##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2004
Commission file number 0-9993 MICROS SYSTEMS, INC. 
  MARYLAND
    
    52-1101488(State of incorporation)
    
    (I.R.S. Employer Identification Number)
 7031 Columbia Gateway Drive, Columbia, Maryland 21046-2289 
  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 the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter 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 þ NO o Indicate by check mark whether the Registrant is an Accelerated Filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). YES þ NO o As of April 30, 2004, there were 18,515,225 shares of Common Stock, $0.025 par
value, outstanding.




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##### 



MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2004 Part I  Financial Information Item 1. Financial Statements General The information contained in this report is furnished for the Registrant,
MICROS Systems, Inc., and its subsidiaries (referred to collectively herein as
MICROS or the Company). In the opinion of management, the information in
this report contains all adjustments, consisting only of normal recurring
adjustments, which are necessary for a fair statement of the results for the
interim periods presented. The financial information presented herein should
be read in conjunction with the financial statements included in the
Registrants Form 10-K for the fiscal year ended June 30, 2003, as filed with
the Securities and Exchange Commission. 2




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##### 



MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands) March 31,
    
    June 30,2004
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    81,516
    
    
    $
    45,682Accounts receivable, net of allowance for
doubtful accounts of $12,410 at
March 31, 2004 and $10,648 at June 30, 2003
    
    
    99,401
    
    
    
    98,700Inventories, net of allowance for
obsolescence of $6,258 at March 31, 2004 and
$5,900 at June 30, 2003
    
    
    35,533
    
    
    
    31,864Deferred income taxes
    
    
    9,068
    
    
    
    7,885Prepaid expenses and other current assets
    
    
    18,134
    
    
    
    17,860Total current assets
    
    
    243,652
    
    
    
    201,991Property, plant and equipment, net of accumulated
depreciation and amortization of $57,508 at
March 31, 2004 and $50,931 at June 30, 2003
    
    
    19,378
    
    
    
    20,179Deferred income taxes, non-current
    
    
    30,313
    
    
    
    32,003Goodwill, net of accumulated amortization of
$27,667 at March 31, 2004 and
$26,381 at June 30, 2003
    
    
    66,395
    
    
    
    66,903Intangible assets, net of accumulated
amortization of $3,594 at March 31, 2004 and
$3,135 at June 30, 2003
    
    
    6,902
    
    
    
    7,367Purchased and internally developed software
costs, net of accumulated amortization of
$29,476 at March 31, 2004 and $23,487 at June 30,
2003
    
    
    35,993
    
    
    
    38,089Other investments
    
    
    511
    
    
    
    10Other assets
    
    
    3,746
    
    
    
    3,473Total assets
    
    $
    406,890
    
    
    $
    370,015LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Bank lines of credit
    
    $
    2,500
    
    
    $
    10,185Current portion of long term debt
    
    
    
    
    
    
    363Current portion of capital lease obligations
    
    
    141
    
    
    
    106Accounts payable
    
    
    27,610
    
    
    
    24,177Accrued expenses and other current liabilities
    
    
    49,506
    
    
    
    44,240Income taxes payable
    
    
    2,875
    
    
    
    10,102Deferred income taxes
    
    
    574
    
    
    
    501Deferred service revenue
    
    
    52,337
    
    
    
    38,538Total current liabilities
    
    
    135,543
    
    
    
    128,212Capital lease obligations, net of current portion
    
    
    177
    
    
    
    198Deferred income taxes, non-current
    
    
    11,520
    
    
    
    11,495Other non-current liabilities
    
    
    1,301
    
    
    
    6,510Commitments and contingenciesMinority interests
    
    
    2,569
    
    
    
    2,372Shareholders equity:Common stock, $0.025 par; authorized 50,000
shares; issued and outstanding 18,413
shares at March 31, 2004 and 18,018 at June
30, 2003
    
    
    460
    
    
    
    450Capital in excess of par
    
    
    77,463
    
    
    
    69,644Retained earnings
    
    
    173,215
    
    
    
    152,381Accumulated other comprehensive income (loss)
    
    
    4,642
    
    
    
    (1,247
    )Total shareholders equity
    
    
    255,780
    
    
    
    221,228Total liabilities and shareholders equity
    
    $
    406,890
    
    
    $
    370,015
 The accompanying notes are an integral part of the consolidated financial
statements. 3




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##### 



MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data) Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Revenue:Hardware
    
    $
    35,811
    
    
    $
    32,477
    
    
    $
    104,057
    
    
    $
    95,342Software
    
    
    21,509
    
    
    
    16,510
    
    
    
    58,273
    
    
    
    45,980Service
    
    
    63,647
    
    
    
    49,902
    
    
    
    182,308
    
    
    
    142,366Total revenue
    
    
    120,967
    
    
    
    98,889
    
    
    
    344,638
    
    
    
    283,688Cost of sales:Hardware
    
    
    23,705
    
    
    
    23,302
    
    
    
    72,162
    
    
    
    68,466Software
    
    
    5,471
    
    
    
    4,394
    
    
    
    14,312
    
    
    
    11,343Service
    
    
    29,665
    
    
    
    23,814
    
    
    
    82,831
    
    
    
    67,513Total cost of sales
    
    
    58,841
    
    
    
    51,510
    
    
    
    169,305
    
    
    
    147,322Gross margin
    
    
    62,126
    
    
    
    47,379
    
    
    
    175,333
    
    
    
    136,366Selling, general and administrative expenses
    
    
    40,375
    
    
    
    31,626
    
    
    
    114,065
    
    
    
    93,752Research and development expenses
    
    
    6,623
    
    
    
    4,245
    
    
    
    19,957
    
    
    
    13,380Depreciation and amortization
    
    
    2,330
    
    
    
    1,995
    
    
    
    7,078
    
    
    
    6,170Total operating expenses
    
    
    49,328
    
    
    
    37,866
    
    
    
    141,100
    
    
    
    113,302Income from operations
    
    
    12,798
    
    
    
    9,513
    
    
    
    34,233
    
    
    
    23,064Non-operating income (expense):Interest income
    
    
    406
    
    
    
    278
    
    
    
    920
    
    
    
    1,093Interest expense
    
    
    (71
    )
    
    
    (47
    )
    
    
    (769
    )
    
    
    (631
    )Other (expense) income, net
    
    
    (218
    )
    
    
    (670
    )
    
    
    1,422
    
    
    
    (1,335
    )Total non-operating income (expense)
    
    
    117
    
    
    
