990.
10b1. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is
incorporated herein by reference to Exhibit A to the Proxy Statement
of the Company for the 1993 Annual Meeting of Shareholders.
10b2. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is
incorporated herein by reference to Exhibit A to the Proxy Statement
of the Company for the 1995 Annual Meeting of Shareholders.
10c1. Stock Unit Purchase Agreement dated October 30, 1986 between
Westinghouse Electric Corporation and MICROS Systems, Inc. is
incorporated herein by reference to Exhibit 4d to the Registration
Statement on Form S-3 of the Company filed on January 25, 1995.
10c2. Letter Agreement dated May 2, 1995 between Westinghouse Electric
Corporation and MICROS Systems, Inc. is incorporated herein by
reference to Exhibit 4e to Amendment No. 4 to the Registration
Statement on Form S-3 of the Company filed on May 3, 1995 is
incorporated herein by reference to Exhibit 10c2. to the Annual
Report on Form 10-K of the Company for the Fiscal Year ended June 30,
1995.
10d. Underwriting Agreement dated July 6, 1995 by and among MICROS
Systems, Inc., Westinghouse Electric Corporation, Westinghouse
Holdings Corporation and J.P. Morgan Securities, Inc. Morgan Stanley
& Co. Incorporated and Smith Barney, Inc. is incorporated herein by
reference to Exhibit 10d. to the Annual Report on Form 10-K of the
Company for the Fiscal Year ended June 30, 1995.
10e. Employment Agreement dated June 1, 1995 between MICROS Systems, Inc.
and A.L. Giannopoulos is incorporated herein by reference to Exhibit
10e to the Annual Report on Form 10-K of the Company for the Fiscal
Year ended June 30, 1995.*
10f. Consulting Agreement dated June 30, 1995 between MICROS Systems, Inc.
and Louis M. Brown, Jr. is incorporated herein by reference to
Exhibit 10f to the Annual Report on Form 10-K of the Company for the
Fiscal Year ended June 30, 1995.*
10g. Employment Agreement dated August 25, 1995 between MICROS Systems,
Inc. and Daniel Cohen is incorporated herein by reference to Exhibit
10g to the Annual Report on Form 10-K of the Company for the Fiscal
Year ended June 30, 1995.*
20
21
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
10h. MICROS Systems, Inc. Bonus and Incentive Plan is incorporated herein
by reference to Exhibit 10 to the Quarterly Report on Form 10-Q of
the Company for the period ended September 30, 1994.*
11. Statement Regarding Computation of Earnings Per Share.
21. Subsidiaries of the Company.
23. Consent of Independent Accountants.
27. Financial Data Schedule.
99.1 Final Statements of Acquired Business is incorporated herein by
reference to Exhibit 99.1 to the Form 8-K/A filed February 13, 1996.
99.2 Proforma Financial Information is incorporated herein by
reference to Exhibit 99.2 to the Form 8-K/A filed February 13, 1996.
- -----------------------
* Indicates that exhibit is a management contract or compensatory plan or
arrangement.
(b) Reports on form 8-K:
No reports on Form 8-K have been filed during the fourth quarter of
the fiscal year ended June 30, 1996.
The annual report will be submitted to shareholders prior to the
annual meeting scheduled for November 22, 1996.
21
22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of MICROS Systems, Inc.,
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 19 present fairly, in all
material respects, the financial position of MICROS Systems, Inc. and its
subsidiaries at June 30, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1996,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Baltimore, Maryland
September 20, 1996
22
23
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of June 30, 1996 and 1995
(in thousands, except per share data)
1996 1995
---- ----
ASSETS
Current assets:
Cash and cash equivalents $15,231 $23,215
Short term investments -- 3,170
Accounts receivable, net of allowance for doubtful accounts of
$ 2,016 in 1996 and $1,229 in 1995 49,250 25,185
Inventories 15,138 11,344
Deferred income taxes 3,899 1,890
Prepaid expenses and other current assets 4,420 1,820
----- -----
Total current assets 87,938 66,624
Property, plant and equipment, net 15,623 10,162
Note receivable 225 649
Deferred income taxes, non-current 5,580 --
Goodwill and intangible assets, net of accumulated amortization of
$3,346 in 1996 and $1,217 in 1995 20,746 7,569
Capitalized computer software development costs; net of accumulated 6,287 1,544
amortization of $2,650 in 1996 and $1,684 in 1995
Other assets 437 3,096
--- -----
Total assets $136,836 $89,644
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $14,947 $0
Current portion of long-term debt 5,238 258
Current portion of capital lease obligation 124 105
Accounts payable 12,726 8,505
Accrued expenses and other current liabilities 23,927 16,215
Income taxes payable 986 361
Deferred service revenue 9,295 4,151
----- -----
Total current liabilities 67,243 29,595
Long-term debt, net of current portion 6,704 1,669
Capital lease obligation, net of current portion 3,458 3,582
Deferred income taxes 2,588 933
Minority interests 648 415
--- ---
Total liabilities 80,641 36,194
------ ------
Commitments and contingencies
Shareholders' equity:
Common stock, $.025 par; authorized 10,000 shares; issued
and outstanding 7,944 in 1996 and 7,859 shares in 1995 199 196
Capital in excess of par 16,253 14,883
Retained earnings 39,794 37,402
Accumulated foreign currency translation adjustments (51) 969
---- ---
Total shareholders' equity 56,195 53,450
------ ------
Total liabilities and shareholders' equity $136,836 $89,644
======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
23
24
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 1996, 1995 and 1994
(in thousands, except per share data)
1996 1995 1994
---- ---- ----
Revenue:
Hardware and software $119,854 $85,929 $62,441
Service 58,195 26,092 16,824
------ ------ ------
178,049 112,021 79,265
------- ------- ------
Costs and expenses:
Cost of Sales
Hardware and software 62,270 44,513 32,467
Service 28,028 11,751 6,981
------ ------ -----
90,298 56,264 39,448
Selling, general and administrative expenses 57,024 32,817 22,859
Research and development expenses 7,171 4,758 3,392
Purchased incomplete software technology (Note 2) 14,770 -- --
Depreciation and amortization 4,755 1,640 1,244
----- ----- -----
174,018 95,479 66,943
------- ------ ------
Income from operations 4,031 16,542 12,322
Non-operating income (expense):
Interest income 833 1,173 651
Interest expense (1,648) (369) (188)
Other income (expense), net (55) 476 (201)
---- --- -----
Income before taxes and equity in net earnings of
affiliates and minority interests 3,161 17,822 12,584
Income taxes 347 6,175 3,982
--- ----- -----
Income before equity in net earnings of affiliates 2,814 11,647 8,602
and minority interests
Equity in net earnings of affiliates and minority interests (422) (70) 85
----- ---- --
Net income $2,392 $11,577 $8,687
====== ======= ======
Net income per common and common equivalent share $0.30 $1.46 $1.10
===== ===== =====
Weighted-average number of common and common
equivalent shares outstanding 8,006 7,952 7,911
===== ===== =====
The accompanying notes are an integral part of the consolidated financial
statements.
