**Form 10-Q**

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**QuarterlyReport Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934**

 

**For the quarter ended December 31, 2002**

 

**Commission file number 0-9993**

 

**MICROS SYSTEMS, INC.**

(Exact name of Registrant as specified in its charter)

 

| **MARYLAND**                                                                                                                             |   | **52-1101488**                           |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|
| (State of  incorporation)                                                                                                                |   | (I.R.S.  Employer Identification Number) |
|                                                                                                                                     |   |                                     |
| **7031 Columbia Gateway Drive, Columbia, Maryland 21046-2289**                                                                           |
| (Address of  principal executive offices)              (Zip  code) |
|                                                                                                                                     |
| Registrant’s  telephone number, including area code: **443-285-6000**                                                               |

 

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

 

YES ý    NO o

 

Indicate by check mark whether the Registrantis an Accelerated Filer (as defined in Rule 12b-2 of the Securities ExchangeAct of 1934.

 

YES ý    NO o

 

As of January 31, 2003, there were 17,361,828shares of Common Stock, $0.025 par value, outstanding.

 

 

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MICROS SYSTEMS, INC. AND SUBSIDIARIES

Form 10-Q

For the Quarter Ended December 31, 2002

 

Part I - Financial Information

 

Item 1.    FinancialStatements

 

General

 

The information contained in this report is furnished for theRegistrant, MICROS Systems, Inc., and its subsidiaries (referred tocollectively herein as “MICROS” or the “Company”).  In the opinion of management, the information in this reportcontains all adjustments, consisting only of normal recurring adjustments,which are necessary for a fair statement of the results for the interim periodspresented.  The financial informationpresented herein should be read in conjunction with the financial statementsincluded in the Registrant’s Form 10-K for the fiscal year ended June 30, 2002,as filed with the Securities and Exchange Commission.

 

2

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MICROS SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except per sharedata)

 
|                                                                                                                                              |   | **December  31,  2002** |    | **June 30,  2002** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|--------------------|--------|
| ASSETS                                                                                                                                            |   |                    |    |               |   |
| Current assets:                                                                                                                                   |   |                    |    |               |   |
| Cash and cash equivalents                                                                                                                         |   | $                       | 55,684  |               | $      | 66,638 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $10,065 at December 31, 2002 and $8,981 at  June 30, 2002               |   | 90,278                  |    | 86,918             |   |
| Inventories, net of allowance for  obsolescence of $5,730 at December 31, 2002 and $4,957 at June 30, 2002                                   |   | 35,750                  |    | 31,211             |   |
| Deferred income taxes                                                                                                                             |   | 7,081                   |    | 7,008              |   |
| Prepaid expenses and other current assets                                                                                                         |   | 15,207                  |    | 12,756             |   |
| Total current assets                                                                                                                              |   | 204,000                 |    | 204,531            |   |
|                                                                                                                                              |   |                    |    |               |   |
| Property, plant and equipment, net of  accumulated depreciation and amortization of $45,921 at December 31, 2002 and  $42,669 at June 30, 2002    |   | 20,514                  |    | 21,467             |   |
| Deferred income taxes, non-current                                                                                                                |   | 20,107                  |    | 20,707             |   |
| Goodwill and intangible assets, net of  accumulated amortization of $27,989 at December 31, 2002 and $28,025 at June  30, 2002                    |   | 31,144                  |    | 32,055             |   |
| Purchased and internally developed software  costs, net of accumulated amortization of $21,179 at December 31, 2002 and  $18,248 at June 30, 2002 |   | 31,568                  |    | 30,303             |   |
| Other assets                                                                                                                                      |   | 3,411                   |    | 3,767              |   |
| Total assets                                                                                                                                      |   | $                       | 310,744 |               | $      | 312,830 |   |
|                                                                                                                                              |   |                    |    |               |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                         |   |                    |    |               |   |
| Current liabilities:                                                                                                                              |   |                    |    |               |   |
| Bank lines of credit                                                                                                                              |   | $                       | 8,350   |               | $      | 18,699 |   |
| Current portion of capital lease  obligations                                                                                                     |   | 132                     |    | 147                |   |
| Accounts payable                                                                                                                                  |   | 25,552                  |    | 25,955             |   |
| Accrued expenses and other current  liabilities                                                                                                   |   | 37,395                  |    | 34,554             |   |
| Income taxes payable                                                                                                                              |   | 2,986                   |    | 7,303              |   |
| Deferred income taxes                                                                                                                             |   | 810                     |    | 547                |   |
| Deferred service revenue                                                                                                                          |   | 35,853                  |    | 33,841             |   |
| Total current liabilities                                                                                                                         |   | 111,078                 |    | 121,046            |   |
|                                                                                                                                              |   |                    |    |               |   |
| Capital lease obligations, net of current  portion                                                                                                |   | 295                     |    | 279                |   |
| Deferred income taxes, non-current                                                                                                                |   | 9,940                   |    | 9,933              |   |
| Other non-current liabilities                                                                                                                     |   | 1,342                   |    | 1,232              |   |
| Commitments and contingencies:                                                                                                                    |   |                    |    |               |   |
| Minority interests                                                                                                                                |   | 2,450                   |    | 1,978              |   |
|                                                                                                                                              |   |                    |    |               |   |
| Shareholders’ equity:                                                                                                                        |   |                    |    |               |   |
| Common stock, $0.025 par; authorized 50,000  shares; issued and outstanding 17,374 at December 31, 2002 and 17,521 at June  30, 2002              |   | 434                     |    | 438                |   |
| Capital in excess of par                                                                                                                          |   | 53,509                  |    | 56,867             |   |
| Retained earnings                                                                                                                                 |   | 138,225                 |    | 130,599            |   |
| Accumulated other comprehensive loss                                                                                                              |   | (6,529                  | )       | (9,542             | )      |
| Total shareholders’ equity                                                                                                                   |   | 185,639                 |    | 178,362            |   |
|                                                                                                                                              |   |                    |    |               |   |
| Total liabilities and shareholders’ equity                                                                                                   |   | $                       | 310,744 |               | $      | 312,830 |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

 