    (439
    )
    
    
    1,573
    
    
    
    (873
    )Income before taxes, minority interests and
equity in net earnings of
affiliates
    
    
    12,915
    
    
    
    9,074
    
    
    
    35,806
    
    
    
    22,191Income tax provision
    
    
    5,230
    
    
    
    3,631
    
    
    
    14,501
    
    
    
    8,877Income before minority interests and equity
in net earnings of affiliates
    
    
    7,685
    
    
    
    5,443
    
    
    
    21,305
    
    
    
    13,314Minority interests and equity in net
earnings of affiliates
    
    
    (168
    )
    
    
    (74
    )
    
    
    (471
    )
    
    
    (319
    )Net income
    
    $
    7,517
    
    
    $
    5,369
    
    
    $
    20,834
    
    
    $
    12,995Net income per common share:Basic
    
    $
    0.41
    
    
    $
    0.31
    
    
    $
    1.14
    
    
    $
    0.75Diluted
    
    $
    0.39
    
    
    $
    0.31
    
    
    $
    1.09
    
    
    $
    0.74Weighted-average number shares outstanding:Basic
    
    
    18,385
    
    
    
    17,351
    
    
    
    18,199
    
    
    
    17,408Diluted
    
    
    19,439
    
    
    
    17,575
    
    
    
    19,187
    
    
    
    17,663
 The accompanying notes are an integral part of the consolidated financial
statements. 4




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##### 



MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
For the Nine Months Ended March 31, 2004
(Unaudited, in thousands) Common Stock
    
    Capitalin Excess
    
    Retained
    
    AccumulatedOtherComprehensiveShares
    
    Amount
    
    of Par
    
    Earnings
    
    Income (Loss)
    
    TotalBalance, June 30, 2003
    
    
    18,018
    
    
    $
    450
    
    
    $
    69,644
    
    
    $
    152,381
    
    
    $
    (1,247
    )
    
    $
    221,228Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,834
    
    
    
    
    
    
    
    20,834Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,889
    
    
    
    5,889Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,834
    
    
    
    5,889
    
    
    
    26,723Stock issued upon exercise of options
    
    
    657
    
    
    
    16
    
    
    
    12,272
    
    
    
    
    
    
    
    
    
    
    
    12,288Repurchases of stock
    
    
    (262
    )
    
    
    (6
    )
    
    
    (10,109
    )
    
    
    
    
    
    
    
    
    
    
    (10,115
    )Income tax benefit from stock
options exercised
    
    
    
    
    
    
    
    
    
    
    5,656
    
    
    
    
    
    
    
    
    
    
    
    5,656Balance, March 31, 2004
    
    
    18,413
    
    
    $
    460
    
    
    $
    77,463
    
    
    $
    173,215
    
    
    $
    4,642
    
    
    $
    255,780
 The accompanying notes are an integral part of the consolidated financial
statements. 5




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##### 



MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Condensed and unaudited, in thousands) Nine Months Ended March 31,2004
    
    2003Net cash flows provided by operating activities:
    
    $
    51,725
    
    
    $
    17,552Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (5,394
    )
    
    
    (4,918
    )Proceeds from dispositions of property, plant and equipment
    
    
    5
    
    
    
    108Internally developed software
    
    
    (3,617
    )
    
    
    (3,035
    )Proceeds from sale of subsidiary
    
    
    
    
    
    
    286Purchases of other investments
    
    
    (500
    )
    
    
    Net cash used in investing activities
    
    
    (9,506
    )
    
    
    (7,559
    )Cash flows from financing activities:Principal payments on line of credits
    
    
    (11,837
    )
    
    
    (18,140
    )Proceeds from lines of credit
    
    
    3,847
    
    
    
    3,125Principal payments on pre-acquisition shareholder loan
    
    
    (363
    )
    
    
    Principal payments on long-term debt and capital lease
obligations
    
    
    (69
    )
    
    
    (112
    )Dividends to minority owners
    
    
    (161
    )
    
    
    (13
    )Repurchases of stock
    
    
    (10,115
    )
    
    
    (5,044
    )Proceeds from issuance of stock
    
    
    12,288
    
    
    
    273Net cash used in financing activities
    
    
    (6,410
    )
    
    
    (19,911
    )Effect of exchange rate changes on cash
    
    
    25
    
    
    
    (189
    )Net increase (decrease) in cash and cash equivalents
    
    
    35,834
    
    
    
    (10,107
    )Cash and cash equivalents at beginning of period
    
    
    45,682
    
    
    
    66,638Cash and cash equivalents at end of period
    
    $
    81,516
    
    
    $
    56,531
 The accompanying notes are an integral part of the consolidated financial
statements. 6




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MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 2004
(Unaudited, $ in thousands, except per share data)  1.
    
    Basis of PresentationThe accompanying consolidated financial statements of MICROS Systems,
Inc. and its subsidiaries (collectively, the Company) have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). This Quarterly Report on
Form 10-Q should be read in conjunction with the Companys Annual Report
on Form 10-K for the year ended June 30, 2003. Certain information and
footnote disclosures which are normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to SEC rules and regulations. The
information reflects all normal and recurring adjustments that, in the
opinion of management, are necessary for a fair presentation of the
financial position of the Company, and its results of operations for the
interim periods set forth herein. The results for the three- and nine-
months ended March 31, 2004 are not necessarily indicative of the results
to be expected for the full year or any future period. Certain amounts
previously reported have been reclassified to conform to current year
presentation.2.
    
    Stock-based compensationThe Company has incentive and non-qualified stock options outstanding
that were granted to directors, officers, and other employees pursuant to
authorization by the Board of Directors. The exercise price of all
options equals the market value on the date of the grant. Substantially
all of the options granted are exercisable pursuant to a three-year
vesting schedule whereby one-third of the options vest upon the first
anniversary of the grant, the second third of the options vest upon the
second anniversary of the grant, and the final third of the options vest
upon the third anniversary of the grant. Currently, all outstanding
options expire ten years from the date of grant.The Company applies the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to Employees, in accounting for the stock
option awards. The Company has not recognized any related compensation
expense in the consolidated statements of operations because the fair
value of the stock underlying the options granted did not exceed the
exercise price of the options on the date of grant. If compensation
expense had been determined based on the weighted-average estimate of the
fair value of each option granted consistent with the provisions of the
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation, as amended by SFAS No. 148, the Companys
net income would be reduced to pro forma amounts as follows: Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Net income  as reported
    