24
25
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended June 30, 1996, 1995 and 1994
(in thousands)
Accum. Foreign
Common Stock Capital Currency
------------------ in Excess Retained Transl.
Shares Amount of Par Earnings Adjust. Total
------ ------ -------- -------- ------------- ----------
Balance, June 30, 1993 7,654 $191 $12,727 $17,138 $(86) $29,970
Stock issued upon exercise of options 133 4 676 -- -- 680
Income tax benefit from stock options
exercised -- -- 358 -- -- 358
Net income for the year -- -- -- 8,687 -- 8,687
Foreign currency translation
adjustment -- -- -- -- 243 243
-- -- -- -- --- ---
Balance, June 30, 1994 7,787 195 13,761 25,825 157 39,938
Stock issued upon exercise of options 72 1 352 -- -- 353
Income tax benefit from stock options
exercised -- -- 361 -- -- 361
Net income for the year -- -- -- 11,577 -- 11,577
Foreign currency translation
adjustment -- -- -- -- 812 812
Capital contribution from Westinghouse -- -- 409 -- -- 409
-- -- --- -- -- ---
Balance, June 30, 1995 7,859 196 14,883 37,402 969 53,450
Stock issued upon exercise of options 85 3 644 -- -- 647
Income tax benefit from stock options
exercised -- -- 329 -- -- 329
Net income for the year -- -- -- 2,392 -- 2,392
Foreign currency translation
adjustment -- -- -- -- (1,020) (1,020)
Capital contribution from Westinghouse -- -- 361 -- -- 361
Other -- -- 36 -- -- 36
------- -------- -- ------- ------ --
Balance, June 30, 1996 7,944 $199 $16,253 $39,794 $(51) $56,195
===== ==== ======= ======= ==== =======
The accompanying notes are an integral part of the consolidated financial
statements.
25
26
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
--------- ---------- ---------
Cash flows from operating activities:
Net income $2,392 $11,577 $8,687
------ ------- ------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,755 1,640 1,244
Amortization of capitalized software 1,494 490 439
Charge for purchase of incomplete software 14,770 -- --
Provision for losses on accounts receivable 473 697 274
Provision for inventory obsolescence 446 502 564
Undistributed earnings from equity investment and
minority interests 422 70 (85)
Provision for deferred income taxes (6,039) (261) (398)
Currency gain on equity investment and
loan receivable (189) (188) (446)
Changes in assets and liabilities:
Increase in accounts receivable (6,779) (8,240) (5,837)
Increase in inventories (3,193) (1,529) (3,633)
(Increase) decrease in prepaid expenses and
other assets (882) (1,213) 394
Increase in accounts payable 871 2,612 605
(Decrease) increase in accrued expenses and other
current liabilities (1,071) 5,472 2,733
Decrease in income taxes payable (118) (314) (653)
Increase in deferred service revenue 1,316 1,661 680
----- ----- ---
Total adjustments 6,276 1,399 (4,119)
----- ----- -------
Net cash provided by operating activities 8,668 12,976 4,568
----- ------ -----
Cash flows from investing activities:
Purchases of property, plant and equipment (4,822) (2,589) (1,225)
Dispositions of property, plant and equipment 112 2 88
Capitalized software development costs (2,437) (286) (197)
Purchase of net district assets -- (206) (245)
Purchase of equity interest in investees -- (3,482) (408)
Sale (purchase) of short-term investments 3,170 (3,170) --
(Loan) proceeds to affiliates (2,347) 3,223 --
Loan to investee -- (604) --
Dividends received from affiliates 581 210 31
Proceeds from sale of affiliate stock -- -- 108
Net cash paid for acquisitions (27,036) -- --
------- ------- --------
Net cash used in investing activities (32,779) (6,902) (1,848)
------- ------- --------
Cash flows from financing activities:
Principal payments on line of credit (11,152) -- --
Principal payments on long-term debt (2,756) (233) (187)
Principal payments on capital lease obligation (154) (88) (70)
Proceeds from issuance of stock 646 353 680
Proceeds from long-term debt 8,075 -- --
Proceeds from line of credit 20,742 -- --
Income tax benefit from stock options exercised 329 361 357
Capital contributions from Westinghouse and other 397 409 --
--- --- ----
Net cash provided by financing activities 16,127 802 780
------ --- ---
The accompanying notes are an integral part of the consolidated financial
statements.
26
27
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
for the years ended June 30, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
---- ---- ----
Net (decrease) increase in cash and cash equivalents $(7,984) $6,876 $3,500
Cash and cash equivalents at beginning of year 23,215 16,339 12,839
------ ------ ------
Cash and cash equivalents at end of year $ 15,231 $23,215 $16,339
======== ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $1,247 $368 $171
====== ==== ====
Income taxes $5,761 $6,470 $4,729
====== ====== ======
Supplemental schedule of noncash financing and investing activities (in
thousands):
The purchase of district assets in fiscal 1995 included cash payments
of $206 and the issuance of a promissory note in the amount of $235,
with annual payments through April 1999. The unamortized discount on
the note, based on an imputed annual interest rate of 8.75%, is $25
at June 30, 1996.
The purchase of district assets in fiscal 1994 included a cash
payment of $245 and the issuance of a promissory note in the amount
of $500. Payments in the amount of $100 are due beginning September
30, 1994, and on the same day of each succeeding year thereafter
through September 30, 1998. The unamortized discount on the note,
based on an imputed annual interest rate of 5.75% is $20 at June 30,
1996.
