**Form 10-Q**

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

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

 

**For thequarter ended September 30, 2004**

 

**Commissionfile number 0-9993**

 

**MICROS SYSTEMS, INC.**

(Exact name of Registrant asspecified 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 reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such report(s)), and (2) has been subject tosuch filing requirements for the past 90 days.

 

YES ý           NOo

 

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 ý           NOo

 

At the close of business on October 31, 2004, there were issued andoutstanding 18,509,797 shares of Registrant’s Common Stock at $.025 par value.

 

 

----

 

MICROS SYSTEMS, INC. ANDSUBSIDIARIES

Form 10-Q

Forthe Quarter Ended September 30, 2004

 

Part I - Financial Information

 

Item 1.             Financial Statements

 

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 informationin this report contains all adjustments, consisting only of normal recurringadjustments, which are necessary for a fair statement of the results for theinterim periods presented.  The financialinformation presented herein should be read in conjunction with the financialstatements included in the Registrant’s Form 10-K for the fiscal year endedJune 30, 2004, as filed with the Securities and Exchange Commission.

 

2

----

 

MICROS SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (Unaudited, in thousands, except per sharedata)

 
| ** **                                                                                                                                         | ** ** | **September 30,** | ** ** | **June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|--------------|------------|
| ** **                                                                                                                                         | ** ** | **2004**          | ** ** | **2004**     | ** ** |
| ASSETS                                                                                                                                             |       |              |       |         |       |
| Current assets:                                                                                                                                    |       |              |       |         |       |
| Cash and cash equivalents                                                                                                                          |       | $                 | 98,952     |         | $          | 91,451 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $12,733 at September 30, 2004 and $11,903 at June 30,  2004                        |       | 102,162           |       | 101,367      |       |
| Inventories, net of allowance for  obsolescence of $6,704 at September 30, 2004 and $6,380 at June 30, 2004                                        |       | 38,273            |       | 36,095       |       |
| Deferred income taxes                                                                                                                              |       | 9,905             |       | 9,396        |       |
| Prepaid expenses and other current assets                                                                                                          |       | 16,685            |       | 16,242       |       |
| Total current assets                                                                                                                               |       | 265,977           |       | 254,551      |       |
|                                                                                                                                               |       |              |       |         |       |
| Property, plant and equipment, net of  accumulated depreciation and amortization of $60,398 at September 30, 2004  and $58,245 at June 30, 2004    |       | 20,150            |       | 19,550       |       |
| Deferred income taxes, non-current                                                                                                                 |       | 24,393            |       | 24,288       |       |
| Goodwill, net of accumulated amortization  of $29,070 at September 30, 2004 and $28,687 at June 30, 2004                                           |       | 70,813            |       | 70,715       |       |
| Intangible assets, net of accumulated  amortization of $2,469 at September 30, 2004 and $2,291 at June 30, 2004                                    |       | 5,321             |       | 5,476        |       |
| Purchased and internally developed software  costs, net of accumulated amortization of $32,569 at September 30, 2004 and  $30,484 at June 30, 2004 |       | 41,226            |       | 41,112       |       |
| Other investments                                                                                                                                  |       | 413               |       | 415          |       |
| Other assets                                                                                                                                       |       | 2,664             |       | 2,785        |       |
|                                                                                                                                               |       |              |       |         |       |
| Total assets                                                                                                                                       |       | $                 | 430,957    |         | $          | 418,892 |   |
|                                                                                                                                               |       |              |       |         |       |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                          |       |              |       |         |       |
| Current liabilities:                                                                                                                               |       |              |       |         |       |
| Bank lines of credit                                                                                                                               |       | $                 | 2,493      |         | $          | 2,481 |   |
| Current portion of capital lease  obligations                                                                                                      |       | 181               |       | 139          |       |
| Accounts payable                                                                                                                                   |       | 24,473            |       | 29,681       |       |
| Accrued expenses and other current  liabilities                                                                                                    |       | 53,081            |       | 58,693       |       |
| Income taxes payable                                                                                                                               |       | 2,351             |       | 1,541        |       |
| Deferred income taxes                                                                                                                              |       | 333               |       | 512          |       |
| Deferred service revenue                                                                                                                           |       | 53,596            |       | 43,019       |       |
| Total current liabilities                                                                                                                          |       | 136,508           |       | 136,066      |       |
|                                                                                                                                               |       |              |       |         |       |
| Capital lease obligations, net of current  portion                                                                                                 |       | 167               |       | 166          |       |
| Deferred income taxes, non-current                                                                                                                 |       | 15,547            |       | 15,544       |       |
| Other non-current liabilities                                                                                                                      |       | 1,431             |       | 1,401        |       |
| Commitments and contingencies                                                                                                                      |       |              |       |         |       |
| Minority interests                                                                                                                                 |       | 2,881             |       | 2,742        |       |
|                                                                                                                                               |       |              |       |         |       |
| Shareholders’ equity:                                                                                                                         |       |              |       |         |       |
| Common stock, $0.025 par; authorized 50,000  shares; issued and outstanding 18,411 at September 30, 2004 and 18,335 at  June 30, 2004              |       | 459               |       | 457          |       |
| Capital in excess of par                                                                                                                           |       | 70,545            |       | 71,525       |       |
| Retained earnings                                                                                                                                  |       | 195,321           |       | 185,660      |       |
| Accumulated other comprehensive income                                                                                                             |       | 8,098             |       | 5,331        |       |
| Total shareholders’ equity                                                                                                                    |       | 274,423           |       | 262,973      |       |
|                                                                                                                                               |       |              |       |         |       |
| Total liabilities and shareholders’ equity                                                                                                    |       | $                 | 430,957    |         | $          | 418,892 |   |