    $
    7,517
    
    
    $
    5,369
    
    
    $
    20,834
    
    
    $
    12,995Add: stock-based
compensation expense
included in reported net
income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deduct: total stock-based
employee compensation
expense determined under
the fair value method, net
of tax
    
    
    (1,428
    )
    
    
    (1,306
    )
    
    
    (3,979
    )
    
    
    (4,441
    )Net income  pro forma
    
    $
    6,089
    
    
    $
    4,063
    
    
    $
    16,855
    
    
    $
    8,554Basic net income per shareAs reported
    
    $
    0.41
    
    
    $
    0.31
    
    
    $
    1.14
    
    
    $
    0.75Pro forma
    
    $
    0.33
    
    
    $
    0.23
    
    
    $
    0.93
    
    
    $
    0.49Diluted net income per shareAs reported
    
    $
    0.39
    
    
    $
    0.31
    
    
    $
    1.09
    
    
    $
    0.74Pro forma
    
    $
    0.31
    
    
    $
    0.23
    
    
    $
    0.88
    
    
    $
    0.48
  The weighted average fair value of each option granted for the third
quarter of fiscal year 2004 and 2003 was $21.95 and $10.77, respectively.
The weighted average fair value of each option granted for the first
nine months of fiscal year 2004 and 2003 was $21.60 and $10.98,
respectively. 7




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##### 



MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 2004
(Unaudited, $ in thousands, except per share data)  The fair value of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions: Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Risk-free interest rate
    
    
    3.3
    %
    
    
    3.2
    %
    
    
    3.7
    %
    
    
    3.0
    %Expected life
    
    5.4 years
    
    6.0 years
    
    6.0 years
    
    6.0 yearsExpected volatility
    
    
    50
    %
    
    
    50
    %
    
    
    50
    %
    
    
    50
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
  The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option-pricing
models require the input of highly subjective assumptions including the
expected stock price volatility. The Company uses projected volatility
rates, which are based upon historical volatility rates, trended into
future years. Because the Companys employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in managements opinion, existing models,
including the Black-Scholes option-pricing model, do not necessarily
provide a reliable single measure of the fair value of employee stock
options.3.
    
    AcquisitionsOn May 1, 2003, the Company acquired Datavantage Corporation
(Datavantage), a privately held software application developer and
system integrator specializing in the specialty and apparel retail
market, for total purchase price of approximately $52,300. The
consideration consisted of $33,800 in cash ($28,600 paid at closing and
$5,200 to be paid 18 months after closing subject to certain holdback
rights), approximately $300 in transaction costs and 719,360 shares of
MICROS common stock, valued at approximately $18,200. The following
unaudited pro forma summary presents the consolidated results of
operations as if the acquisition had occurred as of July 1, 2002.The summary includes adjustments for amortization of intangible assets,
interest expense on any debt incurred to fund the acquisition, and the
tax effect that would have been recorded had such
acquisition occurred as of July 1, 2002. These unaudited pro forma
results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the acquisition
and other transactions been made as of that date or results which may
occur in the future. Three Months Ended March 31, 2003Historical
    
    Historical
    
    Pro forma
    
    Pro formaMICROS
    
    Datavantage
    
    Adjustments
    
    ConsolidatedRevenue
    
    $
    98,889
    
    
    $
    13,035
    
    
    
    
    
    
    $
    111,924Net Income
    
    $
    5,369
    
    
    $
    (934
    )
    
    $
    433
    
    
    $
    4,868Net Income per
common shareBasic
    
    $
    0.31
    
    
    
    
    
    
    
    
    
    
    $
    0.27Diluted
    
    $
    0.31
    
    
    
    
    
    
    
    
    
    
    $
    0.27Weighted average shares
outstandingBasic
    
    
    17,351
    
    
    
    
    
    
    
    719
    
    
    
    18,070Diluted
    
    
    17,575
    
    
    
    
    
    
    
    719
    
    
    
    18,294
 8




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##### 



MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 2004
(Unaudited, $ in thousands, except per share data) Nine Months Ended March 31, 2003Historical
    
    Historical
    
    Pro forma
    
    Pro formaMICROS
    
    Datavantage
    
    Adjustments
    
    ConsolidatedRevenue
    
    $
    283,688
    
    
    $
    34,945
    
    
    
    
    
    
    $
    318,633Net Income
    
    $
    12,995
    
    
    $
    1,855
    
    
    $
    (125
    )
    
    $
    14,725Net Income per
common shareBasic
    
    $
    0.75
    
    
    
    
    
    
    
    
    
    
    $
    0.81Diluted
    
    $
    0.74
    
    
    
    
    
    
    
    
    
    
    $
    0.80Weighted average shares
outstanding
Basic
    
    
    17,408
    
    
    
    
    
    
    
    719
    
    
    
    18,127Diluted
    
    
    17,663
    
    
    
    
    
    
    
    719
    
    
    
    18,382
  4.
    
    InventoriesThe components of inventories are as follows: March 31,
    
    June 30,2004
    
    2003Raw materials
    
    $
    7,415
    
    
    $
    8,368Work-in-process
    
    
    39
    
    
    
    146Finished goods
    
    
    34,337
    
    
    
    29,250Total inventory
    
    
    41,791
    
    
    
    37,764Reserve for obsolescence
    
    
    (6,258
    )
    
    
    (5,900
    )Net inventory
    
    $
    35,533
    
    
    $
    31,864
  5.
    
    Recent accounting standardsOn March 31, 2004, the Financial Accounting Standards Board (FASB)
issued an exposure draft of its proposed standard on accounting for stock
compensation amending FASB Statement No. 123, Accounting for Stock-Based
Compensation. The exposure draft would require all grants of employee
stock options to be expensed based on their fair values. The FASB
expects to issue a final standard late in 2004 that would be effective
for public companies for fiscal years beginning after December 14, 2004.
The Company is currently evaluating the impact of the proposed standard.On December 17, 2003, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 104 (SAB 104), Revenue
Recognition, which supersedes SAB 101, Revenue Recognition in Financial
Statements. SAB 104s primary purpose is to rescind accounting guidance
contained in SAB 101 related to multiple element revenue arrangements,
superseded as a result of the issuance of Emerging Issues Task Force
(EITF) Issue No. 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables. Additionally, SAB 104 rescinds the SECs
Revenue Recognition in Financial Statements Frequently Asked Questions
and Answer issued with SAB 101 that had been codified in SEC Topic 13,
Revenue Recognition. The adoption of SAB No. 104 had no impact on the
Companys consolidated financial statements.6.
    
