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EX-23 - MICROS SYSTEMS INCv164884_ex23.htm
EX-32.A - MICROS SYSTEMS INCv164884_ex32a.htm
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EX-31.B - MICROS SYSTEMS INCv164884_ex31b.htm
EX-32.B - MICROS SYSTEMS INCv164884_ex32b.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

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

For the quarterly period ended September 30, 2009
Commission file number 0-9993

MICROS SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)

MARYLAND
 
52-1101488
(State of incorporation)
  
(IRS Employer Identification Number)

7031 Columbia Gateway Drive, Columbia, Maryland
 
21046-2289
(Address of principal executive offices)
  
(Zip code)

443-285-6000
Registrant’s telephone number, including area code

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ                      NO o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

YES o     NO o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ
Accelerated filer ¨
   
Non-accelerated filer ¨
Smaller Reporting Company ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ¨                      NO þ

As of October 30, 2009, there were issued and outstanding 79,677,456 shares of Registrant’s Common Stock, $0.00625 par value.

 
 

 

MICROS SYSTEMS, INC. AND SUBSIDIARIES

Form 10-Q
For the three months ended September 30, 2009

PART I – FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

2

 
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share data)

   
September 30,
2009
   
June 30,
2009
 
ASSETS
           
Current Assets:
           
Cash and cash equivalents
  $ 326,265     $ 292,257  
Short-term investments
    141,295       146,679  
Accounts receivable, net of allowance for doubtful accounts of $33,100 at September 30, 2009 and $32,079 at June 30, 2009
    170,412       157,479  
Inventory, net
    38,615       39,783  
Deferred income taxes
    19,008       20,283  
Prepaid expenses and other current assets
    31,913       27,238  
Total current assets
    727,508       683,719  
                 
Long-term investments
    57,608       57,823  
Property, plant and equipment, net
    29,572       30,520  
Deferred income taxes, non-current
    12,843       11,483  
Goodwill
    191,908       190,739  
Intangible assets, net
    17,113       17,709  
Purchased and internally developed software costs, net of accumulated amortization of $70,254 at September 30, 2009 and $66,804 at June 30, 2009
    24,101       25,749  
Other assets
    6,434       6,344  
Total assets
  $ 1,067,087     $ 1,024,086  
                 
LIABILITIES AND EQUITY
               
Current Liabilities:
               
Bank lines of credit
  $ 1,170     $ 1,090  
Accounts payable
    32,068       36,647  
Accrued expenses and other current liabilities
    105,939       104,821  
Income taxes payable
    4,110       7,999  
Deferred revenue
    141,770       112,146  
Total current liabilities
    285,057       262,703  
                 
Income taxes payable, non-current
    20,064       19,611  
Deferred income taxes, non-current
    906       1,752  
Other non-current liabilities
    10,496       10,539  
      316,523       294,605  
Commitments and contingencies (Note 11)
               
                 
Equity:
               
MICROS Systems, Inc. Shareholders' Equity:
               
Common stock, $0.00625 par value; authorized 120,000 shares; issued and outstanding 79,667 at September 30, 2009 and 80,310 at June 30, 2009
    498       502  
Capital in excess of par
    107,025       127,146  
Retained earnings
    604,162       579,331  
Accumulated other comprehensive income
    32,377       16,468  
Total MICROS Systems, Inc. shareholders' equity
    744,062       723,447  
Noncontrolling interest
    6,502       6,034  
Total equity
    750,564       729,481  
                 
Total liabilities and equity
  $ 1,067,087     $ 1,024,086  

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

 
3

 

MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)

   
Three Months Ended
September 30,
 
   
2009
   
2008
 
Revenue:
           
Hardware
  $ 43,779     $ 63,693  
Software
    24,926       37,576  
Services
    143,768       142,800  
Total revenue
    212,473       244,069  
                 
Cost of sales:
               
Hardware
    28,273       43,059  
Software
    5,550       7,300  
Services
    62,138       67,766  
Total cost of sales
    95,961       118,125  
                 
Gross margin
    116,512       125,944  
                 
Selling, general and administrative expenses
    65,282       76,801  
Research and development expenses
    11,016       10,471  
Depreciation and amortization
    3,842       4,087  
Total operating expenses
    80,140       91,359  
                 
Income from operations
    36,372       34,585  
                 
Non-operating income (expense):
               
Interest income
    1,051       3,254  
Interest expense
    -       (146 )
Other (expense) income, net
    (394 )     687  
Total non-operating income, net
    657       3,795  
                 
Income before taxes
    37,029       38,380  
Income tax provision
    12,034       13,049  
Net income
    24,995       25,331  
Less:  net income attributable to noncontrolling interest
    (224 )     (449 )
Net income attributable to MICROS Systems, Inc.
  $ 24,771     $ 24,882  
                 
Net income per common share attributable to MICROS Systems, Inc. common shareholders (1):
               
Basic
  $ 0.31     $ 0.31  
Diluted
  $ 0.31     $ 0.30  
                 
Weighted-average number of shares outstanding:
               
Basic
    79,749       80,688  
Diluted
    81,314       82,196  

The details of total other-than-temporary impairment losses ("OTTI") of long-term investments and a reconciliation to OTTI change included in other non-operating expense are as follows (2):

   
Three Months Ended
September 30,
 
   
2009
   
2008
 
Changes in other-than-temporary impairment losses
  $ 355     $ -  
Add: change in non-credit based OTTI recognized in other comprehensive income
    32       -  
Credit based OTTI charge recognized in non-operating income (expense)
  $ 387     $ -  

(1) See Note 6, "Share-based Compensation" in Notes to Condensed Consolidated Financial Statements.
(2) See Note 3, "Financial Instruments and Fair Value Measurements" in Notes to Consolidated Financial Statements.

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

 
4

 

MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

   
Three Months Ended
September 30,
 
   
2009
   
2008
 
Net cash flows provided by operating activities
  $ 41,849     $ 29,658  
                 
Cash flows from investing activities:
               
Proceeds from sales of investments (short-term and long-term)
    87,937       6,191  
Purchases of investments (short-term and long-term)
    (77,932 )     (82,578 )
Purchases of property, plant and equipment
    (1,710 )     (3,343 )
Internally developed software
    (200 )     (125 )
Disposal of property, plant and equipment
    18       190  
Net cash paid for acquisitions
    -       (32,288 )
Net cash flows provided by (used in) investing activities
    8,113       (111,953 )
                 
Cash flows from financing activities:
               
Repurchases of stock
    (30,336 )     (10,352 )
Proceeds from stock option exercises
    4,850       1,363  
Realized tax benefits from stock option exercises
    2,196       77  
Principal payments on line of credit and long-tem debt related to an acquisition
    -       (18,124 )
Other
    (129 )     (474 )
Net cash flows used in financing activities
    (23,419 )     (27,510 )
                 
Effect of exchange rate changes on cash and cash equivalents
    7,465       (23,269 )
                 
Net increase (decrease) in cash and cash equivalents
    34,008       (133,074 )
                 
Cash and cash equivalents at beginning of year
    292,257       377,072  
Cash and cash equivalents at end of period
  $ 326,265     $ 243,998  