 

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

 

3

----

 

MICROS SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 (Unaudited, in thousands, except per sharedata)

 
| ** **                                                                        | ** ** | **Three Months Ended September 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                        | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| Revenue:                                                                          |       |                                 |       |   |   |
| Hardware                                                                          |       | $                                    | 39,301     |   | $ | 33,946 |   |
| Software                                                                          |       | 22,878                               |       | 17,838 |   |
| Service                                                                           |       | 67,783                               |       | 54,633 |   |
| Total revenue                                                                     |       | 129,962                              |       | 106,417 |   |
|                                                                              |       |                                 |       |   |   |
| Cost of sales:                                                                    |       |                                 |       |   |   |
| Hardware                                                                          |       | 26,211                               |       | 23,742 |   |
| Software                                                                          |       | 5,169                                |       | 5,004 |   |
| Service                                                                           |       | 33,448                               |       | 25,536 |   |
| Total cost of sales                                                               |       | 64,828                               |       | 54,282 |   |
|                                                                              |       |                                 |       |   |   |
| Gross margin                                                                      |       | 65,134                               |       | 52,135 |   |
|                                                                              |       |                                 |       |   |   |
| Selling, general and administrative  expenses                                     |       | 41,068                               |       | 35,562 |   |
| Research and development expenses                                                 |       | 6,711                                |       | 6,174 |   |
| Depreciation and amortization                                                     |       | 2,401                                |       | 2,317 |   |
| Total operating expenses                                                          |       | 50,180                               |       | 44,053 |   |
|                                                                              |       |                                 |       |   |   |
| Income from operations                                                            |       | 14,954                               |       | 8,082 |   |
|                                                                              |       |                                 |       |   |   |
| Non-operating income (expense):                                                   |       |                                 |       |   |   |
| Interest income                                                                   |       | 352                                  |       | 239 |   |
| Interest expense                                                                  |       | (49                                  | )          | (189 | ) |
| Other income, net                                                                 |       | 126                                  |       | 105 |   |
| Total non-operating income                                                        |       | 429                                  |       | 155 |   |
|                                                                              |       |                                 |       |   |   |
| Income before taxes, minority interests and  equity in net earnings of affiliates |       | 15,383                               |       | 8,237 |   |
|                                                                              |       |                                 |       |   |   |
| Income tax provision                                                              |       | 5,538                                |       | 3,336 |   |
|                                                                              |       |                                 |       |   |   |
| Income before minority interests and equity  in net earnings of affiliates        |       | 9,845                                |       | 4,901 |   |
|                                                                              |       |                                 |       |   |   |
| Minority interests and equity in net  earnings of affiliates                      |       | (184                                 | )          | (154 | ) |
|                                                                              |       |                                 |       |   |   |
| Net income                                                                        |       | $                                    | 9,661      |   | $ | 4,747 |   |
|                                                                              |       |                                 |       |   |   |
| Net income per common share:                                                      |       |                                 |       |   |   |
| Basic                                                                             |       | $                                    | 0.53       |   | $ | 0.26 |   |
| Diluted                                                                           |       | $                                    | 0.50       |   | $ | 0.25 |   |
|                                                                              |       |                                 |       |   |   |
| Weighted-average number shares outstanding:                                       |       |                                 |       |   |   |
| Basic                                                                             |       | 18,334                               |       | 18,036 |   |
| Diluted                                                                           |       | 19,309                               |       | 18,940 |   |