    Net income per shareBasic net income per common share is computed by dividing net income by
the weighted average number of shares outstanding. Diluted net income
per share includes the dilutive effect of stock options. 9




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##### 



MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 2004
(Unaudited, $ in thousands, except per share data)  A reconciliation of the weighted average number of common shares
outstanding assuming dilution is as follows: Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    7,517
    
    
    $
    5,369
    
    
    $
    20,834
    
    
    $
    12,995Average common shares outstanding
    
    
    18,385
    
    
    
    17,351
    
    
    
    18,199
    
    
    
    17,408Dilutive effect of outstanding stock options
    
    
    1,054
    
    
    
    224
    
    
    
    988
    
    
    
    255Average common shares outstanding assuming
dilution
    
    
    19,439
    
    
    
    17,575
    
    
    
    19,187
    
    
    
    17,663Basic net income per share
    
    $
    0.41
    
    
    $
    0.31
    
    
    $
    1.14
    
    
    $
    0.75Diluted net income per share
    
    $
    0.39
    
    
    $
    0.31
    
    
    $
    1.09
    
    
    $
    0.74Anti-dilutive weighted shares excluded from
reconciliation
    
    
    546
    
    
    
    2,220
    
    
    
    781
    
    
    
    2,142
  7.
    
    Segment reporting dataThe Company develops, manufactures, sells and services point-of-sale
computer systems, property management systems, central reservation and
central information systems products for the hospitality industry and
information technology solutions for the specialty and general
merchandise retail industry. MICROS is organized and operates in two
segments: U.S. and International. The International segment is primarily
in Europe, the Pacific Rim and Latin America. For purposes of applying
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, management views the U.S. and International segments
separately in operating the 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
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Revenues(1):United States
    
    $
    71,208
    
    
    $
    53,462
    
    
    $
    199,234
    
    
    $
    157,015International
    
    
    65,740
    
    
    
    61,604
    
    
    
    191,949
    
    
    
    168,262Intersegment eliminations
    
    
    (15,981
    )
    
    
    (16,177
    )
    
    
    (46,545
    )
    
    
    (41,589
    )Total revenues
    
    $
    120,967
    
    
    $
    98,889
    
    
    $
    344,638
    
    
    $
    283,688Income before taxes, minority interests and equity in net earnings of affiliates(1):United States
    
    $
    7,617
    
    
    $
    3,492
    
    
    $
    17,485
    
    
    $
    6,043International
    
    
    17,661
    
    
    
    17,858
    
    
    
    54,862
    
    
    
    47,197Intersegment eliminations
    
    
    (12,363
    )
    
    
    (12,276
    )
    
    
    (36,541
    )
    
    
    (31,049
    )Total income before
taxes, minority
interests and
equity in net earnings
of affiliates
    
    $
    12,915
    
    
    $
    9,074
    
    
    $
    35,806
    
    
    $
    22,191
 10




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##### 



MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 2004
(Unaudited, $ in thousands, except per share data) March 31,
    
    June 30,2004
    
    2003Identifiable assets(2):United States
    
    $
    198,060
    
    
    $
    186,748International
    
    
    208,830
    
    
    
    183,267Total identifiable assets
    
    $
    406.890
    
    
    $
    370,015
  (1)
    
    Amounts based on the location of the customer.(2)
    
    Amounts based on the location of the selling entity.  8.
    
    Shareholders EquityIn fiscal year 2002, the Board of Directors authorized the purchase of up
to one million shares of the Companys common stock. A summary of the
cumulative number of whole shares purchased and retired through March 31,
2004, is as follows. Since the inception of the repurchase program, we
have incurred approximately $29 in fees related to the program. Whole
    
    AverageShares
    
    Purchase Price
    
    PrincipalTotal shares purchased as of June 30, 2003
    
    
    377,841
    
    
    $
    24.59
    
    
    $
    9,291Shares purchased from July 1  March 31, 2004
    
    
    262,040
    
    
    $
    38.60
    
    
    
    10,115Total shares purchased as of March 31, 2004
    
    
    639,881
    
    
    $
    30.33
    
    
    $
    19,406
 11




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##### 



Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations Results of Operations  Third Quarter and Nine-Month
Comparisons MICROS recorded diluted net income of $0.39 per common share in the third
quarter of fiscal year 2004, compared with diluted net income of $0.31 per
common share in the third quarter of fiscal year 2003. For the nine-months
ended March 31, 2004, diluted net income was $1.09 per common share compared
with diluted net income of $0.74 per common share for the nine-months ended
March 31, 2003. The quarter and year to date increases were mainly due to an
overall increased sales volume partly due to improved market conditions and
various roll out programs currently in progress. The quarter and year to date
increase was also attributed, in part, to sales from Datavantage, acquired in
May 2003. Datavantage accounted for diluted net income of $0.02 and $0.17 per
common share for the three- and nine-months ended March 31, 2004, respectively. Revenue increased $22.1 million to $121.0 million in the third quarter of
fiscal year 2004 compared to $98.9 million in the third quarter of fiscal year
2003. For the first nine months of fiscal year 2004, revenue increased $61.0
million or 21.5% to $344.6 million. Of the increases, the U.S. reporting unit
accounted for $17.0 million and $45.2 million while the international reporting
unit accounted for $5.1 million and $15.8 million for the three- and nine-month
period ended March 31, 2004, respectively. The increase in the U.S. was mainly
due to increased sales volume from various roll out programs and sales from
Datavantage. An analysis of the sales mix by reporting segments is as follows (note: amounts
are net of intersegment eliminations and based on location of the selling
entity): U.S.
    
    International
    
    U.S.
    