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

 
5

 

MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited, in thousands)

   
MICROS Systems, Inc. Shareholders
             
                           
Accumulated
             
               
Capital
         
Other
   
Non-
       
   
Common Stock
   
in Excess
   
Retained
   
Comprehensive
   
controlling
       
   
Shares
   
Amount
   
of Par
   
Earnings
   
Income
   
Interest
   
Total
 
                                           
Balance, June 30, 2009
    80,310     $ 502     $ 127,146     $ 579,331     $ 16,468     $ 6,034     $ 729,481  
Comprehensive income:
                                                       
Net income
    -       -       -       24,771       -       224       24,995  
Foreign currency translation adjustments, net of tax of $0
    -       -       -       -       15,802       244       16,046  
Non-credit other-than-temporary losses on long-term investments, net of tax of $65
    -       -       -       -       107       -       107  
Total comprehensive income
                                                    41,148  
Minority interest put arrangement
    -       -       -       60       -       -       60  
Share-based compensation
    -       -       3,051       -       -       -       3,051  
Stock issued upon exercise of options
    458       3       4,847       -       -       -       4,850  
Repurchases of stock
    (1,101 )     (7 )     (30,329 )     -       -       -       (30,336 )
Income tax benefit from options exercised
    -       -       2,310       -       -       -       2,310  
Balance, September 30, 2009
    79,667     $ 498     $ 107,025     $ 604,162     $ 32,377     $ 6,502     $ 750,564  

   
MICROS Systems, Inc. Shareholders
             
                           
Accumulated
             
               
Capital
         
Other
   
Non-
       
   
Common Stock
   
in Excess
   
Retained
   
Comprehensive
   
controlling
       
 
 
Shares
   
Amount
   
of Par
   
Earnings
   
Income
   
Interest
   
Total
 
                                           
Balance, June 30, 2008
    80,898     $ 506     $ 131,517     $ 480,777     $ 60,216     $ 5,892     $ 678,908  
Comprehensive income:
                                                       
Net income
    -       -       -       24,882       -       449       25,331  
Foreign currency translation adjustments, net of tax of $0
    -       -       -       -       (39,517 )     (497 )     (40,014 )
Non-credit other-than-temporary losses on long-term investments, net of tax of $306
    -       -       -       -       514       -       514  
Total comprehensive income
                                                    (14,169 )
Minority interest put arrangement
    -       -       -       (191 )     -       -       (191 )
Dividends to non-controlling interest
                                            (89 )     (89 )
Share-based compensation
    -       -       3,733       -       -       -       3,733  
Stock issued upon exercise of options
    78       -       1,363       -       -       -       1,363  
Repurchases of stock
    (347 )     (2 )     (10,350 )     -       -       -       (10,352 )
Income tax benefit from options exercised
    -       -       84       -       -       -       84  
Balance, September 30, 2008
    80,629     $ 504     $ 126,347     $ 505,468     $ 21,213     $ 5,755     $ 659,287  

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

 
6

 

MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.
BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements of MICROS Systems, Inc. and its subsidiaries (collectively, the “Company”) have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2009.

The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X, promulgated by the Securities and Exchange Commission.  Accordingly, they do not include all disclosures required by U.S. generally accepted accounting principles for complete financial statements.

The condensed consolidated financial statements included in this report reflect all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the financial position of the Company, its results of operations and cash flows for the interim periods set forth herein.  The results for the three months ended September 30, 2009 are not necessarily indicative of the results to be expected for the full year or any future periods.  Certain prior period amounts have been reclassified in the accompanying financial statements to conform to the current period presentation.

There were no subsequent events that the Company was required to recognize or disclose in the accompanying consolidated financial statements.  Subsequent events have been evaluated through November 5, 2009, the date these financial statements are issued.

2.
INVENTORY

The components of inventory are as follows:

(in thousands)
 
September 30,
2009
   
June 30,
2009
 
Raw materials
  $ 1,617     $ 1,889  
Work-in-process
    35       15  
Finished goods
    36,963       37,879  
Total inventory
  $ 38,615     $ 39,783  

The Company maintained a reserve for inventory obsolescence of approximately $11.5 million at September 30, 2009, compared to approximately $11.4 million at June 30, 2009.  During the three months ended September 30, 2009 and 2008, the Company reserved approximately $0.6 million and $1.5 million, respectively.  All reserves related to potentially obsolete and slow moving products.  As of September 30, 2009, foreign currency translation increased the reserve for inventory obsolescence by approximately $0.1 million as compared to June 30, 2009.

3.
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
 
Short-term and long-term investments consist of the following:

   
September 30, 2009
   
June 30, 2009
 
(in thousands)
 
Amortized
Cost Basis
   
Aggregate
Fair Value
   
Amortized
Cost Basis
   
Aggregate
Fair Value
 
Time deposit – international
  $ 109,449     $ 109,449     $ 115,762     $ 115,762  
Auction rate securities
    64,275       57,608       64,275       57,823  
U.S. government
    25,041       25,041       25,084       25,084  
Foreign corporate debt security
    5,685       5,685       4,209       4,209  
Time deposit - U.S.
    1,114       1,114       970       970  
Other
    6       6       654       654  
Total investments
  $ 205,570     $ 198,903     $ 210,954     $ 204,502  

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).  Under the applicable accounting standard, the following hierarchy prioritizes the inputs (generally, assumptions that market participants use in pricing an asset or liability) used to measure fair value based on the quality and reliability of the information provided by the inputs:

·
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.  The Company considers active markets as those in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

 
7

 

·
Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
·
Level 3 - Measured based on prices or valuation models using unobservable inputs to the extent relevant observable inputs are not available (i.e., where there is little or no market activity for the asset or liability).

The financial assets accounted for at fair value were as follows (excludes cash and cash equivalents of approximately $326.3 million and $292.3 million as of September 30, 2009 and June 30, 2009):

(in thousands)
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Balance at September 30, 2009:
                       
Short-term and long-term investments:
                       
Time deposit - international
  $ -       109,449     $ -     $ 109,449  
Auction rate securities
    -       -       57,608       57,608  
U.S. government
    25,041       -       -       25,041  
Foreign corporate debt security
    5,685       -       -       5,685  
Time deposit - U.S.
    -       1,114       -       1,114  
Other
    -       6       -       6  
Total short-term and long-term investments
  $ 30,726     $ 110,569     $ 57,608     $ 198,903  
                                 
Balance at June 30, 2009:
                               
Short-term and long-term investments:
                               
Time deposit - international
  $ -       115,762     $ -     $ 115,762  
Auction rate securities
    -       -       57,823       57,823  
U.S. government
    25,084       -       -       25,084  
Foreign corporate debt security
    4,209       -       -       4,209  
Time deposit - U.S.
    -       970       -       970  
Other
    -       654       -       654  
Total short-term and long-term investments
  $ 29,293     $ 117,386     $ 57,823     $ 204,502  

At September 30, 2009 and June 30, 2008, all of the Company’s investments, other than the Company’s investments in auction rate securities, were recognized at fair value, which approximates cost for all investments, determined based upon observable input information provided by the Company’s pricing service vendors for identical or similar assets.  See “Auction Rate Securities” below for further discussion on the valuation of the Company’s investments in auction rate securities.