3

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

 
|                                                                              |   | **Three  Months Ended December 31,** |   |
|-----------------------------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                                              |   | **2002**                             |   | **2001** |   |
| Revenue:                                                                          |   |                                 |   |   |   |
| Hardware and software                                                             |   | $                                    | 51,011 |   | $ | 47,497 |   |
| Service                                                                           |   | 44,537                               |   | 43,402 |   |
| Total revenue                                                                     |   | 95,548                               |   | 90,899 |   |
|                                                                              |   |                                 |   |   |   |
| Costs and expenses:                                                               |   |                                 |   |   |   |
| Cost of sales                                                                     |   |                                 |   |   |   |
| Hardware and software                                                             |   | 27,695                               |   | 26,409 |   |
| Service                                                                           |   | 20,278                               |   | 21,416 |   |
| Total cost of sales                                                               |   | 47,973                               |   | 47,825 |   |
|                                                                              |   |                                 |   |   |   |
| Selling, general and administrative  expenses                                     |   | 32,682                               |   | 30,350 |   |
| Research and development expenses                                                 |   | 4,248                                |   | 4,735 |   |
| Depreciation and amortization                                                     |   | 2,129                                |   | 4,076 |   |
| Total costs and expenses                                                          |   | 87,032                               |   | 86,986 |   |
|                                                                              |   |                                 |   |   |   |
| Income from operations                                                            |   | 8,516                                |   | 3,913 |   |
|                                                                              |   |                                 |   |   |   |
| Non-operating income (expense):                                                   |   |                                 |   |   |   |
| Interest income                                                                   |   | 420                                  |   | 277 |   |
| Interest expense                                                                  |   | (225                                 | )      | (139 | ) |
| Other (expense) income, net                                                       |   | (5                                   | )      | 138 |   |
| Total non-operating income                                                        |   | 190                                  |   | 276 |   |
|                                                                              |   |                                 |   |   |   |
| Income before taxes, minority interests and  equity in net earnings of affiliates |   | 8,706                                |   | 4,189 |   |
|                                                                              |   |                                 |   |   |   |
| Income tax provision                                                              |   | 3,570                                |   | 1,559 |   |
|                                                                              |   |                                 |   |   |   |
| Income before minority interests and equity  in net earnings of affiliates        |   | 5,136                                |   | 2,630 |   |
|                                                                              |   |                                 |   |   |   |
| Minority interests and equity in net earnings  of affiliates                      |   | (205                                 | )      | (145 | ) |
|                                                                              |   |                                 |   |   |   |
| Net income                                                                        |   | $                                    | 4,931  |   | $ | 2,485 |   |
|                                                                              |   |                                 |   |   |   |
| Net income per common share:                                                      |   |                                 |   |   |   |
| Basic                                                                             |   | $                                    | 0.28   |   | $ | 0.14 |   |
| Diluted                                                                           |   | $                                    | 0.28   |   | $ | 0.14 |   |
|                                                                              |   |                                 |   |   |   |
| Weighted-average number shares outstanding:                                       |   |                                 |   |   |   |
| Basic                                                                             |   | 17,398                               |   | 17,502 |   |
| Diluted                                                                           |   | 17,612                               |   | 17,757 |   |

 

The accompanying notes are anintegral part of the consolidated financial statements.

 

4

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|                                                                              |   | **Six Months  Ended December 31,** |   |
|-----------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                              |   | **2002**                           |   | **2001** |   |
| Revenue:                                                                          |   |                               |   |   |   |
| Hardware and software                                                             |   | $                                  | 94,171 |   | $ | 90,195 |   |
| Service                                                                           |   | 87,888                             |   | 84,215 |   |
| Total revenue                                                                     |   | 182,059                            |   | 174,410 |   |
|                                                                              |   |                               |   |   |   |
| Costs and expenses:                                                               |   |                               |   |   |   |
| Cost of sales                                                                     |   |                               |   |   |   |
| Hardware and software                                                             |   | 52,971                             |   | 50,755 |   |
| Service                                                                           |   | 40,100                             |   | 40,513 |   |
| Total cost of sales                                                               |   | 93,071                             |   | 91,268 |   |
|                                                                              |   |                               |   |   |   |
| Selling, general and administrative  expenses                                     |   | 62,126                             |   | 59,030 |   |
| Research and development expenses                                                 |   | 9,135                              |   | 9,561 |   |
| Depreciation and amortization                                                     |   | 4,175                              |   | 7,831 |   |
| Total costs and expenses                                                          |   | 168,507                            |   | 167,690 |   |
|                                                                              |   |                               |   |   |   |
| Income from operations                                                            |   | 13,552                             |   | 6,720 |   |
|                                                                              |   |                               |   |   |   |
| Non-operating income (expense):                                                   |   |                               |   |   |   |
| Interest income                                                                   |   | 815                                |   | 513 |   |
| Interest expense                                                                  |   | (585                               | )      | (427 | ) |
| Other expense, net                                                                |   | (664                               | )      | (949 | ) |
| Total non-operating expenses                                                      |   | (434                               | )      | (863 | ) |
|                                                                              |   |                               |   |   |   |
| Income before taxes, minority interests and  equity in net earnings of affiliates |   | 13,118                             |   | 5,857 |   |
|                                                                              |   |                               |   |   |   |
| Income tax provision                                                              |   | 5,247                              |   | 2,226 |   |
|                                                                              |   |                               |   |   |   |
| Income before minority interests and equity  in net earnings of affiliates        |   | 7,871                              |   | 3,631 |   |
|                                                                              |   |                               |   |   |   |
| Minority interests and equity in net  earnings of affiliates                      |   | (245                               | )      | (267 | ) |
|                                                                              |   |                               |   |   |   |
| Net income                                                                        |   | $                                  | 7,626  |   | $ | 3,364 |   |
|                                                                              |   |                               |   |   |   |
| Net income per common share:                                                      |   |                               |   |   |   |
| Basic                                                                             |   | $                                  | 0.44   |   | $ | 0.19 |   |
| Diluted                                                                           |   | $                                  | 0.43   |   | $ | 0.19 |   |
|                                                                              |   |                               |   |   |   |
| Weighted-average number shares outstanding:                                       |   |                               |   |   |   |
| Basic                                                                             |   | 17,436                             |   | 17,497 |   |
| Diluted                                                                           |   | 17,707                             |   | 17,741 |   |

 

The accompanying notes are anintegral part of the consolidated financial statements.

 

5

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MICROSSYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYFor the Period Ended December 31, 2002(Unaudited, in thousands)

 
|                                             |   |              |   | **Capital  in Excess  of Par** |   | **Retained  Earnings** |   | **Accumulated  Other**

**Comprehensive  Loss** |   | **Total** |    |
|--------------------------------------------------|--------|-------------------|--------|--------------------------------|--------|------------------------|--------|-------------------------------------------------|--------|-----------|---------|
|                                             |   |              |   |                           |   |                   |
|                                             |   | **Common  Stock** |   |                           |   |                   |   |
|                                             |   | **Shares**        |   | **Amount**                     |   |                   |   |                                            |   |
| Balance, June 30, 2002                           |   | 17,521            |   | $                              | 438    |                   | $      | 56,867                                          |   | $         | 130,599 |   | $ | (9,542 | ) | $ | 178,362 |   |
| Comprehensive income                             |   |              |   |                           |   |                   |   |                                            |   |      |    |   |   |
| Net income                                       |   | —            |   | —                         |   | —                 |   | 7,626                                           |   | —    |    | 7,626 |   |
| Foreign currency translation adjustments         |   | —            |   | —                         |   | —                 |   | —                                          |   | 3,013     |    | 3,013 |   |
| Total comprehensive income                       |   | —            |   | —                         |   | —                 |   | —                                          |   | —    |    | 10,639 |   |
| Stock issued upon exercise of options            |   | 8                 |   | —                         |   | 129                    |   | —                                          |   | —    |    | 129 |   |
| Stock retired                                    |   | (155              | )      | (4                             | )      | (3,507                 | )      | —                                          |   | —    |    | (3,511 | ) |
| Income tax benefit from stock options  exercised |   | —            |   | —                         |   | 20                     |   | —                                          |   | —    |    | 20 |   |
| Balance, December 31, 2002                       |   | 17,374            |   | $                              | 434    |                   | $      | 53,509                                          |   | $         | 138,225 |   | $ | (6,529 | ) | $ | 185,639 |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

 

6

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MICROSSYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS

(Condensed andunaudited, in thousands)

 
|                                                                                 |   | **Six Months  Ended December 31,** |   |
|--------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                 |   | **2002**                           |   | **2001** |   |
|                                                                                 |   |                               |   |   |   |
| Net cash flows provided by operating  activities:                                    |   | $                                  | 7,856  |   | $ | 6,609 |   |
|                                                                                 |   |                               |   |   |   |
| Cash flows from investing activities:                                                |   |                               |   |   |   |
| Purchases of property, plant and equipment                                           |   | (3,233                             | )      | (2,699 | ) |
| Proceeds from dispositions of property,  plant and equipment                         |   | 71                                 |   | 61 |   |
| Internally developed software                                                        |   | (1,828                             | )      | (1,784 | ) |
| Proceeds from settlement                                                             |   | —                             |   | 200 |   |
| Proceeds from sale of subsidiary                                                     |   | 286                                |   | — |   |
| Purchase of equity interest in investees                                             |   | —                             |   | (51 | ) |
| Net cash paid for acquisitions, minority  interests and contingent earn-out payments |   | —                             |   | (3,571 | ) |
| Net cash used in investing activities                                                |   | (4,704                             | )      | (7,844 | ) |
|                                                                                 |   |                               |   |   |   |
| Cash flows from financing activities:                                                |   |                               |   |   |   |
| Principal payments on line of credit                                                 |   | (12,887                            | )      | (8,346 | ) |
| Proceeds from lines of credit                                                        |   | 2,240                              |   | 10,450 |   |
| Principal payments on long-term debt and  capital lease obligations                  |   | (93                                | )      | (2,485 | ) |
| Repurchase of stock                                                                  |   | (3,510                             | )      | — |   |
| Proceeds from issuance of stock                                                      |   | 129                                |   | 395 |   |
| Net cash (used in) provided by financing  activities                                 |   | (14,121                            | )      | 14 |   |
|                                                                                 |   |                               |   |   |   |
| Effect of exchange rate changes on cash                                              |   | 15                                 |   | (8 | ) |
|                                                                                 |   |                               |   |   |   |
| Net (decrease) increase in cash and cash  equivalents                                |   | (10,954                            | )      | (1,229 | ) |
| Cash and cash equivalents at beginning of  period                                    |   | 66,638                             |   | 26,456 |   |
|                                                                                 |   |                               |   |   |   |
| Cash and cash equivalents at end of period                                           |   | $                                  | 55,684 |   | $ | 25,227 |   |

 

The accompanying notes are an integral partof the consolidated financial statements.

 

7

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MICROSSYSTEMS, INC. AND SUBSIDIARIES

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

For theQuarter Ended December 31, 2002

(Unaudited, inthousands, except per share data)

 

1.             Inventories

 

Thecomponents of inventories are as follows:

 
|            |   | **December 31,  2002** |   | **June 30,  2002** |   |
|-----------------|--------|------------------------|--------|--------------------|--------|
| Raw  materials  |   | $                      | 7,875  |               | $      | 6,850 |   |
| Work-in-process |   | 655                    |   | 986                |   |
| Finished  goods |   | 27,220                 |   | 23,375             |   |
|            |   | $                      | 35,750 |               | $      | 31,211 |   |

 

2.             Newaccounting standards

 

In July 2002, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting forCosts Associated with Exit or Disposal Activities.” SFAS No. 146 nullifies theguidance in Emerging Issues Task Force (“EITF”) Issue No. 94-3, “LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring).” Under EITFNo. 94-3, an entity recognized a liability for an exit cost on the date thatthe entity committed itself to an exit plan. In SFAS No. 146, the FASBacknowledges that an entity’s commitment to a plan does not, by itself, createa present obligation to the other parties that meets the definition of aliability and requires that a liability for a cost that is associated with anexit or disposal activity be recognized when the liability is incurred. It alsoestablishes that fair value is the objective for the initial measurement of theliability. SFAS No. 146 will be effective for exit or disposal activities thatare initiated after December 31, 2002. The Company believes that the adoption of SFAS No. 146 will nothave a material effect on the Company’s consolidated financial statements.

 

In August 2001, the FASB issued SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets,” which was adopted by the Companyin fiscal year 2002.  This Statementsupersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assetsand for Long-Lived Assets to Be Disposed Of,” and the accounting and reportingprovisions of Accounting Principles Board Opinion No. 30, “Reporting theResults of Operations — Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions”, for the disposal of a segment of a business.  SFAS No. 144 expands the reporting ofdiscontinued operations to include any component of an entity with operationsand cash flows that can be clearly distinguished from the rest of the entity.  This Statement also requires that any netassets to be disposed of by sale be reported at the lower of carrying value orfair market value less costs to sell. The adoption of SFAS No. 144 had no impact on the Company’sconsolidated financial statements.

 

In June 2001, the FASB issued SFAS No. 141, “Business Combinations” andNo. 142, “Goodwill and Other Intangible Assets.”  SFAS No. 141 requires that all business combinations initiatedafter June 30, 2002, be accounted for under the purchase method and requirescertain acquired intangible assets to be recognized as assets apart fromgoodwill.  SFAS No. 142 requires thatintangible assets with finite lives be amortized while goodwill and intangibleassets with indefinite lives not be amortized but be tested annually forimpairment.  The Company adopted SFAS142 on July 1, 2002, and at that time, ceased amortizing goodwill.  Going forward, the Company will reviewgoodwill for potential impairment on an annual basis.

 

8

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The following table represents the impact of SFAS 142 on net income,basic and diluted net income per share had SFAS 142 been in effect in the threeand six months ended December 31, 2001.

 
|                                          |   | **Three Months Ended****December 31,** |   | **Six Months Ended  December 31,** |   |
|-----------------------------------------------|--------|----------------------------------------|--------|------------------------------------|--------|
|                                          |   | **2002**                               |   | **2001**                           |   | **2002** |   | **2001** |   |
| **Net income**                                |   |                                   |   |                               |   |   |   |   |   |
| Reported net income                           |   | $                                      | 4,931  |                               | $      | 2,485 |   | $ | 7,626 |   | $ | 3,364 |   |
| Goodwill amortization, net of tax             |   | —                                 |   | 1,339                              |   | — |   | 2,474 |   |
| Adjusted net income                           |   | $                                      | 4,931  |                               | $      | 3,824 |   | $ | 7,626 |   | $ | 5,838 |   |
|                                          |   |                                   |   |                               |   |   |   |   |   |
| **Basic net income  per common share**        |   |                                   |   |                               |   |   |   |   |   |
| Reported net income per common share          |   | $                                      | 0.28   |                               | $      | 0.14 |   | $ | 0.44 |   | $ | 0.19 |   |
| Goodwill amortization, net of tax             |   | —                                 |   | 0.08                               |   | — |   | 0.14 |   |
| Adjusted basic net income per common share    |   | $                                      | 0.28   |                               | $      | 0.22 |   | $ | 0.44 |   | $ | 0.33 |   |
|                                          |   |                                   |   |                               |   |   |   |   |   |
| **Diluted net income  per common share**      |   |                                   |   |                               |   |   |   |   |   |
| Reported net income per common share          |   | $                                      | 0.28   |                               | $      | 0.14 |   | $ | 0.43 |   | $ | 0.19 |   |
| Goodwill amortization, net of tax             |   | —                                 |   | 0.08                               |   | — |   | 0.14 |   |
| Adjusted diluted net income per common  share |   | $                                      | 0.28   |                               | $      | 0.22 |   | $ | 0.43 |   | $ | 0.33 |   |
|                                          |   |                                   |   |                               |   |   |   |   |   |
| **Weighted average  shares outstanding**      |   |                                   |   |                               |   |   |   |   |   |
| Basic                                         |   | 17,398                                 |   | 17,502                             |   | 17,436 |   | 17,497 |   |
| Diluted                                       |   | 17,612                                 |   | 17,757                             |   | 17,707 |   | 17,741 |   |

 

3.                                       Legalproceedings

 

MICROS is and has been involved in legalproceedings arising in the normal course of business.  The Company is of the opinion, based upon presently availableinformation and the advice of counsel concerning pertinent legal matters, thatany resulting liability should not have a material adverse effect on theCompany’s results of operations or financial position.

 

4.                                       Net income pershare

 

Basic net income per common share is computed by dividing net income bythe weighted average number of shares outstanding.  Diluted net income per share includes the dilutive effect ofstock options.