    InternationalThree Months Ended
    
    Three Months Ended
    
    Nine Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,
    
    March 31,
    
    March 31,(in thousands)
    
    2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003Hardware
    
    $
    23,192
    
    
    $
    19,308
    
    
    $
    12,619
    
    
    $
    13,169
    
    
    $
    67,478
    
    
    $
    59,039
    
    
    $
    36,579
    
    
    $
    36,303Software
    
    
    12,866
    
    
    
    8,987
    
    
    
    8,643
    
    
    
    7,523
    
    
    
    33,404
    
    
    
    23,339
    
    
    
    24,869
    
    
    
    22,641Service
    
    
    32,787
    
    
    
    23,581
    
    
    
    30,860
    
    
    
    26,321
    
    
    
    95,163
    
    
    
    68,500
    
    
    
    87,145
    
    
    
    73,866Total Revenue
    
    $
    68,845
    
    
    $
    51,876
    
    
    $
    52,122
    
    
    $
    47,013
    
    
    $
    196,045
    
    
    $
    150,878
    
    
    $
    148,593
    
    
    $
    132,810
 An analysis of the corporate sales mix as a percentage of total revenue is as
follows: Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Hardware
    
    
    29.6
    %
    
    
    32.8
    %
    
    
    30.2
    %
    
    
    33.6
    %Software
    
    
    17.8
    %
    
    
    16.7
    %
    
    
    16.9
    %
    
    
    16.2
    %Service
    
    
    52.6
    %
    
    
    50.5
    %
    
    
    52.9
    %
    
    
    50.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Hardware revenue increased primarily due to sales of the Workstation 4, which
was released in the fourth quarter of fiscal year 2003. The increase in
Workstation 4 was offset by a decrease in the sale of PC Workstations. The
decrease in PC Workstations is due to the replacement with the newer and less
expensive Workstation 4 as well as the near completion of a previous roll out
program that utilized PC Workstations. Software revenue increased primarily as
a result of various roll out programs currently in progress and the sale of
Datavantages suite of software products. Service revenue increased mainly due
to increased support revenues from the continued expansion of the MICROS
customer base as well as the recurring support revenue of existing customers
and the addition of professional services provided by Datavantage. Datavantages hardware, software and service revenues for the third quarter
were $1.2 million, $1.9 million and $6.0 million, respectively. Year to date
revenues were $7.5 million, $7.4 million and $19.6 million, respectively. 12




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##### 



Overall cost of sales, as a percentage of revenue, decreased to 48.6% for the
third quarter of fiscal year 2004 from 52.1% in the prior year. For the first
nine months of fiscal year 2004 and 2003, cost of sales, as a percentage of
revenue, was 49.1% and 51.9%, respectively. Cost of sales for hardware, as a percentage of related revenue, decreased to
66.2% in the third quarter of fiscal year 2004 compared to 71.8% for the same
quarter a year earlier. For the first nine months of fiscal year 2004,
hardware costs, as a percentage of related revenue, decreased to 69.4% from
71.8% in the prior year. The quarter and year to date decreases were primarily
due to the increase in overall sales volume, especially of the Workstation 4,
which generates improved margins. Software costs, as a percentage of related revenue, decreased to 25.4% in the
third quarter of fiscal year 2004 compared to 26.6% for the same quarter a year
earlier. For the first nine months of fiscal year 2004, software costs
decreased slightly to 24.6% from 24.7% in the prior year. The quarter and year
to date decreases were mainly attributed to the increase in software sales
volume compared to the fixed costs of software amortization. Service costs as a percentage of related revenue decreased to 46.6% in the
third quarter of fiscal year 2004 compared to 47.7% for the same quarter a year
earlier. For the first nine months of fiscal year 2004, service costs, as a
percentage of related revenue, decreased to 45.4% from 47.4% a year earlier.
The quarter and year to date decreases were attributed to the continued
expansion and increase of recurring support revenue as well as Datavantages
high margins in their service products. Selling, general and administrative expenses increased by $8.7 million or 27.7%
in the third quarter of fiscal year 2004 compared to the same period last year.
On a year to date basis, selling, general and administrative expenses
increased by $20.3 million or 21.7%. The quarter and year to date increases
were mainly due to the increase in salaries and related expenses and related
foreign exchange increases. The quarter to date increase was also attributed
to one-time charges such as moving costs for Datavantage, closing cost of a
district office and accounting costs related to the implementation of
Sarbanes-Oxley section 404. Of the increases, Datavantage contributed $4.4
million and $11.6 million for the three- and nine-month period ended March 31,
2004, respectively. As a percentage of revenue, selling, general and
administrative expenses increased to 33.4% in the third quarter of fiscal year
2004 compared to 32.0% in the prior year. On a year to date basis, selling,
general and administrative expenses remained constant at 33.1% of total revenue
for both fiscal year 2004 and 2003. Research and development (R&D) expenses consist primarily of labor costs less
capitalized software development costs. In the third quarter of fiscal year
2004, R&D expenses increased $2.4 million, or 56.0%, compared to the same
period last year. On a year to date basis, R&D expenses increased $6.6
million, or 49.2%, compared to the same period last year. As a percentage of
total revenue, R&D expenses increased to 5.5% in third quarter of fiscal year
2004 compared to 4.3% in the third quarter of fiscal year 2003. On a year to
date basis, R&D expenses was 5.8% and 4.7% of revenue for fiscal year 2004 and
2003, respectively. The increase was mainly due to Datavantage and the
continued work on new development projects. Datavantage contributed $1.2
million of the quarterly increase and $4.1 million of the year to date
increase. A comparative summary of R&D activities is as follows ($ in
thousands): Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003R&D Expense
    
    $
    6,623
    
    
    $
    4,245
    
    
    $
    19,957
    
    
    $
    13,380Capitalized Software Development Costs
    
    
    1,295
    
    
    
    1,207
    
    
    
    3,617
    
    
    
    3,035Total
    
    $
    7,918
    
    
    $
    5,452
    
    
    $
    23,574
    
    
    $
    16,415
 Depreciation and amortization expense increased by $0.3 million or 16.8% in
third quarter of fiscal year 2004 compared to the same period last year. On a
year to date basis, depreciation and amortization increased by $0.9 million or
14.7% compared to the same period last year. The quarter and year to date
increases were mainly due to Datavantage. 13