During the three months ended September 30, 2009 and 2008, the Company did not recognize any gains or losses, other than related to the Company’s investments in auction rate securities.

The contractual maturities of investments held at September 30, 2009 are as follows:

(in thousands)
 
Amortized
Cost Basis
   
Aggregate
Fair Value
 
Due within one year
  $ 141,295     $ 141,295  
Due after 10 years - auction rate securities
    64,275       57,608  
Balance at September 30, 2009
  $ 205,570     $ 198,903  

AUCTION RATE SECURITIES

The Company’s investments in auction rate securities, carried at estimated fair values, were its only assets valued on the basis of Level 3 inputs.  Auction rate securities are long-term debt instruments with variable interest rates that are designed to periodically reset to prevailing market rates every 7 to 35 days through the auction process.  The auction rate securities held by the Company are supported by student loans for which repayment is guaranteed either by the Federal Family Education Loan Program or insured by AMBAC Financial Group.  Due to the liquidity previously provided by the interest rate reset mechanism and the short-term nature of the Company’s investment, the auction rate securities previously (prior to February 2008) were classified as short-term investments available-for-sale in the Company’s consolidated balance sheets.  Beginning in February 2008, auctions for these securities failed to obtain sufficient bids to establish a clearing rate and the securities were not saleable in auction, thereby no longer providing short-term liquidity.  As a result, the auction rate securities have been classified as long-term investments available-for-sale as of September 30, 2009 and June 30, 2009 instead of being classified as short-term investments, as was the case prior to February 2008.

 
8

 

As of September 30, 2009, the Company updated its assessment as to whether it would likely recover the entire cost basis of each of the auction rate securities, and, therefore, whether the securities had incurred an other-than-temporary impairment. Determination of whether the impairment is temporary or other-than-temporary requires significant judgment.  The primary factors that are considered in assessing the nature of the impairment include (a) the credit quality of the underlying security, (b) the extent to which and time period during which the fair value of each investment has been below cost, (c) the expected holding or recovery period for each investment, (d) the Company’s intent to hold each investment until recovery and likelihood that the Company will not be required to sell the security prior to recovery, and (e) the existence of any evidence of default by the issuer. The Company engaged an independent valuation firm to perform a valuation of its auction rate securities in conjunction with the Company's assessment of any impairment as temporary versus other-than-temporary. The valuation firm used a discounted cash flow model that considered various inputs including:  (a) the coupon rate specified under the debt instruments, (b) the current credit ratings of the underlying issuers, (c) collateral characteristics, (d) discount rates, (e) severity of default and (f) probability of failing or passing auction or early redemption.  The valuation firm used a mark to model approach to arrive at this valuation, which the Company reviewed and with which it agreed.

Based on its fair value assessment, the Company determined that its investments in auction rate securities as of September 30, 2009 were impaired by approximately $6.7 million as compared to an impairment of approximately $6.5 million as of June 30, 2009.  The September 30, 2009 valuation further evaluated the amount of the other-than-temporary impairment attributable to credit loss.  The factors considered in making an evaluation of the amount attributable to credit loss included the following:  (a) default probability and the likelihood of restructuring of the security, (b) payment structure of the security to determine how the expected underlying collateral cash flows will be distributed to each security issued from the structure and (c) performance indicators of the underlying assets in the trust (including default and delinquency rates).  These assumptions are subject to change as the underlying market conditions change.  Based on its evaluations, the Company determined that approximately $1.7 million of the cumulative impairment losses were credit based and recorded $0.4 million, the incremental credit based losses as compared to June 30, 2009, in its consolidated statement of operations for the three months ended September 30, 2009.

The remaining impairment losses of approximately $5.0 million (approximately $3.1 million, net of tax) were recorded in accumulated other comprehensive income as of September 30, 2009.

A reconciliation of changes in the fair value of auction rate securities, and the related realized and unrealized losses were as follows:

(in thousands)
 
Cost
   
Temporary
Impairment
Loss (1)
   
OTTI -
Non-Credit
Loss (1)
   
OTTI - Credit
Loss (2)
   
Fair
Value
 
Balance at June 30, 2009
  $ 64,275     $ (4,474 )   $ (712 )   $ (1,266 )   $ 57,823  
Changes in losses related to investments
    -       140       32       (387 )     (215 )
Redemption
    -       -       -       -       -  
Balance at September 30, 2009
  $ 64,275     $ (4,334 )   $ (680 )   $ (1,653 )   $ 57,608  

(1) Recorded in the accumulated other comprehensive income (loss) component of stockholders' equity.
(2) Recorded in the condensed consolidated statement of operations.

During the three months ended September 30, 2009, the Company had no sales or redemptions of its auction rate securities.

The Company plans to continue to monitor its investments, including the liquidity of and creditworthiness of the issuers of its auction rate securities, on an ongoing basis for indications of further impairment and, if an impairment is identified, for proper classification of the impairment.  Based on the Company’s expected operating cash flows and sources of cash, the Company does not believe that any reduction in the liquidity of its auction rate securities will have a material impact on its overall ability to meet its liquidity needs.

4.
GOODWILL AND INTANGIBLE ASSETS

During the three months ended September 30, 2009, the Company completed its annual impairment tests as of July 1, 2009 on its goodwill and its indefinite-lived trademarks.  Based on its annual impairment test results, the Company determined that no impairment of its goodwill or indefinite-lived trademarks existed as of July 1, 2009, and subsequent to July 1, 2009, there have not been any events or changes in circumstances indicating that it is more likely than not that goodwill or indefinite-lived trademarks have been impaired.

5.
LINE OF CREDIT

The Company has two credit agreements (the “Credit Agreements”) that in the aggregate provide a $65.0 million multi-currency committed line of credit which expires on July 31, 2010.  The lenders under the Credit Agreements are Bank of America, N.A., Wachovia Bank, N.A. and US Bank (“Lenders”).  The international facility is secured by 65% of the capital stock of the Company’s main operating Ireland subsidiary and 100% of the capital stock of all of the remaining major foreign subsidiaries.  The U.S. facility is secured by 100% of the capital stock of the Company’s major U.S. subsidiaries as well as inventory and receivables located in the U.S.

 
9

 

For borrowings in U.S. currency, the interest rate under the Credit Agreements is equal to the higher of the federal funds rate plus 50 basis points or the prime rate.  For borrowings in foreign currencies, the interest rate is determined by a LIBOR-based formula, plus an additional margin of 125 to 200 basis points, depending upon the Company’s consolidated earnings before interest, taxes, depreciation and amortization for the immediately preceding four calendar quarters.  Under the terms of the Credit Agreements, the Company is required to pay to the Lenders insignificant commitment fees on the unused portion of the line of credit.  The Credit Agreements also contain certain financial covenants and restrictions on the Company’s ability to assume additional debt, repurchase stock, sell subsidiaries or acquire companies.  In case of an event of default, as defined in the Credit Agreements including those not cured within the applicable cure period, if any, the Lenders’ remedies include their ability to declare all outstanding loans, plus interest and other related amounts owed, to be immediately due and payable in full, and to pursue all rights and remedies available to them under the Credit Agreements or under applicable law.