In August 1995, the Company purchased the remaining 77% of D.A.C.
Systemes/MICROS France and AD-Maintenance Informatique ("ADMI") for
FF 14,000 (approximately $2,800 at exchange rates in effect at the
date of purchase), payable FF 8,000 at closing and FF 6,000 over the
next four years, plus potential additional payments based on earnings
over the next four years. The unamortized discount on the note,
based on an imputed annual interest rate of 8.75% is $144 at June 30,
1996.
A capital lease obligation of $3,838 was incurred in January 1994
when the Company entered into a lease for office space.
The accompanying notes are an integral part of the consolidated financial
statements.
27
28
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of business and summary of significant accounting
policies:
Description of business
MICROS is a leading worldwide designer, manufacturer, supplier and
servicer of point-of-sale ("POS") systems, property management
systems ("PMS") and central reservation systems ("CRS") software for
hospitality providers, including full service and quick service
restaurants, restaurants located in hotels and other lodging
establishments, casinos, sports arenas, theme parks, hotels, motels
and resorts. (References to "MICROS" or the "Company" herein include
the operations of MICROS Systems, Inc. and its subsidiaries on a
consolidated basis.)
Basis of Preparation
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles which requires the use of
estimates made by the Company's management. Actual results may
differ from those estimates.
Principles of consolidation
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. The earnings in
consolidated MICROS subsidiaries are recorded net of minority
interest. Investments in 20%-through 50%-owned affiliated companies
in which the Company exercises significant influence over operating
and financial affairs are included under the equity method.
Otherwise, investments are included at cost. All significant
intercompany accounts and transactions have been eliminated.
Foreign currency translation
The financial statements of MICROS' non-U.S. operations are
translated into U.S. dollars for financial reporting purposes. The
assets and liabilities of non-U.S. operations whose functional
currencies are other than the U.S. dollar are translated at rates of
exchange at fiscal year-end, and revenues and expenses are translated
at average exchange rates for the fiscal year. The cumulative
translation effects are reflected in shareholders' equity. Gains and
losses on transactions denominated in other than the functional
currency of an operation are reflected in other income (expense).
Revenue recognition
Revenue from hardware sales is recognized at the time of shipment
with a provision for estimated returns and allowances. Revenue from
licensed software sales is recognized when shipped, with an
appropriate deferral for post-contract customer support. This
deferral is earned when significant obligations no longer exist.
Revenue from the installation of products is recognized upon the
completion of the installation of the product as acknowledged by the
customer. Service contract revenue is initially recorded as deferred
service revenue and is reflected in operating income on a pro rata
basis over the contract term.
Cash equivalents
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
28
29
Short term investments
Short term investments are those with maturities in excess of 3
months, but less than 1 year from the date of purchase. These
interest bearing investments are readily convertible to cash and are
carried at cost which approximates fair value. Short term
investments are comprised of tax-free and taxable variable rate bonds
that can be readily purchased or sold using established markets.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined principally by the first-in, first-out method.
Property, plant and equipment
Property, plant and equipment are stated at cost. Maintenance and
repairs are charged to expense as incurred, and the costs of
additions and betterments are capitalized. Depreciation is provided
in amounts which amortize costs over the useful lives of the related
assets, generally three to ten years for equipment and forty years
for building and building improvements, utilizing the straight-line
method.
Leasehold improvements are amortized over the terms of the respective
leases or useful lives of the improvements, whichever is shorter.
Warranties
A majority of the Company's products are under warranty for defects
in material and workmanship for a one-year period. The Company
establishes an accrual for estimated warranty costs at the time of
sale.
Capitalized computer software development costs
The Company capitalizes software development costs in accordance with
Statement of Financial Accounting Standards No. 86. Software
development costs incurred prior to establishing technological
feasibility are charged to operations and included in research and
development costs. Software development costs incurred after
establishing technological feasibility, and purchased software costs,
are capitalized and amortized on a product-by-product basis when the
product is available for general release to customers. Annual
amortization, charged to cost of sales, is the greater of the amount
computed using the ratio that current gross revenues for a product
bear to the total of current and anticipated future gross revenues
for that product, or the straight-line method over the remaining
estimated economic life of the product.
The total computer software development costs capitalized (in
thousands) in fiscal 1996, 1995 and 1994 were $2,437, $286 and $197,
respectively. The total costs amortized and charged to operations
(in thousands) in fiscal 1996, 1995 and 1994 were $1,494, $490 and
$439 respectively.
Research and development costs
Expenditures for research and development not capitalized as
described above are charged to operations as incurred.
29
30
Goodwill and Intangible Assets
Goodwill represents the excess of purchase price over the fair value
of the net assets of acquired subsidiaries and investees. Goodwill
and intangible assets are stated on the basis of cost and are
amortized on a straight line basis over their estimated periods of
benefit, none of which exceeds 10 years. Recoverability is assessed
annually or whenever adverse events and changes in circumstances
indicate that undiscounted cash flows previously anticipated warrant
reassessment.
Financing costs related to long-term debt
Costs associated with obtaining long-term debt are deferred and
amortized over the term of the related debt.
Advertising costs
The Company's policy for accounting for advertising is to expense
costs as incurred. Advertising expenses (in thousands) for fiscal
1996, 1995 and 1994, were $2,590, $1,601 and $1,225, respectively.
Income taxes
The Company follows Financial Accounting Standards Board Statement
No. 109 (SFAS 109), Accounting for Income Taxes, which is an asset
and liability approach that requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax basis
of assets and liabilities.
Net income per common and common equivalent share
Net income per common and common equivalent share is computed based
on the weighted-average number of common and dilutive common
equivalent shares outstanding during each year. For purposes of this
computation, the Company's dilutive outstanding stock options are
considered common stock equivalents.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments reflected
in the consolidated balance sheet at June 30, 1996 approximate their
respective fair values.
Reclassifications
Certain balances have been reclassified to conform to 1996
presentation.
2. Acquisitions (in thousands):
Fidelio Software GmbH
On November 30, 1995, the Company acquired the remaining 70% of
Fidelio Software GmbH ("Fidelio") for DM 40,000 (approximately
$28,500 at the exchange rate as of the date of acquisition) in a
transaction which has been accounted for under the purchase method
(the "Acquisition"). In fiscal 1993, 15% of the capital stock of
Fidelio had been acquired and an additional 15% was acquired in
October 1994; the carrying value of this 30% investment at the date
of the Acquisition was $7,700.