 

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

 

4

----

 

MICROS SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’EQUITY

For the Three Months Ended September 30, 2004

 (Unaudited, in thousands)

 
| ** **                                      | ** ** | ** **       | ** ** | ** **    | ** ** | ** **   | ** ** | ** **        | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|------------------|------------|---------------|------------|--------------|------------|-------------------|------------|-----------------|------------|------------|------------|
| ** **                                      | ** ** | ** **       | ** ** | ** **    | ** ** | **Capital**  | ** ** | ** **        | ** ** | **Other**       | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | **Common Stock** | ** ** | **in Excess** | ** ** | **Retained** | ** ** | **Comprehensive** | ** ** | ** **      | ** ** |
| ** **                                      | ** ** | **Shares**       | ** ** | **Amount**    | ** ** | **of Par**   | ** ** | **Earnings**      | ** ** | **Income**      | ** ** | **Total**  | ** ** |
| Balance, June 30, 2004                          |       | 18,335           |       | $             | 457        |         | $          | 71,525            |       | $               | 185,660    |       | $          | 5,331 |   | $ | 262,973 |   |
| Comprehensive income:                           |       |             |       |          |       |         |       |              |       |            |       |       |       |
| Net income                                      |       | —           |       | —        |       | —       |       | 9,661             |       | —          |       | 9,661      |       |
| Foreign currency translation adjustments        |       | —           |       | —        |       | —       |       | —            |       | 2,767           |       | 2,767      |       |
| Total comprehensive income                      |       | —           |       | —        |       | —       |       | 9,661             |       | 2,767           |       | 12,428     |       |
| Stock issued upon exercise of options           |       | 244              |       | 6             |       | 4,404        |       | —            |       | —          |       | 4,410      |       |
| Repurchases of stock                            |       | (168             | )          | (4            | )          | (7,881       | )          | —            |       | —          |       | (7,885     | )          |
| Income tax benefit from stock options exercised |       | —           |       | —        |       | 2,497        |       | —            |       | —          |       | 2,497      |       |
| Balance, September 30, 2004                     |       | 18,411           |       | $             | 459        |         | $          | 70,545            |       | $               | 195,321    |       | $          | 8,098 |   | $ | 274,423 |   |

 

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

 

5

----

 

MICROS SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Condensed and unaudited, in thousands)

 
| ** **                                                   | ** ** | **Three Months Ended September 30,** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                   | ** ** | **2004**                             | ** ** | **2003** | ** ** |
|                                                         |       |                                 |       |   |   |
| Net cash flows provided by operating  activities:            |       | $                                    | 15,122     |   | $ | 11,027 |   |
|                                                         |       |                                 |       |   |   |
| Cash flows from investing activities:                        |       |                                 |       |   |   |
| Purchases of property, plant and equipment                   |       | (2,603                               | )          | (1,652 | ) |
| Proceeds from dispositions of property,  plant and equipment |       | 3                                    |       | 1 |   |
| Purchases of other investments                               |       | —                               |       | (500 | ) |
| Internally developed software                                |       | (1,352                               | )          | (1,408 | ) |
| Net cash used in investing activities                        |       | (3,952                               | )          | (3,559 | ) |
|                                                         |       |                                 |       |   |   |
| Cash flows from financing activities:                        |       |                                 |       |   |   |
| Principal payments on line of credit                         |       | —                               |       | (2,814 | ) |
| Proceeds from lines of credit                                |       | 19                                   |       | 3,000 |   |
| Principal payments on shareholder loan                       |       | —                               |       | (363 | ) |
| Principal payments on capital lease  obligations             |       | (33                                  | )          | (23 | ) |
| Dividends to minority owners                                 |       | (92                                  | )          | (46 | ) |
| Repurchases of stock                                         |       | (7,885                               | )          | (3,860 | ) |
| Proceeds from issuance of stock                              |       | 4,410                                |       | 3,244 |   |
| Net cash used in financing activities                        |       | (3,581                               | )          | (862 | ) |
|                                                         |       |                                 |       |   |   |
| Effect of exchange rate changes on cash                      |       | (88                                  | )          | (28 | ) |
|                                                         |       |                                 |       |   |   |
| Net increase in cash and cash equivalents                    |       | 7,501                                |       | 6,578 |   |
|                                                         |       |                                 |       |   |   |
| Cash and cash equivalents at beginning of  period            |       | 91,451                               |       | 45,682 |   |
| Cash and cash equivalents at end of period                   |       | $                                    | 98,952     |   | $ | 52,260 |   |