 

9

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A reconciliation of the weighted average number of common sharesoutstanding assuming dilution is as follows:

 
|                                                 |   | **Three Months Ended  December 31,** |   | **Six Months Ended  December 31,** |   |
|------------------------------------------------------|--------|--------------------------------------|--------|------------------------------------|--------|
|                                                 |   | **2002**                             |   | **2001**                           |   | **2002** |   | **2001** |   |
|                                                 |   |                                 |   |                               |   |   |   |   |   |
| Net income                                           |   | $                                    | 4,931  |                               | $      | 2,485 |   | $ | 7,626 |   | $ | 3,364 |   |
|                                                 |   |                                 |   |                               |   |   |   |   |   |
| Average common shares outstanding                    |   | 17,398                               |   | 17,502                             |   | 17,436 |   | 17,497 |   |
| Dilutive effect of outstanding stock  options        |   | 214                                  |   | 255                                |   | 271 |   | 244 |   |
| Average common shares outstanding assuming  dilution |   | 17,612                               |   | 17,757                             |   | 17,707 |   | 17,741 |   |
| Basic net income per share                           |   | $                                    | 0.28   |                               | $      | 0.14 |   | $ | 0.44 |   | $ | 0.19 |   |
| Diluted net income per share                         |   | $                                    | 0.28   |                               | $      | 0.14 |   | $ | 0.43 |   | $ | 0.19 |   |

 

For the threeand six month period ended December 31, 2002, 2,232 options and 1,662 options,respectively, were excluded from the above reconciliation as these options wereanti-dilutive for these periods.  Forthe three and six-month period ended December 31, 2001, 1,992 options and 1,916options, respectively, were excluded from the above reconciliation as theseoptions were anti-dilutive for these periods.

 

5.                                       Segmentreporting data

 

The Company develops, manufactures, sells and services point-of-salecomputer systems, property management systems, central reservation and centralinformation systems products for the hospitality industry.  MICROS is organized and operates in twosegments: U.S. and International.  TheInternational segment is primarily in Europe, the Pacific Rim and LatinAmerica.  For purposes of applying SFASNo. 131, “Disclosures about Segments of an Enterprise and Related Information,”management views the U.S. and International segments separately in operatingthe business, although the products and services are similar for each segment.

 

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

 
|                                                                                    |   | **Three Months Ended  December 31,** |   | **Six Months Ended  December 31,** |   |
|-----------------------------------------------------------------------------------------|--------|--------------------------------------|--------|------------------------------------|--------|
|                                                                                    |   | **2002**                             |   | **2001**                           |   | **2002** |   | **2001** |   |
| Revenues(1):                                                                            |   |                                 |   |                               |   |   |   |   |   |
| United States                                                                           |   | $                                    | 52,674 |                               | $      | 52,724 |   | $ | 102,282 |   | $ | 99,129 |   |
| International                                                                           |   | 57,300                               |   | 52,192                             |   | 105,127 |   | 100,726 |   |
| Intersegment eliminations                                                               |   | (14,426                              | )      | (14,017                            | )      | (25,350 | ) | (25,445 | ) |
| Total revenues                                                                          |   | $                                    | 95,548 |                               | $      | 90,899 |   | $ | 182,059 |   | $ | 174,410 |   |
|                                                                                    |   |                                 |   |                               |   |   |   |   |   |
| Income before taxes, minority interests and  equity in net earnings of affiliates(1):   |   |                                 |   |                               |   |   |   |   |   |
| United States                                                                           |   | $                                    | 1,886  |                               | $      | (1,073 | ) | $ | 2,512 |   | $ | (7,247 | ) |
| International                                                                           |   | 17,665                               |   | 14,331                             |   | 29,235 |   | 29,061 |   |
| Intersegment eliminations                                                               |   | (10,845                              | )      | (9,069                             | )      | (18,629 | ) | (15,957 | ) |
| Total income before taxes, minority  interests and equity in net earnings of affiliates |   | $                                    | 8,706  |                               | $      | 4,189 |   | $ | 13,118 |   | $ | 5,857 |   |

 

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(1)          Amounts based on thelocation of the customer.

 

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|                      |   | **December 31, 2002** |    | **June 30, 2002** |   |
|---------------------------|--------|-----------------------|---------|-------------------|--------|
| Identifiable assets(2):   |   |                  |    |              |   |
| United States             |   | $                     | 123,104 |              | $      | 133,653 |   |
| International             |   | 187,640               |    | 179,177           |   |
| Total identifiable assets |   | $                     | 310,744 |              | $      | 312,830 |   |

 

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(2)          Amounts based on thelocation of the selling entity.

 

6.             Shareholders’Equity

 

In fiscal 2002, the Board ofDirectors authorized the purchase of up to one million shares of the Company’scommon stock.  A summary of thecumulative number of whole shares retired through December 31, 2002 is asfollows:

 

|                                          |   | **Whole  Shares** |   | **Total  Cost** |   |
|-----------------------------------------------|--------|-------------------|--------|-----------------|--------|
| Total shares retired as of June 30, 2002      |   | 95,600            |   | $               | 2,610  |   |
| Shares retired in Q1                          |   | 71,900            |   | 1,731           |   |
| Shares retired in Q2                          |   | 82,500            |   | 1,779           |   |
| Total shares retired as of December 31,  2002 |   | 250,000           |   | $               | 6,120  |   |

 

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Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

 

**CriticalAccounting Policies**

 

The Company’s discussion and analysis of its financial condition andresults of operations are based on the consolidated financial statements, whichhave been prepared in accordance with accounting principles generally acceptedin the United States.  The preparationof these financial statements requires the Company to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues andexpenses.  On an ongoing basis, theCompany evaluates its estimates, including those that impact revenuerecognition and those related to capitalized software, intangible assets,allowance for doubtful accounts, allowance for obsolescence, income taxes,contingencies and litigation.  TheCompany bases its estimates on historical experience and on various otherassumptions that are believed to be reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying valuesof assets and liabilities that are not readily apparent from othersources.  Actual results may differ forthese estimates under different assumptions or conditions.

 

Management believes the following critical accounting policies affectits more significant judgments and estimates used in the preparation of theconsolidated financial statements.

 

**Revenuerecognition**

 

Revenue from hardware sales is recognized at the time of shipment witha provision for estimated returns and allowances.  Revenue from licensed software sales is recognized in accordancewith Statement of Position (“SOP”) 97-2,“Software Revenue Recognition,” as amended by SOP 98-9, “Modification of SOP97-2, Software Revenue Recognition with Respect to Certain Transactions.”  If a third party can install the software,revenue is recognized when shipped, with an appropriate deferral for anyundelivered software contract elements. However, if MICROS is the sole party that has the proprietary knowledgeto install the software, revenue is recognized upon installation and when readyto go live, with an appropriate deferral for any undelivered software contractelements.  This deferral is earned whensignificant obligations no longer exist. Revenue from customer-specific development work is recognized under thecompleted contract method.  Servicecontract revenue is initially recorded as deferred service revenue and isrecognized on a pro rata basis over the contract term.  Revenue from the installation of the productand the training of customers’ staff is recognized as the work is performed.

 

**Capitalizedsoftware development costs**

 

Software development costs, for software products to be licensed toothers, incurred prior to establishing technological feasibility are charged tooperations and included in research and development costs.  Software development costs incurred afterestablishing technological feasibility and purchased software costs arecapitalized on a product-by-product basis until the product is available forgeneral release to customers upon which amortization begins.  Annual amortization, charged to cost ofsales, is the greater of the amount computed using the ratio that current grossrevenues for a product bear to the total of current and anticipated futuregross revenues for that product, or the straight-line method over the remainingestimated economic life of the product.