The Company engaged a nationally recognized, independent appraisal
firm to express an opinion on the fair market value of the Fidelio
assets acquired to serve as a basis for allocation of the purchase
price for the remaining 70% to various classes of assets. The
appraisal included identifiable intangible assets as well
30
31
as software technology. After the Company's allocation of the
purchase price for the acquisition, including $1,700 of acquisition
liabilities incurred, and elimination of the carrying value of the
initial 30% investment, Fidelio's assets and liabilities were
recorded on a consolidated basis at the date of acquisition:
Tangible net assets (liabilities) $(3,200)
Identifiable intangible assets 2,000
Current software products 3,800
Purchased incomplete software technology 14,770
Goodwill (excess of purchase price over
fair value of net assets acquired) 20,500
------
$37,870
=======
The tangible net assets (liabilities) consist primarily of cash,
accounts receivable, inventory, property and equipment and
liabilities assumed. The identifiable intangible assets are being
amortized on a straight-line basis over periods ranging from seven to
nine years. All goodwill related to Fidelio, including approximately
$5,000 remaining from the initial 30% purchase, is being amortized
over nine years.
The software technology valuation was accomplished through the
application of an income approach. Projected debt-free income,
revenue net of provision for operating expenses, income taxes and
returns on requisite assets were discounted to a present value. This
approach was used for each of the Fidelio product lines. Software
technology was divided into two categories:
1. "Current products", representing software
products currently in the marketplace as of the
acquisition date, and software in the development
stage which had reached technological
feasibility.
2. "Purchased incomplete software technology",
representing products in the development stage
not considered to have reached technological
feasibility.
The fair market value of the purchased current products was
determined to be $3,800. This amount was recorded as an asset and is
being amortized over a maximum of four remaining years based on the
greater of the ratio that the current gross revenues from the
product bear to the total of current and anticipated future gross
revenues for that product or straight-line amortization.
Purchased incomplete software technology included the value of
products still in the development stage and not considered to have
reached the technological feasibility stage. As a result of the
valuation, the fair market value of the purchased incomplete software
technology was determined to be $14,770. In accordance with the
applicable accounting rules, this amount was expensed upon
acquisition in the second quarter of fiscal 1996.
Unaudited pro forma information for the twelve-month periods ended
June 30, 1996 and 1995, as if the acquisition had occurred on the
first day of those periods, but excluding the one-time write-off of
the purchased incomplete software technology discussed above, is
shown below. Such pro forma information also reflects the pro forma
effects of Fidelio's acquisition of 100% of the common stock of
Executive Technologies of Southwest Florida, Inc. in October 1995 for
$4,000.
31
32
UNAUDITED
Twelve Months Ended June 30,
----------------------------
1996 1995
---- ----
(in thousands, except per share data)
Revenue $202,700 $158,100
Net Income $10,300 $11,200
Net income per share $1.29 $1.41
D.A.C. Systemes/MICROS France and AD-Maintenance Informatique
("ADMI")
On August 25, 1995, the Company purchased from Daniel Cohen (a
director of the Company) and his family, the remaining 77% of D.A.C.
Systemes/MICROS France and AD-Maintenance Informatique ("ADMI") for
FF 14,000 (approximately $2,800 at exchange rates in effect at the
date of purchase), payable FF 8,000 at closing and FF 6,000 over the
next four years, plus potential additional payments based on earnings
over the next four years. In addition, Mr. Cohen was granted a five
year employment contract at FF 600 (approximately $119 at exchange
rates in effect at the date of purchase) per year plus a bonus based
on future operating results. Goodwill recorded as a result of this
transaction was $1,000 which is being amortized over 9 years. The
pro forma effects of this acquisition are immaterial and are not
presented herein.
3. Inventories:
The components of inventories are as follows (in thousands):
1996 1995
---- ----
Raw materials $3,528 $2,534
Work-in-process 2,955 2,785
Finished goods 8,655 6,025
----- -----
$15,138 $11,344
======= =======
4. Property, plant and equipment (in thousands):
The components of property, plant and equipment are as follows:
1996 1995
---- ----
Land $1,583 $1,583
Buildings 5,235 4,821
Building improvements 320 320
Machinery and equipment 15,218 7,578
Furniture and fixtures 5,742 2,872
Leasehold improvements 857 338
--- ---
28,955 17,512
Accumulated depreciation and amortization (13,332) (7,350)
-------- -------
Net property, plant and equipment $15,623 $10,162
======= =======
5. Line of credit (in thousands):
The Company has a $25,000 multi-currency unsecured committed line of
credit with NationsBank, N.A. ("NationsBank"), effective November 21,
1995, and expiring on December 31, 1996. The Company has the
one-time option to convert the line of credit into a three-year
secured term loan upon expiration of the line of credit. Interest
due under the line of credit will be calculated as follows: (i) in
the event the advance is in U.S. dollars, at the option of the
Company, either the bank's prime rate minus one half of one percent
(.50%) per annum, or the LIBOR rate plus one and one eighth percent
(1.125%) per annum; or (ii) in the event the advance is made in a
currency other than the U.S. dollar, the LIBOR rate for the
applicable denominated currency selected, plus one and one eighth
percent (1.125%) per annum. Interest due under the three-year
secured term loan shall be, at the option of the Company, the prime
rate or the treasury bill
32
33
rate (adjusted to a constant maturity of three years) plus two and
one quarter percent (2.25%). During fiscal 1996, the Company had
drawn under the existing line of credit DM 30,000, which was utilized
to fund the acquisition of the remaining stock in Fidelio at the end
of November 1995. Under the terms of the current loan agreement, the
Company may borrow up to $25,000 less the amount of outstanding
letters of credit. Amounts outstanding under the line are payable on
demand and are not secured by the assets of the Company. The
agreement requires the Company to satisfy certain financial
covenants. In addition, the agreement limits the incurrence of
additional indebtedness and restricts the Company's payment of
dividends other than stock dividends.
Prior to November 21, 1995, the Company had another line of credit
with NationsBank, N.A., with a borrowing capacity of $15,000. There
were no borrowings under the $15,000 line of credit.