 

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

 

6

----

 

1.                                       Basisof Presentation

 

Theaccompanying consolidated financial statements of MICROS Systems, Inc. and itssubsidiaries (collectively, the “Company”) have been prepared by the Companypursuant to the rules and regulations of the Securities and Exchange Commission(“SEC”).  This Quarterly Report on Form10-Q should be read in conjunction with the Company’s Annual Report on Form10-K for the year ended June 30, 2004. Certain information and footnote disclosures which are normally includedin financial statements prepared in accordance with generally acceptedaccounting principles have been condensed or omitted pursuant to SEC rules andregulations.  The information reflectsall normal and recurring adjustments that, in the opinion of management, arenecessary for a fair presentation of the financial position of the Company, andits results of operations for the interim periods set forth herein.  The results for the three months endedSeptember 30, 2004 are not necessarily indicative of the results to be expectedfor the full year or any future period. Certain amounts previously reported have been reclassified to conform tocurrent year presentation.

 

2.                                       Stock-based compensation

 

The Company has incentive and non-qualified stock options outstandingthat were granted to directors, officers, and other employees pursuant toauthorization by the Board of Directors. The exercise price of all options equals the market value on the date ofthe grant.  Substantially all of theoptions granted are exercisable pursuant to a three-year vesting schedulewhereby 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 thegrant.  Currently, all outstandingoptions expire ten years from the date of grant.

 

The Company applies the intrinsic value based method of accountingprescribed by Accounting Principles Board Opinion (“APB”) No. 25, “Accountingfor Stock Issued to Employees,” in accounting for the stock option awards.  The Company has not recognized any related compensationexpense in the consolidated statements of operations because the fair value ofthe stock underlying the options granted did not exceed the exercise price ofthe options on the date of grant.  Ifcompensation expense had been determined based on the weighted-average estimateof the fair value of each option granted consistent with the provisions of SFASNo. 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  September 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                  | ** ** | **2004**                              | ** ** | **2003** | ** ** |
| Net income - as reported                                                                                    |       | $                                     | 9,661      |   | $ | 4,747 |   |
| Add: 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 |       | (1,378                                | )          | (1,268 | ) |
| Net income - pro forma                                                                                      |       | $                                     | 8,283      |   | $ | 3,479 |   |
|                                                                                                        |       |                                  |       |   |   |
| Basic net income per share                                                                                  |       |                                  |       |   |   |
| As reported                                                                                                 |       | $                                     | 0.53       |   | $ | 0.26 |   |
| Pro forma                                                                                                   |       | $                                     | 0.45       |   | $ | 0.19 |   |
|                                                                                                        |       |                                  |       |   |   |
| Diluted net income per share                                                                                |       |                                  |       |   |   |
| As reported                                                                                                 |       | $                                     | 0.50       |   | $ | 0.25 |   |
| Pro forma                                                                                                   |       | $                                     | 0.43       |   | $ | 0.18 |   |

 

7

----

 

The weighted average fair value of each option granted for the firstquarter of fiscal 2005 and 2004 was $22.33 and $17.26, respectively.  The fair value of each option grant isestimated on the date of grant using the Black-Scholes option-pricing modelwith the following weighted-average assumptions:

 
| ** **              | ** ** | **Three Months Ended  September 30,** | ** ** |
|-------------------------|------------|---------------------------------------|------------|
| ** **              | ** ** | **2004**                              | ** ** | **2003** | ** ** |
| Risk-free interest rate |       | 3.8                                   | %          | 3.8 | % |
| Expected life           |       | 6.0 years                             |       | 6.0 years |   |
| Expected volatility     |       | 48                                    | %          | 50 | % |
| Expected dividend yield |       | 0                                     | %          | 0 | % |

 

The Black-Scholes option-pricing model was developed for use inestimating the fair value of traded options that have no vesting restrictionsand are fully transferable.  In addition,option-pricing models require the input of highly subjective assumptionsincluding the expected stock price volatility. The Company uses projected volatility rates, which are based uponhistorical volatility rates, trended into future years.  Because the Company’s employee stock optionshave characteristics significantly different from those of traded options, andbecause changes in the subjective input assumptions can materially affect thefair value estimate, in management’s opinion, existing models, including theBlack-Scholes option-pricing model, do not necessarily provide a reliablesingle measure of the fair value of employee stock options.