---



##### 



Income from operations for the third quarter of fiscal year 2004 was $12.8
million, or 10.6% of total revenue, compared to $9.5 million, or 9.6% of
revenue, in the third quarter of fiscal year 2003. For the first nine months
of fiscal year 2004, income from operations was $34.2 million, or 9.9% of total
revenue, compared to $23.1 million, or 8.1% of revenue in the same period of
the prior year. The quarter and year to date increases were mainly due to an
overall increased sales volume partly due to improved market conditions and
various roll out programs currently in progress. In addition, the year to date
increase was partly attributed to the subsidiary acquired in May 2003,
Datavantage. Datavantages contribution to the year to date income from
operations was $5.6 million, or 16.4%. Non-operating income increased $0.6 million to $0.1 million in the third
quarter of fiscal year 2004. On a year to date basis, non-operating income
increased $2.4 million to $1.6 million. The quarter increase was due to an
increase in interest income and in the prior year, there was a loss on the
disposal of assets. The year to date increase was mainly due to a legal
settlement MICROS received in the net amount of approximately $1.2 million that
occurred in the second quarter of fiscal year 2004. Income before taxes increased $3.8 million to $12.9 million in the third
quarter of fiscal year 2004. On a year to date basis, income before taxes
increased $13.6 million to $35.8 million. The effective tax rate for the third quarter and year to date of fiscal year
2004 and 2003 was 40.5% and 40.0%, respectively. Critical Accounting Policies The Companys discussion and analysis of its financial condition and results of
operations are based on the consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. On an ongoing basis, the Company
evaluates its estimates, including those that impact revenue recognition and
those related to capitalized software, intangible assets, allowance for
doubtful accounts, allowance for obsolescence, income taxes, contingencies and
litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions. Management believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of the consolidated
financial statements. Revenue recognition The Company recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred or the services have been provided to the
customer, the fee is fixed or determinable, and collectibility is reasonably
assured. In instances where the customer specifies final acceptance,
revenue is deferred until all acceptance criteria are met. The Company
reduces revenue for estimated customer returns and allowances. Hardware Revenue from hardware sales is recognized at the time of shipment. Software If a third party can install the software, revenue is recognized when
shipped, with an appropriate deferral for any undelivered software contract
elements. However, if the Company is the sole party that has the
proprietary knowledge to install the software, revenue is recognized upon
installation and when ready to go live, with an appropriate deferral for any
undelivered software contract elements. This deferral is earned when
significant obligations no longer exist. Service Service contract and hosting revenue is initially recorded as deferred
service revenue and is recognized on a pro rata basis over the contract
term. Revenue for the installation of the product, programming and the
training of
customers staff is recognized as the work is performed. Revenue from
customer-specific development work is recognized under the completed
contract method. 14




---



##### 



Multiple-element arrangements The Company enters into transactions that include multiple-element
arrangements, which may include any combination of hardware, software and/or
services. When some elements are delivered prior to others in an
arrangement and all of the following criteria are met, revenue for the
delivered elements is recognized upon delivery of such item. Otherwise,
revenue is deferred until the delivery of the last element.  
    
    Vendor-specific objective evidence (VSOE) of fair value of undelivered elements;  
    
    The functionality of delivered elements is not dependent on the undelivered elements;  
    
    Delivery of the element(s) represents the culmination of the earning process. Capitalized software development costs Software development costs, for software products to be licensed to others,
incurred prior to establishing technological feasibility are charged to
operations and included in research and development costs. Software
development costs incurred after establishing technological feasibility and
purchased software costs are capitalized on a product-by-product basis until
the product is available for general release to customers, at which time
amortization begins. Annual amortization, charged to cost of sales, is the
greater of the amount computed using the ratio that current gross revenues
for a product bear to the total of current and anticipated future gross
revenues for that product, or the straight-line method over the remaining
estimated economic life of the product. Long-lived Assets Intangible Assets Other than Goodwill The Company reviews its long-lived assets (other than goodwill) for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company assesses the
recoverability of the long-lived assets (other than goodwill) by comparing
the estimated undiscounted cash flows associated with the related asset or
group of assets against their respective carrying amounts. The amount of an
impairment, if any, is calculated based on the excess of the carrying amount
over the fair value of those assets. At March 31, 2004, the net book value of Intangible Assets Other than
Goodwill was approximately $6.9 million. The Company did not recognize any
impairment loss during the three- and nine- months ended March 31, 2004. Goodwill SFAS No. 142, Goodwill and Other Intangible Assets requires the cessation
of amortization for goodwill and indefinite-lived intangible assets. It
also requires goodwill to be tested for impairment on an annual basis (or
whenever events occur which may indicate possible impairment). The Company
performs the impairment analysis on an annual basis during the first quarter
of its fiscal year. This analysis requires management to make a series of
critical assumptions to: (1) evaluate whether any impairment exists, and (2)
measure the amount of impairment. In testing for a potential impairment of goodwill, the Company: (1)
allocates goodwill to the various reporting units to which the acquired
goodwill relates; (2) estimates the fair value of those reporting units to
which goodwill relates; and (3) determines the carrying value (book value)
of those reporting units. If the estimated fair value is less than the
carrying value for a reporting unit, the fair value of all identifiable
assets and liabilities of the reporting unit must be estimated in a manner
similar to a purchase price allocation for an acquired business. Only after
this process is completed, is the amount of goodwill impairment determined.
The Company estimated the fair value of its U.S. and international reporting
units using the discounted cash flow method. 15




---



##### 



The process of evaluating the potential impairment of goodwill is highly
subjective and requires significant judgment at many points during the
analysis. In estimating the fair value of the reporting units with
recognized goodwill for the purposes of our annual or periodic analyses, the
Company makes estimates and judgments about the future cash flows of these
businesses. The cash flow forecasts are based on assumptions that are
consistent with the plans and estimates used to manage the underlying
reporting units. MICROS also considers its market capitalization (adjusted
for unallocated monetary assets such as cash, marketable debt securities and
debt) on the date the analysis is performed. The Company completed the first step of its annual impairment analysis in
the first quarter of fiscal year 2004. As the estimated fair value of the
U.S. and international reporting units exceed the carrying values, the
Company concluded there was no impairment of goodwill. As of March 31,
2004, the net book value of goodwill for the U.S. and international
reporting unit was $55.6 million and $10.8 million, respectively. Allowance for doubtful accounts The Company maintains allowances for doubtful accounts for estimated losses
that may result from the inability of our customers to make required
payments. These allowances are based on customer payment practices and
history, inquiries, credit reports from third parties and other financial
information. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. Income taxes Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the expected future
tax consequences attributable to the differences between the financial
statement carrying amounts and the tax basis of assets and liabilities.
Deferred tax assets and liabilities are measured using the enacted tax rates
in effect for the year in which those temporary differences are expected to
be recovered or settled. The effect on the deferred tax assets and
liabilities of a change in tax rate is recognized in income in the period
that includes the enactment date. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts more likely than not
to be realized. If the Company determines that it will not be able to
realize all or part of its net deferred tax asset in the future, an
adjustment to the deferred tax asset would be charged to income in the
period such determination is made. Foreign currency translation The financial statements of the Companys non-U.S. operations are translated
into U.S. dollars for financial reporting purposes. The assets and
liabilities of non-U.S. operations whose functional currencies are not in
U.S. dollars are translated at the quarter-end exchange rates, while
revenues and expenses are translated at month-end exchange rates during the
fiscal year. The cumulative translation effects are reflected in
shareholders equity. Gains and losses on transactions denominated in other
than the functional currency of an operation are reflected in other income
(expense). Liquidity and Capital Resources On July 17, 2003, the Company (and its subsidiaries) entered into two new
credit agreements (the Credit Agreements) which in the aggregate offer a
$65.0 million multi-currency committed line of credit, expiring on July 31,
2005. The lenders (the Lenders) under the Credit Agreements are Bank of
America, N.A., Wachovia Bank, N.A., and US Bank. Simultaneously upon entering
into the Credit Agreements, the Company entered into: (i) a security agreement,
pursuant to which the Lenders have a security interest in all inventory and
receivables located in the United States; and (ii) a pledge agreement and
irrevocable stock powers, pursuant to which the Company pledges stock to the
Lenders in certain subsidiaries. Interest due under the Credit Agreements is
calculated as follows: (i) if the advance is made in U.S. dollars, the greater
of the Federal Funds Rate, plus 50 basis points, or the Bank of America prime
rate, plus an additional 25 to 150 basis points, depending upon the Companys
consolidated earnings before interest, taxes, depreciation and amortization
(EBITDA) for the immediately preceding four calendar quarters; and (ii) if
the advance is made in a foreign currency, the LIBOR rate for the applicable
denominated currency, plus an additional 150 to 250 basis points, depending
upon the Companys consolidated
EBITDA for the immediately preceding four calendar quarters. The Credit
Agreements also require the Company to satisfy certain financial covenants and
limits the Companys ability to assume additional debt and pay cash dividends.
The Lenders under the Credit Agreements have not alleged any breaches
thereunder by MICROS. Additionally, the Credit Agreements impose upon the
Company certain commitment fees on the unused portion of the line of credit. 16