 

**Goodwilland intangible assets**

 

On July 1, 2002, the Company adopted Statement of Financial AccountingStandards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.”  Under SFAS No. 142, the Company ceasedamortizing goodwill.  On an annualbasis, the Company will test goodwill for potential impairment.

 

**Allowancefor doubtful accounts**

 

MICROS maintains allowances for doubtful accounts for estimated losseswhich may result from the inability of our customers to make requiredpayments.  These allowances are based oncustomer payment practices and history, inquiries, credit reports from thirdparties and other financial information. If the 

 

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financial condition of our customers were to deteriorate, resulting inan impairment of their ability to make payments, additional allowances may berequired.

 

**Incometaxes**

 

Incometaxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities arerecognized for the expected future tax consequences attributable to thedifferences between the financial statement carrying amounts and the tax basisof assets and liabilities.  Deferred taxassets and liabilities are measured using the enacted tax rates in effect forthe year in which those temporary differences are expected to be recovered orsettled.  The effect on the deferred taxassets and liabilities of a change in tax rate is recognized in income in theperiod that includes the enactment date. Valuation allowances are established when necessary to reduce deferredtax assets to the amounts more likely than not to be realized.  If the Company determines that it will notbe able to realize all or part of its net deferred tax asset in the future, anadjustment to the deferred tax asset would be charged to income in the periodsuch determination is made.

 

**Foreigncurrency translation**

 

The financial statements of MICROS’s non-U.S. operations are translatedinto U.S. dollars for financial reporting purposes.  The assets and liabilities of non-U.S. operations whosefunctional currencies are not in U.S. dollar are translated at the fiscalyear-end exchange rates, while revenues and expenses are translated atmonth-end exchange rates during the fiscal year.  The cumulative translation effects are reflected in shareholders’equity.  Gains and losses ontransactions denominated in other than the functional currency of an operationare reflected in other income (expense).

 

**Resultsof Operations - Second Quarter and Six-Month Comparisons**

 

TheCompany recorded a diluted net income of $0.28 per common share in the secondquarter of fiscal 2003, compared with a diluted net income of $0.14 per commonshare in the second quarter of fiscal 2002. For the six-months ended December 31, 2002, diluted net income was $0.43per common share compared with diluted net income of $0.19 per common share forthe six-months ended December 31, 2001. The quarter and year to date increases were mainly due to an overallincrease in sales volume, improved service margins, the discontinuation ofgoodwill amortization according to SFAS 142 and the weakening of the US Dollaragainst foreign currencies.

 

Revenueincreased by $4.6 million or 5.1% to $95.5 million for the second quarter offiscal 2003 compared to the same period last year.  For the first six months of fiscal year 2003, revenue increased$7.6 million or 4.4% to $182.1 million over the same period in fiscal year2002.  A comparison of the sales mix forfiscal years 2003 and 2002 is as follows:

 
|     |   | **Three  Months Ended  December 31,** |   | **Six Months  Ended  December 31,** |   |
|----------|--------|---------------------------------------|--------|-------------------------------------|--------|
|     |   | **2002**                              |   | **2001**                            |   | **2002** |   | **2001** |   |
| Hardware |   | 34.4                                  | %      | 36.0                                | %      | 34.5 | % | 35.6 | % |
| Software |   | 19.0                                  | %      | 16.3                                | %      | 17.2 | % | 16.1 | % |
| Service  |   | 46.6                                  | %      | 47.7                                | %      | 48.3 | % | 48.3 | % |
|     |   | 100.0                                 | %      | 100.0                               | %      | 100.0 | % | 100.0 | % |

 

Combined hardware and software revenues for thesecond quarter of fiscal 2003 increased $3.5 million, or 7.4%, and servicerevenues increased $1.1 million, or 2.6%, over the same period a yearearlier.  On a year to date basis,combined hardware and software revenues increased $4.0 million, or 4.4%, andservice revenues increased $3.7 million, or 4.4%, over the same period a yearearlier.

 

For the quarter and year to date, combinedhardware and software sales increased in comparison to the prior year primarilydue to the increase in sales for MICROS PC workstations, 3700 software andOpera software,

 

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partiallyoffset by decreases in other hotel software products.  Service revenues increased primarily due to the increase inrecurring maintenance service revenues, which accounted for $25.8 million and$52.9 million of the second quarter and year to date service revenue of fiscal2003, respectively.  In fiscal 2002, thesecond quarter and year to date recurring maintenance service revenue was $24.1million and $47.3 million, respectively.

 

Overall cost of sales, as a percentage ofrevenue, decreased to 50.2% for the second quarter of fiscal 2003 from 52.6%for the second quarter of fiscal 2002. For the first six months of fiscal 2003 and 2002, cost of sales, as apercentage of revenue, was 51.1% and 52.3%, respectively.  Cost of sales for hardware and softwareproducts, as a percentage of related revenue, decreased to 54.3% in the secondquarter of fiscal 2003 compared to 55.6% for the same quarter a yearearlier.  On a year to date basis, costof sales for hardware and software products, as a percentage of relatedrevenue, remained constant at 56.3% for both fiscal 2003 and 2002.  The quarterly decrease in cost of sales, inrelation to related revenue, was mainly due to the change in sales mix.  In fiscal 2002, there was a higherpercentage of hardware sales, which generate lower margins, whereas in fiscal2003, there was a greater percentage of software sales.  This change in sales mix also caused theyear to date cost of sales, as a percentage of related revenue, to remainconstant.

 

 Servicecosts, as a percentage of service revenue, decreased to 45.5% in the secondquarter of fiscal 2003 compared to 49.3% in the same quarter in fiscal2002.  In the first six months of fiscal2003, service costs, as a percentage of service revenue, decreased to 45.6%compared to 48.1% in the prior year. The quarter and year to date decreases were mainly due to the continuedincrease in recurring maintenance service revenue while maintainingapproximately the same level of cost.

 

Selling, general and administrative expensesincreased by $2.3 million or 7.7%, in the second quarter of fiscal 2003compared to the same period last year. As a percentage of revenue, selling, general and administrative expensesincreased to 34.2% in the second quarter of fiscal 2003 compared to 33.4% inthe second quarter of fiscal 2002.  On ayear to date basis, selling, general and administrative expenses increased $3.1million or 5.3%.  As a percentage ofrevenue, selling, general and administrative expenses increased to 34.1% in thefirst six months of fiscal 2003 compared to 33.9% in the same period of theprior year.  The quarter and year todate increases were primarily due to the annual merit increases and thestrengthening of foreign currencies over the US Dollar.  The annual merit increases in fiscal 2003were higher than the previous year due reduced personnel turnover.

 

Researchand development (“R&D”) expenses consist primarily of labor costs lesscapitalized software development costs. In the second quarter of fiscal 2003, R&D expenses decreased $0.5million, or 10.3%, to $4.2 million compared to $4.7 million in the secondquarter of fiscal 2002.  Capitalizedsoftware development costs increased to $1.0 million in the second quarter offiscal 2003 from $0.8 million in the second quarter of fiscal 2002.  Total research and development expenditures,including capitalized software development costs, decreased $0.3 million, or5.9%, compared to the same period a year earlier.