 

3.                                       Inventories

 

The components of inventories are as follows:

 
| ** **      | ** ** | **September 30,  2004** | ** ** | **June 30,  2004** | ** ** |
|-----------------|------------|-------------------------|------------|--------------------|------------|
| Raw materials   |       | $                       | 6,213      |               | $          | 5,592 |   |
| Work-in-process |       | 60                      |       | 91                 |       |
| Finished goods  |       | 32,000                  |       | 30,412             |       |
|            |       | $                       | 38,273     |               | $          | 36,095 |   |

 

The Company maintains a reserve forobsolescence for inventory in the amount of $6,704 at September 30, 2004compared to $6,380 at June 30, 2004.

 

4.                                       Recentaccounting standards

 

InJune 2004, the Financial Accounting Standards Board(“FASB”) issued an exposure draft entitled Fair Value Measurementsthat provides guidance on how to measure fair value of assets andliabilities.  The objective is toincrease the consistency, reliability, and comparability of fair valuemeasurements in applying general accepted accounting principles.  Valuation techniques consistent with themarket approach, income approach and cost approach are to be considered forpurposes of estimating fair value.  Theproposed effective date is for financial statements issued for fiscal yearsbeginning after June 15, 2005 and interim periods within those years, withearlier application encouraged.  TheCompany is currently evaluating the impact of the proposed standard.

 

In March 2004, the FASBissued an exposure draft of its proposed standard on accounting for stockcompensation amending FASB Statement No. 123, “Accounting for Stock-BasedCompensation.”  The exposure draft wouldrequire all grants of employee stock options to be expensed based on their fairvalues.  The FASB expects to issue afinal standard by December 31, 2004 that would be effective for publiccompanies for interim and annual periods beginning after June 15, 2005.  There is continued uncertainty anddisagreement among the governing bodies as to how this matter will beaddressed.  The Company is currentlyevaluating the impact of the proposed standard.

 

5.                                       Netincome per share

 

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 thedilutive effect of stock options.

 

8

----

 

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

 
| ** **                                                  | ** ** | **Three Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                  | ** ** | **2004**                              | ** ** | **2003** | ** ** |
|                                                        |       |                                  |       |   |   |
| Net income                                                  |       | $                                     | 9,661      |   | $ | 4,747 |   |
|                                                        |       |                                  |       |   |   |
| Average common shares outstanding                           |       | 18,334                                |       | 18,036 |   |
| Dilutive effect of outstanding stock  options               |       | 975                                   |       | 904 |   |
| Average common shares outstanding assuming  dilution        |       | 19,309                                |       | 18,940 |   |
|                                                        |       |                                  |       |   |   |
| Basic net income per share                                  |       | $                                     | 0.53       |   | $ | 0.26 |   |
| Diluted net income per share                                |       | $                                     | 0.50       |   | $ | 0.25 |   |
|                                                        |       |                                  |       |   |   |
| Anti-dilutive weighted shares excluded from  reconciliation |       | 546                                   |       | 671 |   |

 

6.                                       Segmentreporting data

 

TheCompany develops, manufactures, sells and services point-of-sale computersystems, property management systems, central reservation and centralinformation systems products for the hospitality industry and informationtechnology solutions for the specialty and general merchandise retailindustry.  MICROS is organized andoperates in two segments: U.S. and International.  The International segment is primarily inEurope, the Pacific Rim and Latin America. For purposes of applying SFAS No. 131, “Disclosures about Segments of anEnterprise and Related Information,” management views the U.S. andInternational segments separately in operating the business, although theproducts and services are similar for each segment.

 

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

 
| ** **                                                                              | ** ** | **Three Months Ended September 30,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                              | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| Revenues (1):                                                                           |       |                                 |       |   |   |
| United States                                                                           |       | $                                    | 70,926     |   | $ | 63,427 |   |
| International                                                                           |       | 76,238                               |       | 57,087 |   |
| Intersegment eliminations                                                               |       | (17,202                              | )          | (14,097 | ) |
| Total revenues                                                                          |       | $                                    | 129,962    |   | $ | 106,417 |   |
|                                                                                    |       |                                 |       |   |   |
| Income before taxes, minority interests and equity in net earnings of  affiliates (1):  |       |                                 |       |   |   |
| United States                                                                           |       | $                                    | 6,042      |   | $ | 3,523 |   |
| International                                                                           |       | 22,780                               |       | 15,829 |   |
| Intersegment eliminations                                                               |       | (13,439                              | )          | (11,115 | ) |
| Total income before taxes, minority interests and equity in net  earnings of affiliates |       | $                                    | 15,383     |   | $ | 8,237 |   |