---



##### 



The Company also has a credit relationship with a European bank in the amount
of EUR 1.0 million (approximately $1.2 million at the March 31, 2004 exchange
rate). Under the terms of this facility, the Company may borrow in the form of
either a line of credit or term debt. As the Company has significant
international operations, its Euro-denominated borrowings do not represent a
significant foreign exchange risk. On an overall basis, the Company monitors
its cash and debt positions in each currency in an effort to reduce its foreign
exchange risk. As of March 31, 2004, the total outstanding balance on the lines of credit is
$2.5 million consisting of: ZAR (South African Rand) 4.0 million (approximately
$0.6 million at the March 31, 2004 exchange rate), SEK (Swedish Krona) 7.5
million (approximately $1.0 million at the March 31, 2004 exchange rate), and
JPY (Japanese Yen) 90.0 million (approximately $0.9 million at the March 31,
2004 exchange rate). As of March 31, 2004, the Company has approximately $63.7
million available to borrow. The line of credit balance decreased from $10.2
million at June 30, 2003 to $2.5 million at March 31, 2004 due to the Companys
positive cash flow. Net cash provided by operating activities for the first nine months of fiscal
year 2004 was $51.7 million versus $17.6 million for the first nine months of
fiscal year 2003. The Company used $9.5 million for investing activities,
including $9.0 million for the purchase of property, plant, and equipment and
internally developed software and $0.5 million for the purchase of long-term
investments. The Company used $6.4 million for financing activities,
consisting primarily of net payments on the line of credit of $8.0 million,
proceeds from the issuance of stock of $12.3 million offset by $10.1 million in
the repurchase of the Companys stock. All cash is being retained for the
operation and expansion of the business and the repurchase of the Companys
stock. The Company anticipates that its cash flow from operations along with available
lines of credit, in conjunction with other lines of credit for which the
Company may be eligible or lines of credit to be renewed or converted into term
debt, are sufficient to provide the working capital needs of the Company for
the next 12 months. The Company anticipates that its property, plant and
equipment expenditures for fiscal year 2004 will be approximately $1.5 million
higher than in fiscal year 2003. Off-balance sheet arrangements The Company does not have any off-balance sheet arrangements (as defined in the
applicable regulations) that have or are reasonably likely to have a current or
future effect on the Companys financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures, or capital resources that is material to investors. Summary In light of current market conditions, and world political and economic
uncertainty, it is difficult to determine whether the Company can continue to
enjoy revenue and profitability growth in the near or mid term. Accordingly,
there can be no assurance that any particular level of growth is reasonable or
can be achieved. In addition, due to the competitive nature of the market, the
Company experiences gross margin pressure on its products and service
offerings, and the Company believes that, given some of the current economic
uncertainties, there is a risk that product and service margins may decline in
the future. There can be no assurance that the Company will be able to
increase sufficiently sales of its higher margin products, including software,
to prevent future potential declines in the Companys overall gross margin. Moreover, MICROSs financial results in any single quarter are dependent upon
the timing and size of customer orders and the shipment of products for larger
orders. Large software orders from customers may account for more than an
insignificant portion of earnings in any quarter. The customers with whom
MICROS does the largest amount of business are expected to vary from year to
year as a result of the timing for the roll-out of each customers system.
Furthermore, if a customer delays or accelerates its delivery requirements or a
products
completion is delayed or accelerated, revenues expected in a given quarter may
be deferred or accelerated into subsequent or earlier quarters. 17