As of September 30, 2009, the Company had approximately $1.2 million outstanding under the Credit Agreements and has applied an additional approximately $0.4 million to guarantees.

The Company also has a credit agreement with a European bank under which the Company may borrow up to EUR 1.0 million (approximately $1.5 million at the September 30, 2009 exchange rate).  Under the terms of this facility, the Company may borrow in the form of either a line of credit or term debt.  As of September 30, 2009, there were no balances outstanding on this credit facility, but approximately EUR 0.4 million (approximately $0.6 million at the September 30, 2009 exchange rate) of the credit facility has been used for guarantees.

As of September 30, 2009, the Company had approximately $64.2 million borrowing capacity under all of the credit facilities described above.  The weighted-average interest rate on the outstanding balances under the Credit Agreements as of September 30, 2009 was 1.5%.

6.
SHARE-BASED COMPENSATION

The non-cash share-based compensation expenses included in the consolidated statements of operations are as follows:

   
Three Months Ended
September 30,
 
(in thousands)
 
2009
   
2008
 
Selling, general and administrative
  $ 2,904     $ 3,525  
Research and development
    147       208  
Total non-cash share-based compensation expense
    3,051       3,733  
Income tax benefit
    (942 )     (841 )
Total non-cash share-based compensation expense, net of tax benefit
  $ 2,109     $ 2,892  
Impact on diluted net income per share
  $ 0.03     $ 0.04  

No non-cash share-based compensation expense has been capitalized for the three months ended September 30, 2009 and 2008, as stock options were not granted to employees whose labor cost was capitalized as software development costs or inventory.

As of September 30, 2009, there was approximately $10.9 million (net of estimated forfeitures) in non-cash share-based compensation related to non-vested awards, which is expected to be recognized in the Company’s consolidated statements of operations over a weighted-average period of 1.5 years.

7.
NET INCOME PER SHARE

Basic net income per common share is computed by dividing net income available to MICROS Systems, Inc. common shareholders by the weighted-average number of shares outstanding.  Diluted net income per share includes the dilutive effect of stock options.  A reconciliation of the net income available to MICROS Systems, Inc. common shareholders and the weighted-average number of common shares outstanding assuming dilution is as follows:

 
10

 

   
Three Months Ended
September 30,
 
(in thousands, except per share data)
 
2009
   
2008
 
Net income attributable to MICROS Systems, Inc.
  $ 24,771     $ 24,882  
Effect of minority put arrangement
    60       (191 )
Net income available to MICROS Systems, Inc. common shareholders
  $ 24,831     $ 24,691  
                 
Average common shares outstanding
    79,749       80,688  
Dilutive effect of outstanding stock options
    1,565       1,508  
Average common shares outstanding assuming dilution
    81,314       82,196  
                 
Basic net income per share
  $ 0.31     $ 0.31  
Diluted net income per share
  $ 0.31     $ 0.30  
                 
Anti-dilutive weighted shares excluded from reconciliation
    1,894       1,482  

Results for the three months ended September 30, 2009 and 2008 include approximately $3.1 million ($2.1 million, net of tax) and $3.7 million ($2.9 million, net of tax), in non-cash share-based compensation expense, respectively.  These non-cash share-based compensation expenses reduced diluted net income per share by $0.03 and $0.04 for the three months ended September 30, 2009 and 2008, respectively.

8.
RECENT ACCOUNTING GUIDANCE

RECENTLY ADOPTED ACCOUNTING GUIDANCE

On July 1, 2009, the Company adopted the authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) on business combinations.  The guidance establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquired business.  This statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and disclosing information to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  As the Company did not complete any business combinations since July 1, 2009, the adoption of this new guidance did not have an impact on the Company’s consolidated financial statements.

On July 1, 2009, the Company adopted the authoritative guidance issued by the FASB that changes the accounting and reporting for non-controlling interests.  This statement requires that non-controlling interests be reported as a component of equity, changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, and any retained non-controlling equity investment upon the deconsolidation of a subsidiary initially be measured at fair value.  The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

On July 1, 2009, the Company adopted the authoritative guidance issued by the FASB which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset.  This statement is intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset and other U.S. generally accepted accounting principles.  The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

On July 1, 2009, the Company adopted the authoritative guidance on fair value measurement for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

RECENT ACCOUNTING GUIDANCE NOT YET ADOPTED

In October 2009, the FASB issued the authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance.  Under the new guidance, when vendor-specific objective evidence or third-party evidence of selling price is not available, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method.  The new guidance also significantly expands related disclosure requirements.  This standard is effective for the Company beginning July 1, 2010, with earlier adoption permitted.  The Company is continuing to evaluate the impact the adoption of this statement will have on its consolidated financial statements.

In October 2009, the FASB also issued the authoritative guidance on revenue recognition on arrangements that include software elements.  Under the new guidance, tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality are excluded from the scope of software revenue recognition guidance and will be subject to other relevant revenue recognition guidance.  This guidance will become effective for the Company beginning July 1, 2010, with earlier adoption permitted.  The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.

 
11

 

9.
SEGMENT INFORMATION

The Company is organized and operates in four operating segments:  U.S., Europe, the Pacific Rim, and Latin America regions.  The Company has identified the U.S. as a separate reportable segment and has aggregated its three international operating segments into one reportable segment, international, as the three international operating segments share many similar economic characteristics.  Management views the U.S. and international segments separately in operating its business, although the products and services are similar for each segment.

Historically, all of the Company’s new business acquisitions have been incorporated into the existing operating segments, based on their respective geographic locations, and are subsequently operated and managed as part of the applicable operating segment.

A summary of the Company’s reportable segments is as follows:

   
Three Months Ended
 
   
September 30,
 
(in thousands)
 
2009
   
2008
 
Revenues (1):
           
United States
  $ 111,391     $ 127,436  
International
    109,167       125,637  
Intersegment eliminations (2)
    (8,085 )     (9,004 )
Total revenues
  $ 212,473     $ 244,069  
                 
Income before taxes (1):
               
United States
  $ 17,908     $ 16,854  
International
    24,837       27,297  
Intersegment eliminations (2)
    (5,716 )     (5,771 )
Total income before taxes
  $ 37,029     $ 38,380  

   
As of
 
(in thousands)
 
September 30,
2009
   
June 30,
2009
 
Identifiable assets (3):
           
United States
  $ 477,096     $ 492,402  
International
    589,991       531,684  
Total identifiable assets
  $ 1,067,087     $ 1,024,086  

 
(1)
Amounts based on the location of the selling entity.
 
(2)
Amounts primarily represent elimination of U.S.’s intercompany business.
 
(3)
Amounts based on the physical location of the asset.