 
| ** **                | ** ** | **September 30,** | ** ** | **June 30,** | ** ** |
|---------------------------|------------|-------------------|------------|--------------|------------|
| ** **                | ** ** | **2004**          | ** ** | **2004**     | ** ** |
| Identifiable assets (2):  |       |              |       |         |       |
| United States             |       | $                 | 225,270    |         | $          | 232,577 |   |
| International             |       | 205,687           |       | 186,315      |       |
| Total identifiable assets |       | $                 | 430,957    |         | $          | 418,892 |   |

 

----

(1)          Amountsbased on the location of the customer.

(2)          Amountsbased on the location of the selling entity.

 

9

----

 

7.                                       Shareholders’ Equity

 

Infiscal year 2002, the Board of Directors authorized the purchase of up to onemillion shares of the Company’s common stock. A summary of the cumulative number of whole shares purchased throughSeptember 30, 2004, is as follows:

 

| ** **                                              | ** ** | **Whole  Shares** | ** ** | **Average  Purchase Price** | ** ** | **Principal** | ** ** |
|---------------------------------------------------------|------------|-------------------|------------|-----------------------------|------------|---------------|------------|
| Total shares  purchased as of June 30, 2004             |       | 799,731           |       | $                           | 33.01      |          | $          | 26,403 |   |
| Shares purchased from July 1 – September  30, 2004 |       | 167,324           |       | $                           | 47.12      |          | 7,885      |   |
| Total shares purchased as of September 30,  2004        |       | 967,055           |       | $                           | 35.46      |          | $          | 34,288 |   |

 

8.                                       SubsequentEvent

 

On October 20, 2004, MICROS filed with theSecurities and Exchange Commission its Proxy Statement (the “Proxy”) inconnection with its Annual Meeting of Stockholders scheduled to be held onNovember 19, 2004.  In its Proxy, theCompany seeks shareholder approval with respect to the following three items:(1) the election of six directors to serve for a one-year term; (2) theapproval of the appointment of PricewaterhouseCoopers LLP as independent publicaccountants for the 2005 fiscal year; and (3) the approval of an amendment tothe Company’s 1991 Stock Option Plan, which serves to authorize the issuance ofan additional 600,000 shares of Common Stock under the Option Plan.

 

10

----

 

Item 2.   Management’s Discussionand Analysis of Financial Condition and Results of Operations

 

Overview:

 

The following should be read inconjunction with MICROS’s 2004 Annual Report on Form 10-K filed with theSecurities and Exchange Commission, and with the unaudited condensedconsolidated financial statements included in this Form 10-Q.

 

MICROS is a leading globalprovider of software and hardware systems, and associated goods and services,primarily to the hospitality industry and the specialty retail industry.  MICROS’s products include hotel informationsystems (e.g., property management systems, sales and catering systems, centralreservation systems, and customer information systems), restaurant informationsystems (e.g., hospitality-oriented point-of-sale systems, specialized computerhardware, back office applications, and some centrally hosted applications),and specialty retail systems (e.g., retail-oriented point-of-sale systems, andloss prevention applications).  MICROSalso provides services related to its products, including, e.g., installation,training, maintenance and support, custom development, and software hosting.   Over 150,000 MICROS restaurant informationsystems are currently installed in table and quick service restaurants, hotels,motels, casinos, leisure and entertainment, and retail operations in more than130 countries, and on all seven continents.  In addition, MICROS has provided hotel information systems to more than15,000 hotels worldwide, and retail systems to more than 50,000 specialtyretail stores worldwide.  MICROSdistributes its products and services directly and through its branch andsubsidiary offices, as well as through a network of independent dealers anddistributors.

 

MICROS operates in highlycompetitive markets.  MICROS’s productsand services compete with those of numerous other third-party providers ofhardware, software, and services geared toward the hospitality and retail industries,as well as systems developed and maintained by the customers themselves.  MICROS believes that its competitivestrengths include its established global distribution and service network, itscommitment to research and development, and the breadth of its product linesand services.