 

Ona year to date basis, R&D expenses decreased $0.4 million, or 4.5%, to $9.1million compared to $9.5 million in the same period of the prior year.  Year to date total research and developmentexpenditures, including capitalized software development costs of $1.8 millionfor both fiscal 2003 and 2002, decreased to $11.0 million.  A summary of R&D activities is asfollows:

 

|                    |   | **Three  Months Ended  December 31,** |   | **Six Months  Ended  December 31,** |   |
|-------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|
|                    |   | **2002**                              |   | **2001**                            |   | **2002** |   | **2001** |   |
| Total R&D           |   | $                                     | 5,198  |                                | $      | 5,525 |   | $ | 10,963 |   | $ | 11,345 |   |
| R&D capitalization  |   | (950                                  | )      | (790                                | )      | (1,828 | ) | (1,784 | ) |
| Total  R&D expenses |   | $                                     | 4,248  |                                | $      | 4,735 |   | $ | 9,135 |   | $ | 9,561 |   |

 

Depreciation and amortization expense decreased by $1.9 million or47.8% in the second quarter of fiscal 2003 and $3.7 million or 46.7% on a yearto date basis compared to the same periods in fiscal 2002.  The decrease is primarily due to theadoption of SFAS 142, “Goodwill and Other Intangible Assets.”  For further discussion, see Note 2 in theNotes to the Consolidated Financial Statements.

 

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Incomefrom operations for the second quarter of fiscal 2003 was $8.5 million, or 8.9%of revenue, compared to $3.9 million, or 4.3% of revenue, in the second quarterof fiscal 2002.  For the first sixmonths of fiscal 2003, income from operations was $13.6 million, or 7.4% ofrevenue, compared to $6.7 million, or 3.9% of revenue in the same period of theprior year.  The quarter and year todate increases were mainly due to the overall increase in sales volume, theincrease in gross margins generated from service sales, the decrease ofgoodwill amortization from the adoption of SFAS 142, and the weakening of theUS Dollar against foreign currencies.

 

Non-operatingincome decreased to $0.2 million in the second quarter of fiscal 2003 from $0.3million for the second quarter of fiscal 2002. For the first six months of fiscal 2003, non-operating expense was $0.4million compared to $0.9 million for the first six months of fiscal 2002.  This decrease in non-operating expense forthe six-month period was primarily due to the decrease in exchange loss forfiscal 2003.

 

Theeffective tax rate for the second quarter of fiscal 2003 and fiscal 2002 was41.0% and 37.2%, respectively.  The yearto date effective tax rate for fiscal 2003 and fiscal 2002 was 40.0% and 38.0%,respectively.  The quarter and year todate effective tax rate increases were mainly due to a shift in earningsbetween domestic and international regions for the applicable periods.

 

The EU filed a challenge against the U.S. Foreign Sales corporation(“FSC”) tax provisions with the World Trade Organization (“WTO”).  On August 30, 2002, the WTO arbitratorissued a final decision upholding this challenge.  The arbitrator’s decision allows the EU to impose sanctions onimports of U.S. goods into EU member countries.  The EU has not begun to impose such sanctions, nor has itindicated when or if it will begin such charges.  Legislative bodies in the U.S. have made the revision of theinternational tax provisions of the Internal Revenue Code a high priority onthe legislative agenda.  It is uncertainwhen or if such legislative actions will mitigate the sanctions ruled upon bythe WTO.  It is currently not possibleto predict what impact, if any, this issue will have on future earnings pendingfinal resolution of the matter with the WTO, EU, and the United States.

 

***Euro Conversion***

 

On January 1, 1999, certainmember nations of the EMU adopted a common currency, the Euro.  For a three-year transition period, both theEuro and individual participants’ currencies will remain in circulation.  Since March 1, 2002, the Euro has become thesole legal tender for the twelve participating EMU countries, and is in use incertain other countries and territories. The adoption of the Euro has affected a multitude of financial systemsand business applications as the commerce of these nations is now transacted inthe Euro.  Of the twelve participatingcountries currently using the Euro as their sole legal tender, the Company hassubsidiary operations in seven of those countries and distributor relationshipsin the remaining five countries.

 

**Liquidity and Capital Resources**

 

The Company currently has a $45.0 millionmulti-currency committed line of credit expiring on March 31, 2003.  Prior to this upcoming expiration date, theCompany anticipates that it will renew this line of credit for an additionaltwo-year period.  The Company iscurrently in active discussion with its current lender and with several otherpotential lenders on this subject.  Thefinancing agreement includes a security interest in inventory and receivableslocated in the United States.  Interestdue under the line of credit is calculated as follows:  (i) if the advance is in U.S. dollars, atthe option of the Company, either the bank’s prime rate minus an amount asstipulated in the loan agreement based on Company performance, or the LIBORrate plus an additional LIBOR rate percentage; however, (ii) if the advance ismade in a foreign currency, the LIBOR rate for the applicable denominatedcurrency, plus an additional LIBOR rate percentage.  The Company has a one-time option to convert the line of creditinto a three-year secured term loan upon expiration of the line of credit.  Interest due under the three-year securedterm loan shall be, at the option of the Company, the prime rate plus onequarter of one percent (0.25%) or the floating LIBOR rate.  Under the terms of the current loanagreement, the Company may borrow up to $45.0 million less the amount ofoutstanding letters of credit and a fixed amount equal to $1.5 million if theCompany enters into any exchange contracts. The agreement also requires the Company to satisfy certain financialcovenants and limits the assumption of additional debt and restricts theCompany’s payment of dividends other than stock dividends.

 

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The Company also has a credit relationshipwith a European bank in the amount of EUR 7.6 million (approximately $8.0million at the December 31, 2002 exchange rate).  Under the terms of this facility, the Company may borrow in theform of either a line of credit or term debt. As the Company has significant international operations, its Eurodenominated borrowings do not represent a significant foreign exchange risk.  On an overall basis, the Company monitorsits cash and debt positions in each currency in an effort to reduce its foreignexchange risk.

 

As of December 31, 2002, the totaloutstanding line of credit is $8.3 million consisting of: US $5.0 million, ZAR(South African Rand) 13.0 million (approximately $1.5 million at the December31, 2002 exchange rate), SEK (Swedish Krona) 4.5 million (approximately $0.5million at the December 31, 2002 exchange rate), AUD (Australian Dollar) 0.5million (approximately $0.3 million at the December 31, 2002 exchange rate) andJPY (Japanese Yen) 120.0 million (approximately $1.0 million at the December31, 2002 exchange rate).  The Companyhas approximately $44.7 million available to borrow.

 

Net cashprovided by operating activities for fiscal 2003 was $7.9 million versus $6.6million for fiscal 2002. ** **TheCompany used $4.7 million for investing activities in fiscal 2003 mainly forthe purchase of property, plant, and equipment and internally developedsoftware. ** **The Company used $14.1 million infinancing activities for fiscal 2003 mainly for working capital and therepurchase of $3.5 million in common stock. All cash is being held for the operation and expansion of the businessand the repurchase of the Company’s stock.

 

The Company anticipates that its cash flow from operations along withavailable lines of credit, in conjunction with other lines of credit for whichthe Company may be eligible or lines of credit to be renewed or converted intoterm debt, are sufficient to provide the working capital needs of the Companyfor the foreseeable future.  The Companyanticipates that its rate of property, plant and equipment expenditures forfiscal 2003 will be approximately the same as fiscal 2002.

 

**Summary**

 

Until the first quarter of calendar year 2001, the Company hadexperienced rapid revenue growth at a rate that it believes had exceeded thatof the global market for point-of-sale computer systems and property managementinformation systems products for the hospitality industry.  In light of weaker market conditions, theCompany’s growth rate declined from previous years.  Currently, given the weak worldwide economic conditions, and thegeneral financial & political uncertainty triggered in part by the Iraqicrisis, the North Korean crisis and the terrorist attacks on September 11,2001, there can be no assurance that any particular level of growth can beachieved.  In addition, due to thecompetitive nature of the market, the Company continues to experience grossmargin pressure on its products and service offerings.  There can be no assurance that the Companywill be able to continue to increase sufficiently sales of its higher marginproducts, including software, to prevent future declines in the Company’soverall gross margin.