10.
SHAREHOLDERS’ EQUITY

During the period from fiscal year 2002 through fiscal year 2009 the Board of Directors authorized the purchase of up to an aggregate of 12 million shares of the Company’s common stock.  On August 25, 2009, the Board of Directors authorized the purchase of an additional two million shares of the Company’s common stock over the next three years, to be purchased from time to time depending on market conditions and other corporate considerations as determined by management.  The Company has incurred an aggregate of approximately $0.3 million in fees related to all stock purchases.  As of September 30, 2009, approximately 2.2 million shares remain available for purchase under the outstanding authorizations.

The following table summarizes the cumulative number of shares purchased under the purchase authorizations, all of which have been retired:

   
Number of
Shares
   
Average
Purchase Price
per Share
   
Total Purchase
Value
(in thousands)
 
Total shares purchased:
                 
As of June 30, 2009
    10,717,800     $ 19.39     $ 207,829  
Three months ended September 30, 2009
    1,101,200     $ 27.55       30,336  
As of September 30, 2009
    11,819,000     $ 20.15     $ 238,165  

 
12

 

11.
CONTINGENCIES

There is a case pending in the U.S. District Court for the Northern District of Georgia, styled Ware v. Abercrombie & Fitch Stores, Inc. et al.; although the Company is not a party to that case, the Company may have some obligation to indemnify certain of the defendants who are the Company’s customers, based on the terms of the Company’s contracts with those customers.  The plaintiff has alleged that the defendants are infringing a patent relating to the processing of credit card transactions.  The defendants include approximately 107 individual retailers, 13 of whom are the Company’s customers for retail point-of-sale software.  The Company is currently providing indemnity coverage to five of the defendants who are the Company’s customers in accordance with applicable provisions of the contracts between the Company and those customers.  Through June 30, 2009, the Company’s legal fees with respect to indemnity coverage for this matter have not been material, and the Company does not anticipate that its future indemnification obligations will be material.  The case was subject to a court-ordered stay pending the completion of the United States Patent and Trademark Office’s reexamination of the patent that is the subject of the lawsuit.  On July 14, 2009, the United States Patent and Trademark Office issued a Reexamination Certificate upholding the validity of the patent and the plaintiff moved the Court to lift the stay.  The Court lifted the Stay on September 4, 2009, and the parties have filed a Joint Preliminary Planning Report and Scheduling Plan whereby the Defendants are seeking, among other things, a moratorium on discovery pending the Court’s ruling on two separate motions for summary judgment filed by one defendant in this case and another defendant in a related case.  Based on currently available information, the Company does not believe that the Company’s products infringe the patent.  Should the case proceed, the Company will vigorously defend the action.

On November 26, 2007, Heartland Payment Systems, Inc., filed an action in the U.S. District Court for the District of New Jersey naming as defendants MICROS Systems, Inc., Merchant Link LLC, and Chase Paymentech Solutions, LLC.  In its complaint, Heartland claimed that MICROS, Merchant Link, and Paymentech engaged in an anti-competitive arrangement relating to credit and debit card payment processing for restaurant point-of-sale systems, and further claimed that this arrangement violates federal antitrust law and applicable New Jersey state laws.  Heartland claimed it was damaged by virtue of being required to deal with Merchant Link if it wished to provide services to users of MICROS point-of-sale software, by being required to pay fees to Merchant Link that it claims are inappropriate or excessive, and by being competitively disadvantaged relative to Chase Paymentech’s services.  Heartland is seeking monetary damages in excess of $12 million, and also injunctive and other equitable relief.  The Company and the other defendants have filed answers to the complaint, in which the Company and the other defendants have denied all material allegations.  The Company also has asserted counterclaims, alleging that Heartland has engaged in tortious activity by defaming and libeling the Company and by improperly interfering with the Company’s customer contracts and customer relationships.  Heartland has filed answers to the counterclaims denying all material allegations.  The case is currently in the discovery phase, and no trial date has been set in this matter.

As disclosed in previous filings, on May 22, 2008, a jury returned verdicts totaling $7.5 million against the Company in the consolidated actions of Roth Cash Register v. MICROS Systems, Inc., et al. and Shenango Systems Solutions v. MICROS Systems, Inc., et al.   The cases initially were filed in 2000 in the Court of Common Pleas of Allegheny County, Pennsylvania.  The complaints both related to the non-renewal of dealership agreements in the year 2000 between the Company and the respective plaintiffs.  The agreements were non-renewed as part of a restructuring of the dealer channel.  There is no other outstanding litigation relating to the restructuring of the dealer channel in the year 2000.  The plaintiffs alleged that the Company and certain of its subsidiaries and employees entered into a plan to eliminate the plaintiffs as authorized dealers and improperly interfere with the plaintiffs' relationships with their respective existing and potential future clients and customers without compensation to the plaintiffs.  As a result, the plaintiffs claimed that the Company was liable for, among other things, breach of contract and tortious interference with existing and prospective contractual relationships.  The Company and the plaintiffs have appealed the verdicts on various grounds.  The Company has filed its briefs on appeal, and the plaintiffs have filed their response briefs. The Company has established only an immaterial reserve for any potential liability relating to these matters, as the Company believes that it can present strong arguments to reverse the verdicts on appeal, and therefore believes that an unfavorable outcome in these cases is not probable.  Nevertheless, even if the verdicts were not reversed or reduced as a result of the post-trial motions or any subsequent appeals, payments of the resulting obligations would not have a material adverse effect on the Company’s consolidated financial position or liquidity.

The Company is and has been involved in legal proceedings arising in the normal course of business, and, subject to the matters referenced above, the Company is of the opinion, based upon presently available information and the advice of counsel concerning pertinent legal matters, that any resulting liability should not have a material adverse effect on the Company’s results of operations or financial position or cash flows.

 
13

 

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are a leading worldwide designer, manufacturer, marketer, and servicer of enterprise information solutions for the global hospitality and specialty retail industries.  Our enterprise solutions comprise three major areas: hotel information systems, restaurant information systems, and specialty retail information systems.  We also offer a wide range of related services.  We distribute our products and services directly and through a network of independent dealers and distributors.

We are organized and operate in four operating segments:  U.S., Europe, the Pacific Rim, and Latin America regions.  We have identified our U.S. operating segment as a separate reportable segment and we have aggregated our three international operating segments into one reportable segment, international, as the three international operating segments share many similar economic characteristics.  Our management views the U.S. and international segments separately in operating our business, although the products and services are similar for each segment.

We have been and continue to be adversely affected by the current global recession.  We believe that weakened consumer spending, coupled with difficulties in obtaining credit (including the cost of credit) have negatively affected our customers’ abilities to acquire or open new hospitality and retail venues, and also limit their willingness and ability to make significant capital expenditures on new systems and system upgrades.  In light of these very challenging and uncertain conditions, we continue to implement actions to enhance our liquidity and maintain a solid balance sheet.  These actions include: (i) reducing certain discretionary expenses; (ii) reducing certain rates for third party contractors; (iii) implementing headcount reductions in certain departments; and (iv) implementing hiring freezes in certain departments.

FORWARD-LOOKING STATEMENTS

       The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q.  Statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties.  Our actual results may differ materially from those anticipated in these forward-looking statements as a result of specified factors, including those set forth in the section titled “Business and Investment Risks; Information Relating to Forward-Looking Statements,” in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the Fiscal Year ended June 30, 2009 and in Part II, Item 1A, “Risk Factors” in this report.