Further, Fidelio maintains three unsecured committed lines of credit
with BHF Bank, Hypobank and Commerzbank. DM 13,000 (approximately
$8,500 at the June 30, 1996 exchange rate), is available in the
aggregate under these lines of credit. The balance as of June 30,
1996, was approximately DM 3,000 (approximately $1,900 at the June
30, 1996 exchange rate) which was utilized for general corporate
purposes. Certain Fidelio subsidiaries maintain additional lines of
credit, none of which is material.
6. Long-term debt (in thousands):
The components of long-term debt are as follows:
June 30, 1996
Interest Rates Maturities 1996 1995
-------------- ---------- ---- ----
Term loan 5.30% April 1999 $6,016 $ --
Variable rate note 4.9% 2006 1,201 1,331
Term loan 7.25% June 1997 813 --
Notes payable 5.75-8.85% 1999-2000 3,080 535
All other Various 1997-2002 832 61
------ --------
11,942 1,927
Less current portion 5,238 258
------ --------
$6,704 $ 1,669
====== ========
In March 1996, the Company obtained a DM 10,000, thirty-six month
term loan from Commerzbank. Under the loan, payments of principal
and accrued interest at a fixed rate of 5.3% are due at the end of
each month, with repayments beginning in April 1996. The Company
used the full proceeds to reduce the DM 30,000 borrowing under the
NationsBank line of credit.
The variable rate note relates to the Company's Industrial Revenue
Bond obligation used to purchase one of the buildings it occupies in
Beltsville, Maryland. The interest rate on the debt is a variable
rate set weekly by the bank who purchased the bond. The maximum rate
is 15%, and on June 30, 1996 the effective interest rate was
approximately 4.9%. The Company is repaying the debt in equal
monthly principal payments plus interest through January 2006. The
loan, which is collateralized by property, plant and equipment, is
subject to certain debt covenants similar to those contained in the
line of credit agreement (see Note 5).
Prior to the Fidelio acquisition, Fidelio obtained a 7.25% term loan
with BHF Bank for DM 1,850 , maturing June 1997. Under the loan,
payments of principal and accrued interest at a fixed rate of 7.25%
are due quarterly, commencing in 1995. Proceeds of this term loan
were used by Fidelio in 1995 for a strategic acquisition in 1995
prior to MICROS's acquisition of Fidelio.
33
34
The notes payable relate to obligations incurred by the Company in
connection with various strategic acquisitions. The notes carry
interest rates ranging from 5.75% to 8.85%, with varying installment
payments through July 2000. The aggregate unamortized discount on
these notes, based on their respective imputed interest rates, is
$189 at June 30, 1996.
Annual maturities of long-term debt are as follows:
Year ended June 30, Amount
------------------ ------
1997 $ 5,238
1998 3,043
1999 2,144
2000 409
2001 136
2002 and thereafter 972
-------
$11,942
=======
7. Accrued expenses and other current liabilities (in thousands):
The components of accrued expenses and other current liabilities are
as follows:
1996 1995
-------- ---------
Compensation and related taxes $6,185 $3,708
Commissions 3,974 2,199
Quantity discounts and credits due customers 4,269 4,050
Deposits received from customers 1,963 2,809
VAT and sales taxes 1,514 583
Acquisition liabilities 1,008 --
Accrued payables and other 5,014 2,866
----- -----
$23,927 $16,215
======= =======
8. Commitments and contingencies (in thousands):
Leases
The Company and its subsidiaries lease office space and equipment
under operating leases expiring at various dates through 2004. Rent
expense under these leases for fiscal 1996, 1995 and 1994 was $3,153,
$1,348 and $1,171, respectively.
The Company leases office and warehouse space under a 15 year capital
lease which commenced January 1994. The cost of the asset is
included in land and building at $1,000 and $2,838, respectively, at
June 30, 1996 and 1995. Accumulated depreciation on the building at
June 30, 1996 and 1995 was $177 and $106, respectively.
Future minimum lease commitments at June 30, 1996 are as follows:
Operating Capital
Year ending June 30, Leases Lease
-------------------- --------- -------
1997 $4,380 $371
1998 3,930 382
1999 2,113 394
2000 1,379 406
2001 494 418
34
35
2002 and thereafter 940 3,559
--- -----
$13,236 5,530
=======
Less amount representing interest at 7% 1,948
-----
3,582
Current portion 124
---
Long-term obligation under capital lease $3,458
======
Legal proceedings
MICROS is and has been involved in legal proceedings arising in the
normal course of business. The Company is of the opinion, based upon
presently available information and the advice of counsel concerning
pertinent legal matters, that any resulting liability should not have
a material adverse effect on the Company's results of operations or
financial position.
On May 24, 1996, Imperial Hotels Corp. ("Imperial") filed suit
against Executive Technologies of Southwest Florida, Inc. ("ETI"),
MICROS and Fidelio in the Superior Court of the State of California
for the County of Los Angeles. Imperial alleged, among other things,
that ETI, an indirect wholly owned subsidiary of MICROS, breached a
software license agreement ETI entered into with Imperial prior to
Fidelio's acquisition of ETI, and prior to MICROS' acquisition of
Fidelio. In particular, Imperial alleges that ETI provided software
that did not comply with specifications, and failed to provide
upgrades to such software. MICROS has removed the matter to Federal
District Court. MICROS will defend against Imperial's allegations,
and intends on filing a counterclaim against Imperial for its failure
to pay when due certain license and maintenance fees.
On August 1, 1996, ETI filed suit against Crested Butte Mountain
Resort, Inc. ("CBMR") in Circuit Court in Collier County, Florida.
ETI has alleged that CBMR breached a development agreement by failing
to pay to ETI when due certain software development fees. On August
14, 1996, CBMR filed suit against ETI, MICROS and Fidelio in District
Court in Gunnison County, Colorado. In the Colorado action filed by
CBMR, CBMR alleges that ETI had breached the same development
agreement under which ETI alleges the default of CBMR in the Florida
court. ETI will seek to have the Colorado action transferred to the
Florida courts and consolidated with the pre-existing Florida
litigation.