Over the most recent quarter,as detailed below, MICROS experienced growth in revenue and in net income.  The increases in revenue reflected some largemajor account installations of hotel information systems and restaurant informationsystems, both in the US and internationally, improved sales of the MICROSWorkstation 4 proprietary hardware platform, and an increase in supportand installation revenues commensurate with increases in the overallcustomer base.  In addition to theCompany’s overall revenue growth, the increase in net income reflected, inpart, improved gross margins, reduction in selling, general, and administrativeexpenses as a percentage of sales, and a decrease in the Company’s consolidatedincome tax rate, offset in part by additional administrative expensesassociated with MICROS’s implementation of procedures mandated by section 404of the Sarbanes-Oxley Act.

 

Results of Operations – ThreeMonths Ended September 30, 2004 Compared to Three Months Ended September 30,2003

 

MICROSrecorded diluted net income of $0.50 per common share in the first quarter offiscal year 2005, compared with diluted net income of $0.25 per common share inthe first quarter of fiscal year 2004. As described more fully below, the increase was primarily due toincreased sales volume partly due to improved market conditions and variousroll out programs currently in progress. It was also due to the decrease in the consolidated income tax rate.

 

Ananalysis of the change in revenues is as follows ($ in thousands):

 
| ** **          | ** ** | **U.S.  Three Months Ended  September 30,** | ** ** | **International  Three Months Ended  September 30,** | ** ** |
|---------------------|------------|---------------------------------------------|------------|------------------------------------------------------|------------|
| **(in  thousands)** | ** ** | **2004**                                    | ** ** | **2003**                                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| Hardware            |       | $                                           | 23,629     |                                                 | $          | 21,247 |   | $ | 15,672 |   | $ | 12,699 |   |
| Software            |       | 10,586                                      |       | 8,848                                                |       | 12,292 |   | 8,990 |   |
| Service             |       | 35,207                                      |       | 28,441                                               |       | 32,576 |   | 26,192 |   |
| Total Revenue       |       | $                                           | 69,422     |                                                 | $          | 58,536 |   | $ | 60,540 |   | $ | 47,881 |   |

 

11

----

 

Ananalysis of the sales mix as a percentage of total revenue is as follows:

 
| ** ** | ** ** | **Three Months Ended  September 30,** | ** ** |
|------------|------------|---------------------------------------|------------|
| ** ** | ** ** | **2004**                              | ** ** | **2003** | ** ** |
| Hardware   |       | 30.2                                  | %          | 31.9 | % |
| Software   |       | 17.6                                  | %          | 16.8 | % |
| Service    |       | 52.2                                  | %          | 51.3 | % |
| Total      |       | 100.0                                 | %          | 100.0 | % |

 

TheCompany’s total revenues increased $23.5 million to $130.0 million in the firstquarter of fiscal year 2005 compared to $106.4 million in the first quarter offiscal year 2004.  Of this increase, theU.S. reporting unit accounted for $10.9 million while the internationalreporting unit accounted for $12.6 million. The increase in the U.S. was mainly due to sales from large majoraccount installations in both the point-of-sale and property management systemchannels.  The increase in theinternational reporting unit was primarily due to large installations of  3700 software.

 

Hardwarerevenues increased primarily due to the continuing increase in sales volume ofthe Workstation 4 and third party hardware. The increase in Workstation 4 was offset, to a degree, by a decrease inthe sale of PC Workstations in connection with the slow down of a majorcustomer rollout program. Software revenues increased primarily from the saleof point-of -sale and property management software products, including 3700,9700 and Opera software.  Servicerevenues increased in the three months ended September 30, 2004 primarily dueto increased support revenues and increased installation revenues from thecontinued expansion of our customer base.

 

Ananalysis of the change in cost of sales is as follows ($ in thousands):

 
| ** **          | ** ** | **Three Months Ended  September 30,** | ** ** |
|---------------------|------------|---------------------------------------|------------|
| ** **          | ** ** | **2004**                              | ** ** | **2003** | ** ** |
| Hardware            |       | $                                     | 26,211     |   | $ | 23,742 |   |
| Software            |       | 5,169                                 |       | 5,004 |   |
| Service             |       | 33,448                                |       | 25,536 |   |
| Total cost of sales |       | $                                     | 64,828     |   | $ | 54,282 |   |

 

Forthe three months ended September 30, 2004, total cost of sales, as a percentageof revenue, decreased to 49.9% from 51.0% in the prior fiscal year.  Cost of sales for hardware, as a percentageof related revenue, decreased to 66.7% in three months ended September 30, 2004compared to 69.9% for the same quarter a year earlier mainly due to theincrease in the sale of the Workstation 4, which generates higher margins.  Software costs, as a percentage of relatedrevenue, decreased to 22.6% from 28.1% in the prior year primarily due to largesales of the 9700 software product. Service costs as a percentage of related revenue increased to 49.3% comparedto 46.7% for the same quarter a year earlier, mainly due to increased labor andtravel costs associated with large hotel roll outs.