Examples of such forward-looking statements include:
 
·
our statements about the growth of and conditions in the hospitality and retail industries generally, and our analysis of the growth and direction of various sectors within those industries;
 
·
our expectation that product and service margins may decline in response to the competitive nature of our market;
 
·
our statements regarding the effects of foreign currency rate fluctuations (in particular, the Euro and British pound sterling) on our financial performance;
 
·
our expectations that the customers with whom we do the largest amount of business will fluctuate from year to year, and our statements about the effects of large customer orders on our quarterly earnings, revenues, and total revenues;
 
·
our statements regarding the impact on financial results in future periods if we determine that the financial condition of customers has deteriorated;
 
·
our statements regarding the impact on financial results in future periods if we misjudge the remaining economic life of a product;
 
·
our statements concerning the fluctuations in the market price of our common stock, whether as a result of variations in our quarterly operating results or other factors;
 
·
our belief that any existing legal claims or proceedings will not have a material adverse effect on our results of operations or financial position;
 
·
our beliefs about our competitive strengths;
 
·
our expectations regarding effective tax rates in future periods;
 
·
our expectations regarding the impact or lack of impact on our financial position and results of operations of the application of recent accounting standards;
 
·
our expectations about the adequacy of our cash flows and our available lines of credit to meet our working capital needs, and our ability to raise additional funds if and when needed;
 
·
our expectations about our capital expenditures for future periods;
 
·
our expectations that our exposure to interest rate risk will not materially change in the future;
 
·
our expectation that we will evaluate our need to invest in instruments to protect against interest rate fluctuations and our exposure to such interest rate risk;

 
14

 

 
·
our statements about the effects on our revenue recognition of changes in customers’ delivery requirements or a product’s completion;
 
·
our statements regarding our ability to increase sales of our higher margin products;
 
·
our expected costs associated with modifying our products to comply with applicable legal rules, regulations, and guidelines, including the credit card associations’ security and data protection rules, and
 
·
our expectations regarding valuation and liquidity of auction rate securities in which we have invested.

RESULTS OF OPERATIONS

Revenue:

An analysis of the sales mix by reportable segments was as follows (amounts are net of intersegment eliminations, based on location of the selling entity, and include export sales):

   
Three Months Ended September 30,
 
   
U.S.
   
International
   
Total
 
(in thousands)
 
2009
   
2008
   
2009
   
2008
   
2009
   
2008
 
Hardware
  $ 20,964     $ 32,243     $ 22,815     $ 31,450     $ 43,779     $ 63,693  
Software
    9,336       13,940       15,590       23,636       24,926       37,576  
Service
    70,032       67,404       73,736       75,396       143,768       142,800  
Total Revenue
  $ 100,332     $ 113,587     $ 112,141     $ 130,482     $ 212,473     $ 244,069  

An analysis of the total sales mix as a percent of total revenue is as follows:

   
Three Months Ended
September 30,
 
(in thousands)
 
2009
   
2008
 
Hardware
    20.6 %     26.1 %
Software
    11.7 %     15.4 %
Service
    67.7 %     58.5 %
Total
    100.0 %     100.0 %
 
  For the three months ended September 30, 2009, total revenue was approximately $212.5 million, a decrease of approximately $31.6 million, or 12.9% compared to the same period last year due to the following:
 
·
Hardware and software revenue decreased by 31.3% and 33.7%, respectively, compared to the same period last year.  Service revenue increased by 0.7% compared to the same period last year.  We believe these changes were primarily due to a slow down in demand from our customers as a result of the adverse global economic conditions.
 
·
The % changes above also reflect the unfavorable foreign currency exchange rate fluctuations, for substantially all foreign currencies against the U.S. dollar, which negatively impacted total revenue by approximately $5.4 million.
 
·
The service revenue also reflects additional service revenue generated by Fry, a company which we acquired in August 2008.
 
  The international segment revenue for the three months ended September 30, 2009 decreased by approximately $18.3 million, a decrease of 14.1% compared to the same period last year due to the following:
 
·
Hardware, software and service revenue decreased by 27.5%, 34.0% and 2.2%, respectively, compared to the same period last year.  We believe these decreases were primarily due to a slow down in demand from our customers as a result of the adverse global economic conditions.
 
·
The % decreases above also reflect the unfavorable foreign currency exchange rate fluctuations, for substantially all foreign currencies against the U.S. dollar, which negatively impacted revenue by approximately $5.4 million.
     
  U.S. segment revenue for the three months ended September 30, 2009 decreased approximately $13.3 million, a decrease of 11.7% compared to the same period last year due to the following:
 
·
Hardware and software revenue decreased by 35.0% and 33.0%, respectively, compared to the same period last year.  Service revenue increased by 3.9% compared to the same period last year.  We believe these changes were primarily due to a slow down in demand from our customers as a result of the adverse global economic conditions.
 
·
The service revenue also reflects additional service revenue generated by Fry, a company which we acquired in August 2008.
     
 
 
15

 

Cost of Sales:

An analysis of the cost of sales was as follows:

   
Three Months Ended September 30,
 
   
2009
   
2008
 
(in thousands)
 
Cost
of Sales
   
% of Related
Revenue
   
Cost
of Sales
   
% of Related
Revenue
 
Hardware
  $ 28,273       64.6 %   $ 43,059       67.6 %
Software
    5,550       22.3 %     7,300       19.4 %
Service
    62,138       43.2 %     67,766       47.5 %
Total Cost of Sales
  $ 95,961       45.2 %   $ 118,125       48.4 %

For the three months ended September 30, 2009 and 2008, cost of sales as a percent of revenue were 45.2% and 48.4%, respectively.  Hardware cost of sales as a percent of related revenue for the three months ended September 30, 2009 decreased 3.0% compared to the same period last year primarily as a result of an overall improvement in margins on substantially all hardware product sales, including a decrease in freight costs.

Software cost of sales as a percent of related revenue increased approximately 2.9% compared to the same period last year.  This increase was primarily as a result of an increase in capitalized software amortization expense as a percent of software revenue due to a decrease in software revenue.

Service costs as a percent of related revenue decreased approximately 4.3% compared to the same period last year due to lower overall labor and travel costs.

Selling, General and Administrative (“SG&A”) Expenses:

SG&A expenses, as a percentage of revenue, for the three months ended September 30, 2009, were 30.7%, a decrease of 0.8% compared to the same period last year despite a decrease in total revenue.  This decrease was due to our ability to manage our variable costs, especially our non-billable travel costs.  Additionally, we were able to reduce our compensation related expenses by approximately $4.1 million for the three months ended September 30, 2009 compared to the same period last year.

Research and Development (“R&D”) Expenses:

R&D expenses consisted primarily of labor costs less capitalized software development costs.  An analysis of R&D activities is as follows:

   
Three Months Ended
September 30,
 
(in thousands)
 
2009
   
2008
 
R&D labor and other costs
  $ 11,216     $ 10,596  
Capitalized software development costs
    (200 )     (125 )
Total R&D expenses
  $ 11,016     $ 10,471  
% of Revenue
    5.2 %     4.3 %

The increase in R&D expenses as a percentage of revenue is primarily due to the 12.9% decrease in revenue compared to the same period last year.