 

Moreover, MICROS’s financial results in any single quarter are dependentupon the timing and size of customer orders and the shipment of products forlarge orders.  Large software ordersfrom customers may account for more than an insignificant portion of earningsin any quarter.  The customers with whomMICROS does the largest amount of business are expected to vary from year toyear as a result of the timing for the roll-out of each customer’s system.  Furthermore, if a customer delays oraccelerates its delivery requirements or a product’s completion is delayed or accelerated,revenues expected in a given quarter may be deferred or accelerated intosubsequent or earlier quarters.

 

The market price of MICROS Common Stock is volatile, and may be subjectto significant fluctuations in response to variations in MICROS’s quarterlyoperating results and other factors such as announcements of technologicaldevelopments or new products by MICROS, customer roll-outs, technologicaladvances by existing and new competitors, and general market conditions in thehospitality industry.  In addition,conditions in the stock market in general and shares of technology companies inparticular have experienced significant price and volume fluctuations whichhave at times been unrelated to the operating performance of companies.

 

Moreover, some of the statements contained herein not based on historicfacts are forward looking statements withinthe meaning of Section 21E of the Securities Exchange Act of 1934, as amended,and Section 27A of the 

 

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SecuritiesAct of 1933, as amended, that involve risks anduncertainties.  Past performance is notnecessarily a strong or reliable indicator of future performance.  Actual results could differ materially frompast results, estimates, or projections. Some of the additional risks and uncertainties are: political and worldinstability created by the Iraqi and North Korean crises, and additionalterrorist attacks, which gravely impacts the travel and tourism industries;product demand and market acceptance, including demand and acceptance for thenew OPERA products and the newest versions of the 3700 RES; implementation of acost-effective service structure capable of servicing increasingly complexsoftware systems in increasingly more remote locations; achieving increasedsales of higher margin software products; hiring and retention of qualifiedemployees with sufficient technical expertise; unexpected currencyfluctuations; impact of competitive products and pricing on margins; productdevelopment delays; technological difficulties associated with new productreleases; and controlling expenses. These and other risks are disclosed in the Company’s releases and SECfilings, including in the section titled “Business and Investment Risks;Information Relating to Forward-Looking Statements”, in the Company’s AnnualReport on Form 10-K for the fiscal year ended June 30, 2002.

 

Item 3.  Quantitative andQualitative Disclosures about Market Risk

 

MICROS’s significant international business and presence exposes theCompany to a multitude of market risks, such as currency, interest rate andpolitical risks.  With respect tocurrency risk, the Company transacts business in 23 different currenciesthrough its foreign subsidiaries.  Thefluctuation of currencies impacts sales and profitability.  Frequently, sales and the costs associatedwith such sales are not always denominated in the same currency.  Given the fact that the Company transactsbusiness in many different currencies, adverse declines in certain currenciescan be offset by favorable advances in other currencies.  Recent weakness in certain Latin Americancurrencies, including the Argentine Peso and the Brazilian Real, have adverselyimpacted the financial performance of the Company.  However, in the past quarter, the strengthening of the Euro hashelped offset this adverse impact.

 

Additionally, the Company is subject to interest rate fluctuations inforeign countries to the extent that the Company elects to borrow in the localforeign currency.  In the past, this hasnot been an issue of concern as the Company has the capacity to elect to borrowin other currencies with more favorable interest rates.  While the Company has not to date investedin financial instruments designed to protect against interest ratefluctuations, the Company will continue to evaluate the need to do so in thefuture.

 

Further, the Company is subject to political risk, as demonstrated bythe terrorist attacks in the United States of September 11, 2001.  More recently, the terrorist attacks inBali, Indonesia in October 2002 has adversely impacted the Company’s sales forthe foreseeable future in Indonesia, Australia, and other parts of Asia, asthere has been a marked decline in travel and tourism in Asia since the Baliattacks.  Globally, the potential ofarmed conflict with Iraq has created additional uncertainty, which suppressesbusinesses for two reasons: (i) capital expenditures are delayed since buyersare concerned by the impact of potential war with Iraq on their businesses; and(ii) reduction in consumer buying habits out of concern for additionalterrorist attacks in response to the United State’s conflict with Iraq.  As history shows, worldwide tourism ingeneral and American tourism in particular have declined substantially duringperiods of actual armed conflict, as with the attacks on Iraq in 1991.  Accordingly, political and economicinstability and uncertainty caused by terrorism, and the resultant conflictsdesigned to thwart terrorism, may materially adversely impact the travel,tourism and hospitality industries which the Company serves.  The Company is also subject to the effectsof, and changes in, laws and regulations, other activities of governments,agencies and similar organizations.

 

Item4.  Controls and Procedures

 

Background.  As required by Rule 13a-15 under theExchange Act, within the 90 days prior to the filing date of this report, theCompany conducted an evaluation of the effectiveness of the design andoperation of the Company’s “Disclosure Controls and Procedures.”  This evaluation was carried out under thesupervision of the Company’s management, including A.L. Giannopoulos, MICROS’Chairman, Chief Executive Officer and President, and Gary C. Kaufman, MICROS’Executive Vice President and Chief Financial Officer.  Disclosure Controls and Procedures are designed with theobjective of ensuring that information required to be disclosed in the reportsMICROS files or submits under the Securities Exchange Act of 1934 (ExchangeAct), such as this quarterly report, is recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission’s (SEC) rules and forms. Disclosure Controls and Procedures are also designed with the objectiveof ensuring that 

 

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such information isaccumulated and communicated to management, including the Chief ExecutiveOfficer and Chief Financial Officer, to allow timely decisions regardingrequired disclosure.

 

Limitations.  MICROS does not expect that its DisclosureControls and Procedures will prevent all errors and all fraud.  Despite its level of sophistication, detailand thoroughness, a disclosure control system can provide only reasonable, notabsolute, assurance that the objectives of the control system aresatisfied.  Because of the inherentlimitations in all control systems, no evaluation of controls can provideabsolute assurance that all control issues and instances of fraud, if any,within the Company have been or will be detected.

 

Scopeof the Controls Evaluation. The evaluation of MICROS’ Disclosure Controls andProcedures included a review of the controls’ objectives and design, and thecontrols’ implementation and operational procedures.  In the course of this evaluation, MICROS sought to identify andanalyze the manner in which it collects information and requires its employeesfrom the four worldwide regional headquarters (North America, Latin America,Europe/Africa/Middle East, and Asia Pacific) to produce such information.  Once the information is collected, theCompany evaluated how the information is analyzed for purposes of determiningif, how, when and where to disclose such information.  Finally, MICROS analyzed the forms and guidelines it hasdeveloped internally that are disseminated to all operations, and are requiredto be resubmitted to the finance operation. These forms and documents are designed to elicit pertinent financialinformation from the operations on a worldwide basis.

 

Conclusions.  MICROS has evaluated its Disclosure Controlsand Procedures.  The effectiveness ofthe Disclosure Controls and Procedures will be evaluated quarterly.  Based on the evaluation as of a date within90 days of the filing of this Form 10-Q, MICROS has concluded that DisclosureControls and Procedures (as defined in Rules 13a-14 and 15d-14 under theSecurities and Exchange Act of 1934) currently in place are effective to ensurethat material information relating to MICROS would be made known to theChairman, President and Chief Executive Officer, and the Executive VicePresident and Chief Financial Officer on a timely basis.  No significant changes were made to MICROS’internal controls or in the other factors that could significantly affect thesecontrols subsequent to the date of the evaluation and there were no requiredcorrective actions with regard to significant deficiencies or materialweaknesses of these controls.