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The market price of MICROS Common Stock is volatile, and may be subject to
significant fluctuations in response to variations in MICROSs quarterly
operating results and other factors such as announcements of technological
developments or new products by MICROS, customer roll-outs, technological
advances by existing and new competitors, and general market conditions in the
hospitality and retail industries. In addition, conditions in the stock market
in general and shares of technology companies in particular have experienced
significant price and volume fluctuations which have at times been unrelated to
the operating performance of companies. Moreover, some of the statements contained herein not based on historic facts
are forward looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, and Section 27A of the Securities
Act of 1933, as amended, that involve risks and uncertainties. Past
performance is not necessarily a strong or reliable indicator of future
performance. Actual results could differ materially from past results,
estimates or projections. Some of the additional risks and uncertainties are:
political and world instability created by the unsettled Iraq matter and the
threat of subsequent terrorist attacks, which gravely impacts the travel and
tourism industries; product demand and market acceptance, including demand and
acceptance for the new OPERA products; implementation of a cost-effective
service structure capable of servicing increasingly complex software systems in
increasingly more remote locations; achieving increased sales of higher margin
software products; risks and uncertainties associated with the Companys
acquisition of Datavantage in May 2003; hiring and retention of qualified
employees with sufficient technical expertise; unexpected currency
fluctuations; impact of competitive products and pricing on margins; product
development delays; technological difficulties associated with new product
releases; and managing expenses, including those over which the Company
exercises little or no control, such as health care costs. These and other
risks are disclosed in the Companys releases and SEC filings, including in the
section titled Business and Investment Risks; Information Relating to
Forward-Looking Statements, in the Companys Annual Report on Form 10-K for
the Fiscal Year ended June 30, 2003. Item 3. Quantitative and Qualitative Disclosures about Market Risk MICROSs significant international business and presence exposes the Company to
a multitude of market risks, such as currency, interest rate and political
risks. With respect to currency risk, the Company transacts business in 22
different currencies through its foreign subsidiaries. The fluctuation of
currencies impacts sales and profitability. Frequently, sales and the costs
associated with such sales are not always denominated in the same currency.
Given the fact that the Company transacts business in many different
currencies, adverse declines in certain currencies can be offset by favorable
advances in other currencies. Recent weakness in certain Latin American
currencies, including the Argentine Peso and the Brazilian Real, has adversely
impacted the financial performance of the Company. Strength in the Euro has
helped to bolster sales and profitability in Europe; any subsequent decline
will adversely impact year over year growth comparisons. Additionally, the Company is subject to interest rate fluctuations in foreign
countries to the extent that the Company elects to borrow in the local foreign
currency. In the past, this has not been an issue of concern as the Company
has the capacity to elect to borrow in other currencies with more favorable
interest rates. While the Company has not to date invested in financial
instruments designed to protect against interest rate fluctuations, the Company
will continue to evaluate the need to do so in the future. Further, the Company is subject to political risk, due in part to instability
in the Middle East and the worldwide threat of terrorism, especially in
developing countries with uncertain or unstable political structures or
regimes. Contributing to this risk factor is the adverse impact that political
instability has on the travel and tourism industries. The Company is also
subject to the effects of, and changes in, laws and regulations, other
activities of governments, agencies and similar organizations. 18




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Item 4. Controls and Procedures As of the end of the period covered by this quarterly report, the Company has
conducted an evaluation of the effectiveness of the design and operation of the
Companys Disclosure Controls and Procedures (as defined in Rules 13a-15 and
15d-15 under the Securities Exchange Act of 1934). This evaluation was carried
out under the
supervision of the Companys management, including A.L. Giannopoulos, MICROSs
Chairman, Chief Executive Officer and President, and Gary C. Kaufman, MICROSs
Executive Vice President and Chief Financial Officer. Disclosure Controls and
Procedures are designed with the objective of ensuring that information
required to be disclosed in the reports MICROS files or submits under the
Securities Exchange Act of 1934 (Exchange Act), such as this quarterly report,
is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms. Disclosure Controls and Procedures are
also designed with the objective of ensuring that such information is
accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure. The Company does not expect that its Disclosure Controls and Procedures will
prevent all errors and all fraud. Despite its level of sophistication, detail
and thoroughness, a disclosure control system can provide only reasonable, not
absolute, assurance that the objectives of the control system are satisfied.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been or will be detected. The evaluation of MICROSs Disclosure Controls and Procedures included a review
of the controls objectives and design, and the controls implementation and
operational procedures. In the course of this evaluation, MICROS sought to
identify and analyze the manner in which it collects information and requires
its employees from 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, the Company evaluated how the
information is analyzed for purposes of determining if, how, when and where to
disclose such information. Finally, MICROS analyzed the forms and guidelines
it has developed internally that are disseminated to all operations, and are
required to be resubmitted to the corporate finance operation. These forms and
documents are designed to elicit pertinent financial and non-financial
information from the operations on a worldwide basis. MICROS has evaluated and will continue periodically to evaluate its Disclosure
Controls and Procedures. Based on its most recent evaluations, MICROS has
concluded that, as of the end of the period covered by this quarterly report,
its Disclosure Controls and Procedures currently in place are effective at such
reasonable assurance level that material information relating to MICROS would
be made known to the Chairman, President and Chief Executive Officer, and the
Executive Vice President and Chief Financial Officer on a timely basis. 19




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##### 



MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 2004 Part II  Other Information Item 1. Legal Proceedings MICROS is and has been involved in legal proceedings arising in the normal
course of business. The Company is of the opinion, based upon presently
available information and the advice of counsel concerning pertinent legal
matters, that any resulting liability should not have a material adverse effect
on the Companys results of operations or financial position. Item 2. Changes in Securities, Use of Proceeds and Issuer Purchase of Equity Securities Issuer Purchases of Equity Securities(1) Total Number of
    
    Maximum NumberShares Purchased
    
    of Shares that MayTotal Number
    
    Average
    
    as Part of Publicly
    
    Yet be Purchasedof Shares
    
    Purchase
    
    Announced Plans
    
    Under the Plans orPurchased
    
    Price
    
    or Programs
    
    ProgramsJanuary 1  31, 2004
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    435,649February 1  29, 2004
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    435,649March 1  31, 2004
    
    
    75,530
    
    
    $
    43.39
    
    
    
    75,530
    
    
    
    360,119Total
    
    
    75,530
    
    
    $
    43.39
    
    
    
    75,530
    
    
    
    360,119
 (1) In fiscal year 2002, the Board of Directors of the Company authorized
the purchase of up to one million shares of the Companys common stock.
As of March 31, 2004, the Company has purchased 639,881 shares in the
open market. Items 3 (Defaults Upon Senior Securities), 4 (Submission of Matters to a Vote
of Security Holders) and 5 (Other Information) No events occurred during the quarter covered by the report that would
require a response to any of these items. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 31.1 Certification by CEO pursuant to Rule 13A-14 or 15D of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. 31.2 Certification by CFO pursuant to Rule 13A-14 or 15D of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. 32.1 Certification by CEO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification by CFO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 20




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##### 



(b) Reports on Form 8-K Report on Form 8-K was filed on January 30, 2004, regarding the
release of financial results for the second fiscal quarter for fiscal
year 2004 ended December 31, 2003. Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. MICROS SYSTEMS, INC.(Registrant)May 13, 2004
    
    /s/
    Gary C. KaufmanGary C. KaufmanExecutive Vice President,Finance and Administration/Chief Financial OfficerMay 13, 2004
    
    /s/
    Cynthia A. RussoCynthia A. RussoVice President and Corporate Controller
 21