Depreciation and Amortization Expenses:

Depreciation and amortization expenses for the three months ended September 30, 2009 decreased approximately $0.2 million to approximately $3.8 million compared to the same period last year.

Share-Based Compensation Expenses:

For the three months ended September 30, 2009 and 2008, we recognized non-cash share-based compensation expense of approximately $3.1 million and $3.7 million, respectively.  The SG&A and R&D expenses discussed above include the following allocations of non-cash share-based compensation expenses:

 
16

 

   
Three Months Ended
September 30,
 
(in thousands)
 
2009
   
2008
 
SG&A
  $ 2,904     $ 3,525  
R&D
    147       208  
Total non-cash share-based compensation expense
    3,051       3,733  
Income tax benefit
    (942 )     (841 )
Total non-cash share-based compensation expense, net of tax benefit
  $ 2,109     $ 2,892  
Impact on diluted net income per share
  $ 0.03     $ 0.04  

As of September 30, 2009, there was approximately $10.9 million in non-cash share-based compensation cost related to non-vested awards not yet recognized in our consolidated statements of operations.  This cost is expected to be recognized over a weighted-average period of 1.5 years.

Non-operating Income:

Net non-operating income for the three months ended September 30, 2009, was approximately $0.7 million compared to approximately $3.8 million for the same period last year.  The decrease of approximately $3.1 million reflects:

 
·
A decrease in interest income of approximately $2.2 million due to overall lower interest earned on cash and cash equivalents and investment (short-term and long-term) balances;
 
·
The credit based other-than-temporary impairment losses of approximately $0.4 million for investments in auction rate securities for the three months ended September 30, 2009; and,
 
·
Foreign currency exchange loss of less than $0.1 million for the three months ended September 30, 2009 compared to foreign currency exchange gain of approximately $0.5 million for the same period last year.
 
Income Tax Provisions:
 
The effective tax rate for the three months ended September 30, 2009 and 2008 was 32.5% and 34.0%, respectively.  The decrease in tax rate for the three months ended September 30, 2009 compared to the same period last year was primarily attributable to a decrease in foreign interest income included in our U.S. tax base and a decrease in non-deductible non-cash share-based compensation.  These decreases to the tax rate were partially offset by adverse changes in the mix of estimated earnings from jurisdictions that have a low statutory tax rate.
 
Based on currently available information, we estimate that the fiscal year 2010 effective tax rate will be approximately 33%.  We believe that due to changes in the mix of earnings among jurisdictions, the fluctuation of earnings, and the impact of certain discrete items recognized during the interim reporting periods, there may be some degree of adjustment to the effective tax rate on a quarterly basis.

RECENT ACCOUNTING STANDARDS

Recently Adopted Accounting Pronouncements

On July 1, 2009, we adopted the authoritative guidance issued by the FASB on business combinations.  The guidance establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired business.  This statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and disclosing information to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  As we did not complete any business combinations since July 1, 2009, the adoption of this new guidance did not have an impact on our consolidated financial statements.

On July 1, 2009, we adopted the authoritative guidance issued by the FASB that changes the accounting and reporting for non-controlling interests.  This statement requires that non-controlling interests be reported as a component of equity, changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, and any retained noncontrolling equity investment upon the deconsolidation of a subsidiary initially be measured at fair value.  The adoption of this new guidance did not have a material impact on our consolidated financial statements.

On July 1, 2009, we adopted the authoritative guidance issued by the FASB which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset.  This statement is intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset and other U.S. generally accepted accounting principles.  The adoption of this new guidance did not have a material impact on our consolidated financial statements.

 
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On July 1, 2009, we adopted the authoritative guidance on fair value measurement for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The adoption of this new guidance did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In October 2009, the FASB issued the authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance.  Under the new guidance, when vendor-specific objective evidence or third-party evidence of selling price is not available, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method.  The new guidance also significantly expands related disclosure requirements.  This standard is effective for us beginning July 1, 2010, with earlier adoption permitted.  We are continuing to evaluate the impact that the adoption of this statement will have on our consolidated financial statements.

In October 2009, the FASB also issued the authoritative guidance on revenue recognition on arrangements that include software elements.  Under the new guidance, tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality are excluded from the scope of software revenue recognition guidance and will be subject to other relevant revenue recognition guidance.  This guidance will become effective for us beginning July 1, 2010, with earlier adoption permitted.  We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, revenue and expenses.  We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances.  Actual results may differ from these estimates.

The following comprise the critical accounting estimates that we used in the preparation of our condensed consolidated financial statements:
·      Revenue recognition;
·      Allowance for doubtful accounts;
·      Inventory;
·      Financial instruments and fair value measurements;
·      Capitalized software development costs;
·      Valuation of long-lived assets and intangible assets
·      Goodwill and indefinite-lived intangible assets;
·      Share-based compensation;
·      Income taxes.

We have reviewed our critical accounting estimates and the related disclosures with our Audit Committee.  Critical accounting estimates are described further in our Annual Report on Form 10-K for the year ended June 30, 2009 in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Estimates.”

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash
 
Our condensed consolidated statement of cash flows summary is as follows:

   
Three Months Ended
September 30,
 
(in thousands)
 
2009
   
2008
 
Net cash provided by (used in):
           
Operating activities
  $ 41,849     $ 29,658  
Investing activities
    8,113       (111,953 )
Financing activities
    (23,419 )     (27,510 )

 
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Operating activities:

Net cash provided by operating activities for the three months ended September 30, 2009 increased approximately $12.2 million compared to the three months ended September 30, 2008.  This increase was primarily due to an improvement in collections related to deferred revenue for the three months ended September 30, 2009 as compared to the same period last year.

Investing activities:

Net cash flows from investing activities for the three months ended September 30, 2009 was approximately $8.1 million reflecting approximately $10.0 million we received from the sale of investments, net of cash used to purchase investments.  This amount was partially offset by approximately $1.9 million we used to purchase property, plant and equipment, and also internally developed software to be licensed to others.

Financing activities:

Net cash used in financing activities for the three months ended September 30, 2009 was approximately $23.4 million, principally reflecting stock repurchases of approximately $30.3 million.  This amount was partially offset by proceeds from stock option exercises of approximately $4.9 million and realized tax benefits from stock option exercises of approximately $2.2 million.

Capital Resources

During the three months ended September 30, 2009, the favorable foreign exchange rate fluctuations for substantially all foreign currencies against the U.S. dollar positively affected our cash and cash equivalents’ balance by approximately $7.5 million.  Our cash and cash equivalents’ balance of approximately $326.3 million at September 30, 2009 is an increase of approximately $34.0 million from the June 30, 2009 balance and an increase of approximately $82.3 million from the September 30, 2008 balance.  All cash and cash equivalents were being retained for the operation and expansion of the business, as well as for the repurchase of our common stock.