While the ultimate outcome of either matter above noted is uncertain,
and while litigation is difficult to predict, the Company does not
believe that either claim, or the claims in the aggregate, will have
a material adverse effect on its business, financial condition, or
results of operations.
9. Stock Options (in thousands, except per share data)
The Company has incentive and non-qualified stock options outstanding
which were granted to a director, officers and other key employees
pursuant to authorization by the Board of Directors. The exercise
price of all options equals the market value on the date of the
grant. The options granted are exercisable one year from date of
grant, subject to a three-year vesting schedule whereby one-third of
the options vest equally upon the anniversary of the grant, and
expire five years from the date of grant.
A summary of changes in outstanding stock options follows:
Stock Option Price
Options per Share
--------- --------------
Balance, June 30, 1993 329 $1.75 -12.125
Options granted --
Options canceled --
Options exercised (133) $1.75 - 8.625
-----
Balance, June 30, 1994 196 $3.00 -12.125
35
36
Options granted 216 $29.75 -31.50
Options canceled (3) $5.875- 8.625
Options exercised (72) $3.00 -12.125
----
Balance, June 30, 1995 337 $3.00 -31.50
Options granted 99 $26.00-30.00
Options canceled (22) $29.75-31.50
Options exercised (85) $5.875-31.50
----
Balance, June 30, 1996 329 $5.875-31.50
=====
Options exercisable at June 30, 1996 109 $5.875-31.50
===
Options available for grant at June 30, 1996 were 144, of which 142
were granted in August 1996.
Financial Accounting Standards Board Statement No. 123 ("SFAS 123"),
Accounting for Stock-Based Compensation, was issued in October 1995.
Adoption of SFAS 123 is required for the Company's fiscal 1997
financial statements. Under SFAS 123, the Company will continue to
measure compensation expense for its stock-based compensation plans
using the intrinsic value method prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees. Beginning with financial
statements for fiscal 1997, the Company will provide pro forma
disclosures of net income and earnings per share as if the fair value
based method of accounting defined in SFAS 123 had been applied to
the Company's stock option grants made subsequent to fiscal 1995.
The impact of SFAS 123 on the Company's pro forma information to be
provided has not been determined.
10. Income taxes (in thousands):
The components of income tax expense are:
1996 1995 1994
---- ---- ----
Current:
Federal $4,920 $5,207 $3,201
State 398 654 720
Foreign 1,068 574 460
----- --- ---
6,386 6,435 4,381
----- ----- -----
Deferred:
Federal 128 (220) (367)
State 23 (40) (32)
Foreign (6,190) -- --
------- ----- -----
(6,039) (260) (399)
------- ----- -----
$ 347 $6,175 $3,982
===== ====== ======
The total tax provision is different from the amount that would have
been recorded by applying the U.S. statutory federal income tax rate
to income before taxes. The reconciliation of these differences is
as follows:
1996 1995 1994
---- ---- ----
At statutory rate 35.0% 35.0% 35.0%
Increase (decrease) resulting from:
U.S. federal surtax reduction (3.1) (.6) (.9)
State taxes, net of federal tax benefit 8.2 2.4 3.8
Research tax credits -- (1.5) (2.9)
Foreign Sales Corporation tax benefit (8.2) (1.6) (1.2)
Effect of tax rates in foreign jurisdictions (41.0) 1.1 1.6
Permanent differences 15.0 .8 (.8)
Other 5.1 (.7) (2.9)
--- ---- -----
Effective tax rate 11.0% 34.9% 31.7%
===== ===== =====
36
37
Appropriate U.S. taxes have been provided for earnings of subsidiary
companies that are expected to be remitted to the parent company.
The cumulative amount of unremitted earnings from international
subsidiaries that is expected to be indefinitely reinvested is
approximately $7,300 at June 30, 1996.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes. At June 30, 1996 and 1995, the Company had potential tax
benefits of $386 related to U.S. net operating loss carryforwards for
income tax purposes. The tax loss carryforwards (if not utilized
against taxable income) expire beginning 2005 and continue through
2009. A valuation allowance of $386 has been provided at June 30,
1996 and 1995 to offset the related deferred tax assets due to
uncertainty of realizing the benefit of the loss carryforwards. The
operating loss carryforwards were acquired as part of a purchase of a
subsidiary, and any realization of the operating loss carryforwards
will result in a reduction of goodwill recorded as part of that
acquisition. The following summarizes the significant components of
the Company's deferred tax assets and liabilities:
1996 1995
-------- --------
Bad debt $654 $441
Accruals not currently deductible for tax 2,015 616
Inventory 972 725
Net operating loss carryforward 386 386
Purchased incomplete software technology write-off 5,580 --
Other 258 233
--- ---
Total deferred tax assets 9,865 2,401
----- -----
Depreciation (453) (392)
Capitalized software development costs (1,788) (601)
Other (347) (64)
----- ----
Total deferred tax liabilities (2,588) (1,057)
------- -------
Net operating loss carryforward valuation allowance (386) (386)
----- -----
Net deferred tax asset $6,891 $958
====== ====
11. Other income (expense) net:
Other income (expense) is comprised of the following items (in
thousands):
1996 1995 1994
------- ------- --------
Service charges on accounts receivable $290 $336 $270
Prompt payment discounts (508) (466) (422)
Foreign exchange gain (loss), net 189 328 402
Other, net (26) 278 (451)
---- --- -----
$(55) $476 $(201)
===== ==== ======
12. Related party transactions (in thousands):
Westinghouse, as an incentive to 11 key officers to remain with the
Company for a period of two years following June 1, 1995, agreed to
make payments to such officers aggregating up to approximately
$1,250, payable in three equal installments promptly after such date
and on the first and second anniversaries of such date (subject to
the officer remaining employed by the Company on the relevant payment
date). In June 1995, the first installment of $409 was paid for
these key officers of the Company. In June 1996, the
37
38
second installment of $361, reduced by $48 from the June 1995 payment
due to the resignation of one of the eleven key officers, was paid by
Westinghouse. The final installment is to be paid in June 1997.
Even though such payments are entirely funded by Westinghouse and
will not require any use of the Company's cash, for accounting
purposes, they are required to be reflected as compensation expense
in the Company's financial statements.