 

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MICROSSYSTEMS, INC. AND SUBSIDIARIES

Form 10-Q

For theQuarter Ended December 31, 2002

 

Part II -Other Information

 

Item 1.    Legal Proceedings

 

MICROS is andhas been involved in legal proceedings arising in the normal course ofbusiness.  The Company is of theopinion, based upon presently available information and the advice of counselconcerning pertinent legal matters, that any resulting liability should nothave a material adverse effect on the Company’s results of operations orfinancial position.

 

Items 2(Changes in Securities and Use of Proceeds) and 3 (Defaults Upon SeniorSecurities).

 

No eventsoccurred during the quarter covered by the report that would require a responseto any of these items.

 

Item 4.    Submission of Matters to a Vote of SecurityHolders

 

The annualmeeting of shareholders was held on November 15, 2002.  A quorum was present (in person and/or byproxy) and shareholders voted on the following matters:

 

1.  Election of Directors

 

The managementof the Company nominated a slate of six persons to serve on the Board ofDirectors.  No other nominations weremade.  The nominees received thefollowing votes:

 

| **Nominee**           |   | **For**    |   | **Vote  Withheld  (Abstain)** |   |
|-----------------------|--------|------------|--------|-------------------------------|--------|
| A.L. Giannopoulos     |   | 16,080,775 |   | 19,506                        |   |
| Louis M. Brown, Jr.   |   | 16,091,044 |   | 9,237                         |   |
| F. Suzanne  Jenniches |   | 16,089,894 |   | 10,387                        |   |
| John G. Puente        |   | 16,087,969 |   | 12,312                        |   |
| Dwight S. Taylor      |   | 16,089,254 |   | 11,027                        |   |
| William S. Watson     |   | 16,090,149 |   | 10,132                        |   |

 

The entire slate ofdirectors nominated was elected by a majority of the shares present in personor represented by proxy and entitled to vote.

 

2.  Selection of Independent PublicAccountants

 

The Board of Directorsof the Company selected PricewaterhouseCoopers LLP as the independent publicaccountants for the Company for the fiscal year ending June 30, 2003.  A proposal to approve the selection ofPricewaterhouseCoopers LLP was approved by a majority of the shares present inperson or represented by proxy and entitled to vote.  A total of 15,671,624 shares voted in the affirmative; a total of420,363 shares voted in the negative; and a total of 8,294 shares abstainedfrom the vote.

 

3.  Approval of Amendment to Stock OptionPlan

 

The Board of Directors proposed an amendment to the 1991 Stock OptionPlan, which served to extend the 1991 Stock Option Plan until December 31,2006, as the 1991 Stock Option was scheduled to expire on September 30,2003.  The shareholders approved theproposed amendment to the 1991 Stock Option Plan, with 11,054,275 shares in theaffirmative, 2,548,865 shares in the negative, 30,532 shares affirmativelyabstained, and 2,466,609 shares not voting.

 

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Item 5.    Other Information

 

As reported bythe Company in its Form 10-Q for the first quarter of FY2003, on October 1,2002, the Company sold its 68% interest in its majority-owned subsidiary inSouth Africa for 19 million South African Rand (approximately $1.8 million atOctober 1, 2002 exchange rate).  TheCompany will maintain a dealer relationship with the entity.

 

Item 6.    Exhibits and Reports on Form 8-K

 

(a)          Exhibits

 

99.1         Certification of ChiefExecutive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.

99.2         Certification of ChiefFinancial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.

 

(b)         Reports on Form 8-K

 

Report on Form 8-K was filed on November 19,2002, regarding the Fifth Amendment to the Employment Agreement between theCompany and Mr. Giannopoulos.

 

Report on Form 8-K was filed on November 1,2002, regarding the release of financial results for the quarter endingSeptember 30, 2002, and also the Company’s balance sheet.

 

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MICROSSYSTEMS, INC. AND SUBSIDIARIES

Form 10-Q

For theQuarter Ended December 31, 2002

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|              |   |   | MICROS  SYSTEMS, INC.                   |             |
|-------------------|--------|--------|-----------------------------------------|------------------|
|              |   |   | (Registrant)                            |             |
|              |   |   |                                    |
| February 14, 2003 |   |   | /s/                                     | Gary C. Kaufman  |   |
|              |   |   | Gary C. Kaufman                         |
|              |   |   | Executive Vice President,               |
|              |   |   | Finance and Administration/             |
|              |   |   | Chief Financial Officer                 |
|              |   |   |                                    |
| February 14, 2003 |   |   | /s/                                     | Cynthia A. Russo |   |
|              |   |   | Cynthia A. Russo                        |
|              |   |   | Vice President and Corporate Controller |
|                   |        |        |                                         |                  |  |  |  |

 

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**CERTIFICATIONS**

 

 

I, A.L. Giannopoulos, certify that:

 

1.  I have reviewed thisquarterly report on Form 10-Q of MICROS Systems, Inc. (the “Registrant”);

 

2.  Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this report; and

 

3.  Based on my knowledge, thefinancial statements, and other financial information included in thisquarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the Registrant as of, andfor, the period presented in this quarterly report.

 

4. The Registrant’s other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

 

a) designed such disclosure controls andprocedures to ensure that material information relating to the Registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

b) evaluated the effectiveness of theRegistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5. The Registrant’s other certifying officers and I have disclosed, basedon our most recent evaluation, to the Registrant’s auditors and the auditcommittee of Registrant’s board of directors (or persons performing theequivalent function):

 

a) all significant deficiencies in the designor operation of internal controls which could adversely affect the Registrant’sability to record, process, summarize and report financial data and haveidentified for the Registrant’s auditors any material weaknesses in internalcontrols; and

 

b) any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theRegistrant’s internal controls; and

 

6. The Registrant’s other certifying officers and I have indicated in thisquarterly report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 
|   | By: /s/ A.L. Giannopoulos |
|--------|---------------------------|
|   | A.L. Giannopoulos         |
|   | Chairman, President and   |
|   | Chief Executive Officer   |
|   |                      |

Date: February 14, 2003

 

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I, Gary C. Kaufman, certify that:

 

1.  I have reviewed thisquarterly report on Form 10-Q of MICROS Systems, Inc. (the “Registrant”);

 

2.  Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this report; and

 

3.  Based on my knowledge, thefinancial statements, and other financial information included in thisquarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the Registrant as of, andfor, the period presented in this quarterly report.

 

4. The Registrant’s other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

 

a) designed such disclosure controls andprocedures to ensure that material information relating to the Registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

b) evaluated the effectiveness of theRegistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5. The Registrant’s other certifying officers and I have disclosed, basedon our most recent evaluation, to the Registrant’s auditors and the auditcommittee of Registrant’s board of directors (or persons performing theequivalent function):

 

a) all significant deficiencies in the designor operation of internal controls which could adversely affect the Registrant’sability to record, process, summarize and report financial data and haveidentified for the Registrant’s auditors any material weaknesses in internalcontrols; and

 

b) any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theRegistrant’s internal controls; and

 

6. The Registrant’s other certifying officers and I have indicated in thisquarterly report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 
|                                                                                | By: /s/ Gary C. Kaufman |
|-------------------------------------------------------------------------------------|-------------------------|
| Gary C. Kaufman                                                                     |
| Executive Vice President,  Finance and Administration,  and Chief Financial Officer |
|                                                                                |
| Date: February 14, 2003                                                             |

 

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