We have two credit agreements (the “Credit Agreements”) that in the aggregate provide a $65.0 million multi-currency committed line of credit.  As of September 30, 2009, we had approximately $1.2 million outstanding under the Credit Agreements and had applied approximately an additional $0.4 million to guarantees.  We also have a credit relationship with a European bank in the amount of EUR 1.0 million (approximately $1.5 million at the September 30, 2009 exchange rate).  As of September 30, 2009, there were no balances outstanding on this credit facility, but approximately EUR 0.4 million (approximately $0.6 million at the September 30, 2009 exchange rate) of the credit facility has been used for guarantees. As of September 30, 2009, we had approximately $64.2 million borrowing capacity under all of the credit facilities described above.  The weighted-average interest rate on the outstanding balances under the Credit Agreements as of September 30, 2008 was 1.5%.  See Note 5 “Line of Credit,” in the Notes to the Condensed Consolidated Financial Statements included in this report for further information about our credit facilities.

We do not currently invest in financial instruments designed to protect against interest rate fluctuations, although we will continue to evaluate the need to do so in the future.

We believe that our cash and cash equivalents, short-term investments, cash generated from operations and our available lines of credit are sufficient to provide our working capital needs for the foreseeable future.  In light of current economic conditions generally and in light of the overall performance of the stock market beginning in 2008, we cannot assure that funds would be available from other sources if required in connection with acquisitions or any unanticipated and substantial cash needs.  We currently anticipate that our property, plant and equipment expenditures for fiscal year 2010 will be approximately $13 million.

Financial indicators of our liquidity and capital resources as of September 30, 2009 and June 30, 2009, were as follows:

(in thousands, except ratios)
 
September 30,
2009
   
June 30,
2009
 
Cash and cash equivalents and short-term investments (1)
  $ 467,560     $ 438,936  
Available credit facilities
  $ 66,463     $ 66,403  
Outstanding credit facilities
    (1,170 )     (1,090 )
Outstanding guarantees
    (1,083 )     (778 )
Unused credit facilities
  $ 64,210     $ 64,535  
Working capital (2)
  $ 442,451     $ 421,016  
MICROS Systems, Inc.’s shareholders’ equity
  $ 744,062     $ 723,447  
Current ratio (3)
    2.55       2.60  

(1)
Does not include approximately $57.6 million and $57.8 million invested in auction rate securities, classified as long-term investments in our condensed consolidated balance sheet as of September 30, 2009 and June 30, 2009, respectively.
(2)
Current assets less current liabilities.
(3)
Current assets divided by current liabilities.  The Company does not have any long-term debt.

 
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ITEM 3. 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Currency exchange rate risk

We recorded foreign sales, including exports from the United States, of approximately $112.1 million and $130.5 million during the three months ended September 30, 2009 and 2008, respectively, to customers located primarily in Europe, Asia and Latin America.  See Note 9 “Segment Information” in the Notes to Condensed Consolidated Financial Statements as well as Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) above for additional geographic data.

Our international business and presence expose us to certain risks, such as currency, interest rate and political risks.  With respect to currency risk, we transact business in different currencies primarily through our foreign subsidiaries.  The fluctuation of currencies impacts sales and profitability.  Frequently, sales and the costs associated with those sales are not denominated in the same currency.

We transacted business in approximately thirty-nine currencies in the three months ended September 30, 2009 compared to thirty-seven currencies in the three months ended September 30, 2008.  The relative currency mix for the three months ended September 30, 2009 and 2008 were as follows:

   
Three Months Ended September 30,
 
    
% of Reported
Revenue
   
Exchange Rates
 
Revenues by currency (1):
 
2009
   
2008
   
2009
   
2008
 
United States Dollar
    52 %     53 %     1.0000       1.0000  
European Euro
    22 %     21 %     1.4634       1.4076  
British Pound Sterling
    7 %     8 %     1.5979       1.7778  
Swiss Franc
    2 %     1 %     0.9651       0.8895  
Japanese Yen
    2 %     2 %     0.0111       0.0094  
Australian Dollar
    1 %     2 %     0.8823       0.7903  
Mexican Peso
    1 %     2 %     0.0741       0.0916  
Canadian Dollar
    1 %     1 %     0.9340       0.9398  
Singapore Dollar
    1 %     1 %     0.7099       0.6960  
Hong Kong Dollar
    1 %     1 %     0.1290       0.1288  
All Other Currencies (2)
    10 %     8 %     0.1864       0.1910  
Total
    100 %     100 %                

(1)
Calculated using weighted average exchange rates for the fiscal period.
(2)
The “% of Reported Revenue” for “All Other Currencies” is calculated based on the weighted average three month exchange rates for all other currencies. The “Exchange Rates as of September 30” for ‘All Other Currencies’ represents the weighted average September 30 exchange rates for all other currencies.  Weighting is based on the three month revenue for each country or region whose currency is included in the ‘All Other Currencies’ category.  Revenues from each currency included in “All Other Currencies” were less than 1% of our total revenues for the relevant period.

A 10% increase or decrease in the value of the Euro and British pound sterling in relation to the U.S. dollar in the three months ended September 30, 2009 would have affected our total revenues by approximately $6.1 million, or 2.9%.  The sensitivity analysis assumes a weighted average 10% change in the exchange rate during the period with all other variables being held constant.  This sensitivity analysis does not consider the effect of exchange rate changes on cost of sales, operating expenses, or income taxes, and accordingly, is not necessarily an indicator of the effect of potential exchange rate changes on our net income.

Interest rate risk

Our committed lines of credit bear interest at a floating rate, which exposes us to interest rate risks.  We manage our exposure to this risk by minimizing, to the extent feasible, overall borrowing and monitoring available financing alternatives.  At September 30, 2009, we had total borrowings of approximately $1.2 million, and had not entered into any instruments to hedge the resulting exposure to interest-rate risk.   We believe that the fair value of the debt equals its carrying value at September 30, 2009 and June 30, 2009.  Our exposure to fluctuations in interest rates will increase or decrease in the future with increases or decreases in the outstanding amount under our lines of credit.  As our total borrowing as of September 30, 2009 was approximately $1.2 million, a 1% change in interest rate would have resulted in an immaterial impact on our condensed consolidated financial position, results of operations and cash flows. Our cash equivalents and our portfolio of marketable securities, including auction rate securities, are subject to market risk due to changes in interest rates.  Fixed interest rate securities may have their market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall.  Should interest rates fluctuate by 1%, the change in value of our marketable securities would not have been material as of September 30, 2009, and the change in our interest income would not have been material for the three months ended September 30, 2009.

 
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To minimize our exposure to credit risk associated with financial instruments, we place our temporary cash investments with high-credit-quality institutions, generally with bond rating of “A” and above.  However, see Note 3 “Financial Instruments and Fair Value Measurements” in the Notes to Condensed Consolidated Financial Statements for a discussion regarding auction rate securities.

Finally, we are subject to, among others, those environmental and geopolitical risks, and economic, pricing, financial, and other risks described in Item 1A, “Risk Factors.”

ITEM 4.
CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

Change in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.