The Company has purchased certain raw materials and has contracted
for certain sub-assembly operations through Westinghouse to take
advantage of more competitive pricing available through off-shore
manufacturing locations. The Company estimates that it has purchased
approximately $195, $965 and $1,691, in such materials and labor from
Westinghouse during fiscal 1996, 1995 and 1994, respectively. The
fiscal 1996 activity represents only purchases for the period from
July through September 1995, as no related party relationship existed
after September 1995.
During fiscal 1996, 1995 and 1994, the Company also purchased from
Westinghouse and its subsidiaries approximately $170, $878 and $667,
respectively, for other products and services provided to the
Company, including insurance coverage, office space, consulting,
office furniture, and telecommunications services. In fiscal 1996,
the Company's purchases were limited to telecommunications services
and represents purchases for the period from July through September
1995, as no related party relationship existed after September 1995.
During fiscal 1996, 1995 and 1994, the Company sold approximately
$344, $1,208 and $1,108, respectively, in products to D.A.C.
Systemes/MICROS France, under the same terms and conditions offered
to other independently-owned dealers/distributors of the Company.
D.A.C. Systemes/MICROS France was principally owned by Daniel Cohen,
a Director of the Company, until August 25, 1995, when MICROS
acquired controlling interest. The fiscal 1996 activity covers only
the period from July through August 1995, since sales are eliminated
as intercompany after that date.
During fiscal 1996, 1995 and 1994, the Company compensated Louis M.
Brown, Jr., Chairman of the Board, $217, $183 and $154, respectively,
for consulting services provided to the Company. Effective June 30,
1995, the Company and Mr. Brown entered into a Consulting Agreement
pursuant to which Mr. Brown is to provide on the average 20 hours per
week of consulting services to the Company terminating on June 30,
2000 in exchange for a base salary commencing at $150 plus a target
bonus of $70, with annual adjustments.
13. Employee benefit plan (in thousands):
The Company sponsors an employee savings plan which conforms to the
provisions of Section 401(k) of the Internal Revenue Code. The Plan
covers substantially all full-time employees and allows employees to
voluntarily defer a certain percentage of their income through
contributions to the Plan. Prior to January 1, 1995, the Company
elected to contribute to the Plan at its discretion. Effective
January 1, 1995, the Company changed its policy to make a
contribution of one percent of the salary of all eligible, non-highly
compensated employees and to match fifty percent of the first five
percent of each participating employee's voluntary contributions.
The Company may elect to make additional contributions, at its
discretion. Company contributions were made during the years ended
June 30, 1996, 1995 and 1994 totaling $649, $346 and $241,
respectively.
The Company does not have any obligations to past or present
employees related to post employment benefits.
14. Geographic information:
The Company develops, manufactures, sells and services point-of-sale
computer systems, property management systems and central reservation
systems products for the hospitality industry. Foreign sales
aggregated approximately 48%, 33% and 29%, of revenue in fiscal 1996,
1995 and 1994, respectively.
38
39
MICROS products are distributed in the U.S. and internationally,
primarily in Europe and the Pacific Rim, through independent
Dealer/Distributors and company-owned sales and service offices. The
Company's principal customers are lodging and food service-related
businesses. Economic risks are similar for these businesses in that
consumers generally spend more time lodging and dining away from home
in robust economies and less time in slow or recessionary economies.
The Company's experience with the collections of trade receivables
and the sales growth pattern follow general economic conditions. No
significant concentration of credit risk exists within any geographic
area.
Operations in different geographic areas are as follows (in
thousands):
Net Revenue
------------------------------------------
1996 1995 1994
---- --------- ----
United States (1) $ 96,084 $ 76,914 $58,079
International (2) 81,965 35,107 21,186
------ ------ ------
Net revenue $178,049 $112,021 $79,265
======== ======== =======
Income From Operations
------------------------------------------
1996 1995 1994
---- ---- ----
United States $9,076 $11,493 $ 8,903
International (2) (3) 9,725 5,049 3,419
----- ----- -----
Income from operations $18,801 $16,542 $12,322
======= ======= =======
Identifiable Assets
------------------------------------------
1996 1995 1994
-------- -------- ---------
United States $97,449 $74,419 $55,905
International (2) 39,387 15,225 10,286
------ ------ ------
Total assets $136,836 $89,644 $66,191
======== ======= =======
(1) Included in United States Net Revenue are export sales amounting to $2,702,
$1,526 and $1,583 for each of the respective years.
(2) The International geographic area is principally comprised of operations in
Europe and the Pacific Rim.
(3) Excluded from fiscal 1996 income from operations is a charge for purchased
incomplete software technology in the amount of $14,770 relating to the
acquisition of Fidelio.
15. Quarterly financial information (unaudited-in thousands, except per
share amounts):
Quarterly financial information for fiscal 1996 and 1995 is presented
in the following tables:
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
---- ------- ------- ------- -------
Revenue $32,360 $42,888 $47,305 $55,496
======= ======= ======= =======
Gross margin $15,961 $21,190 $23,399 $27,201
======= ======= ======= =======
Income (loss) from operations $4,514 $(9,413) $2,728 $6,202
====== ======== ====== ======
Net income (loss) $3,254 $(5,088) $1,182 $3,044
====== ======== ====== ======
Net income (loss) per common and common equivalent
share $0.41 $(0.63) $0.15 $0.38
===== ======= ===== =====
Stock Prices (in dollars)
-------------------------
High 39-1/2 49-3/4 53-3/4 33
Low 31 32-3/4 23 20-1/4
========================================================================================================
39
40
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
---- ---------- ---------- ---------- ---------
Revenue $24,474 $27,122 $25,186 $35,239
======= ======= ======= =======
Gross margin $12,393 $13,348 $12,636 $17,380
======= ======= ======= =======
Income from operations $4,104 $4,467 $3,087 $4,884
====== ====== ====== ======
Net income $3,036 $2,880 $2,224 $3,437
====== ====== ====== ======
Net income per common and common
equivalent share $0.38 $0.36 $0.28 $0.43
===== ===== ===== =====
Stock Prices (in dollars)
-------------------------
High 33-1/2 41-1/4 38-1/8 35
Low 26-1/4 28-3/4 28 27-3/4
==================================================================================================
The Company has never paid a dividend. Its current policy is to
retain earnings and use funds for the operation and expansion of its
business. In addition, certain indebtedness restricts the amount of
dividends which may be payable.
40
41
MICROS SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
for the years ended June 30, 1996, 1995 and 1994
(in thousands)
Balance at Charged Balance
beginning to at end
Description of period expenses Deductions Other(1) of period
- ------------------------------------------ --------- -------- ---------- -------- ---------
Year ended June 30, 1996:
Allowance for doubtful accounts $1,229 $473 $(45) $269 $2,016
Reserve for inventory obsolescence 1,318 445 148 (2) (10) 1,605
----- --- --- ---- -----
$2,547 $918 $103 $259 $3,621
====== ==== ==== ==== ======
Year ended June 30, 1995:
Allowance for doubtful accounts $764 $697 $232 $- $1,229
Reserve for inventory obsolescence 973 503 158 (2) -- 1,318
--- --- --- -- -----
$1,737 $1,200 $390 $-0- $2,547
====== ====== ==== ==== ======
Year ended June 30, 1994:
Allowance for doubtful accounts $696 $274 $206 $- $764
Reserve for inventory obsolescence 476 564 67 (2) -- 973
--- --- -- -- ---
$1,172 $838 $273 $-0- $1,737
====== ==== ==== ==== ======
(1) Primarily related to the Company's acquisitions of foreign subsidiaries and
translation.
(2) Material scrapped or otherwise disposed.
41
42
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: 9-30-96 By: s/Gary C. Kaufman
------- --- -----------------
Gary C. Kaufman
Senior Vice President, Finance and
Administration/Chief Financial
Officer
Date: 9-30-96 By: s/Roberta J. Watson
------- --- -------------------
Roberta J. Watson
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, and in the capacities and on the dates indicated.
Name Title
----------------------------- ---------------------------
s/Louis M. Brown, Jr. 9-30-96
------------------------ Director and -------
Louis M. Brown, Jr. Chairman of the Board
s/A. L. Giannopoulos Director and President 9-30-96
------------------------ Chief Executive Officer -------
A. L. Giannopoulos
s/Ronald J. Kolson Executive Vice President 9-30-96
------------------------ Chief Operating Officer -------
Ronald J. Kolson
s/Gary C. Kaufman Senior Vice President 9-30-96
------------------------ Finance and Administration -------
Gary C. Kaufman Chief Financial Officer
s/Daniel Cohen 9-30-96
------------------------ Director -------
Daniel Cohen
s/Alan M. Voorhees 9-30-96
------------------------ Director -------
Alan M. Voorhees
s/Edward T. Wilson 9-30-96
------------------------ Director -------
Edward T. Wilson
s/John G. Puente 9-30-96
------------------------ Director -------
John G. Puente
42
43
EXHIBIT INDEX
3(i). Articles of Incorporation of the Company as in effect on the date
hereof is 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(ii). By-laws of the Company as in effect on the date hereof is
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.
10a1. Amendment and Restatement of MICROS Systems, Inc. Stock Option Plan
is incorporated herein by reference to Exhibit 4.1 to the
Registration Statement on Form S-8 of the Company filed on February
16, 1990.
10a2. First Amendment to the Amendment and restatement of MICROS Systems,
Inc. Stock Option Plan constituting Exhibit 10a1 hereto is
incorporated herein by reference to Exhibit 4.2 to the Registration
Statement on Form S-8 of the Company filed on February 16, 1990.
10b1. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is
incorporated herein by reference to Exhibit A to the Proxy Statement
of the Company for the 1993 Annual Meeting of Shareholders.
10b2. MICROS Systems, Inc. 1991 Stock Option Plan as amended, is
incorporated herein by reference to Exhibit A to the Proxy Statement
of the Company for the 1995 Annual Meeting of Shareholders.
10c1. Stock Unit Purchase Agreement dated October 30, 1986 between
Westinghouse Electric Corporation and MICROS Systems, Inc. is
incorporated herein by reference to Exhibit 4d to the Registration
Statement on Form S-3 of the Company filed on January 25, 1995.
10c2. Letter Agreement dated May 2, 1995 between Westinghouse Electric
Corporation and MICROS Systems, Inc. is incorporated herein by
reference to Exhibit 4e to Amendment No. 4 to the Registration
Statement on Form S-3 of the Company filed on May 3, 1995 is
incorporated herein by reference to Exhibit 10c2. to the Annual
Report on Form 10-K of the Company for the Fiscal Year ended June 30,
1995.
10d. Underwriting Agreement dated July 6, 1995 by and among MICROS
Systems, Inc., Westinghouse Electric Corporation, Westinghouse
Holdings Corporation and J.P. Morgan Securities, Inc. Morgan Stanley
& Co. Incorporated and Smith Barney, Inc. is incorporated herein by
reference to Exhibit 10d. to the Annual Report on Form 10-K of the
Company for the Fiscal Year ended June 30, 1995.
10e. Employment Agreement dated June 1, 1995 between MICROS Systems, Inc.
and A.L. Giannopoulos is incorporated herein by reference to Exhibit
10e to the Annual Report on Form 10-K of the Company for the Fiscal
Year ended June 30, 1995.
10f. Consulting Agreement dated June 30, 1995 between MICROS Systems, Inc.
and Louis M. Brown, Jr. is incorporated herein by reference to
Exhibit 10f to the Annual Report on Form 10-K of the Company for the
Fiscal Year ended June 30, 1995.
10g. Employment Agreement dated August 25, 1995 between MICROS Systems,
Inc. and Daniel Cohen is incorporated herein by reference to Exhibit
10g to the Annual Report on Form 10-K of the Company for the Fiscal
Year ended June 30, 1995.
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44
EXHIBIT INDEX (continued)
10h. MICROS Systems, Inc. Bonus and Incentive Plan is incorporated by
reference to Exhibit 10 to the Quarterly Report on Form 10-Q of the
Company for the period ended September 30, 1994.
11. Statement Regarding Computation of Earnings Per Share.
21. Subsidiaries of the Company.
23. Consent of Independent Accountants.
27. Financial Data Schedule.
99.1 Final Statements of Acquired Business is incorporated herein by
reference to Exhibit 99.1 to the Form 8-K/A filed February 13, 1996.
99.2 Pro forma Financial Information is incorporated herein by reference
to Exhibit 99.2 to the Form 8-K/A filed February 13, 1996.
44