 

Selling,general and administrative expenses increased by $5.5 million or 15.5% in thethree months ended September 30, 2004, compared to the same period lastyear.  The U.S and foreign reportingunits contributed $4.7 million of this increase due to increases in salariesand related expenses.  The remaining $0.8million increase was mainly due to an increase in expenses related toSarbanes-Oxley Section 404 preparations. As a percentage of revenue, selling, general and administrative expensesdecreased slightly to 31.6% in the three months ended September 30, 2004 from33.4% in the same period last year.

 

Researchand development (“R&D”) expenses consist primarily of labor costs lesscapitalized software development costs. In the three months ended September 30, 2004, R&D expenses increased$0.5 million, or 8.7%, compared to the same period last year.  The increase was primarily due to Datavantage’sdevelopment of Xstore, which is a Java-based POS product.  As a percentage of revenue, R&D expensesdecreased to 5.2% in three months ended September 30, 2004 compared to 5.8% inthe same period last year.  Capitalizedsoftware development

 

12

----

 

costsdecreased slightly in the first quarter of fiscal year 2005 compared to thesame period last year.  A comparativesummary of R&D activities is as follows ($ in thousands):

 
| ** **             | ** ** | **Three Months Ended  September 30,** | ** ** | ** ** | ** ** |
|------------------------|------------|---------------------------------------|------------|------------|------------|
| ** **             | ** ** | **2004**                              | ** ** | **2003**   | ** ** | **$Change** | ** ** |
| Total R&D          |       | $                                     | 8,063      |       | $          | 7,582 |   | $ | 481 |   |
| R&D capitalization |       | (1,352                                | )          | (1,408     | )          | 56 |   |
| Total R&D expenses |       | $                                     | 6,711      |       | $          | 6,174 |   | $ | 537 |   |

 

Depreciationand amortization expense increased slightly by $0.1 million or 3.6% in thethree months ended September 30, 2004 compared to the same period last year.

 

Incomefrom operations for the first quarter of fiscal year 2005 was $15.0 million, or11.5% of revenue, compared to $8.1 million, or 7.6% of revenue, in the firstquarter of fiscal year 2004 mainly due to the overall increase in sales volumein all business aspects of the Company.

 

Non-operatingincome increased $0.2 million to $0.4 million in the first quarter of fiscalyear 2005 primarily due to the increase in interest income.

 

Incomebefore taxes increased $7.2 million to $15.4 million in the first quarter offiscal year 2005 compared to $8.2 million in the previous year.  The U.S. reporting unit accounted for the$5.3 million increase, and the foreign reporting unit represented $1.9 millionof the total increase.  The U.S.reporting unit increase was mainly due to increased sales volume.

 

The effectivetax rate for the first quarter of fiscal year 2005 and 2004 was 36.0% and40.5%, respectively.  The decrease was a direct result ofconsolidating functions and activities in jurisdictions where the mix ofearnings is subjected to a lower than average tax rate.  The Company estimates that the 2005 fiscalyear end tax rate to be between 36% and 36.5%.

 

**Critical Accounting Policies**

** **

The Company’s discussion and analysis of its financialcondition and results of operations are based on the consolidated financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States. The preparation of these financial statements requires the Company tomake estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses.  Onan ongoing basis, the Company evaluates its estimates, including those thatimpact 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 variousother assumptions that are believed to be reasonable under the circumstances,the results of which form the basis for making judgments about the carryingvalues of assets and liabilities that are not readily apparent from othersources.  Actual results may differ fromthese 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.

 

Revenue recognition

 

The Company recognizes revenue when persuasive evidence of anarrangement exists, delivery has occurred or the services have been provided tothe customer, the fee is fixed or determinable, and collectibility isreasonably assured.  In instances wherethe customer specifies final acceptance, revenue is deferred until allacceptance criteria are met.  The Companyreduces revenue for estimated customer returns and allowances.

 

*Hardware*

Revenue from hardware sales is recognized at the time of shipment.

 

13

----

 

*Software*

If a third party can install the software, revenue is recognized whenshipped, with an appropriate deferral for any undelivered software contractelements.  However, if the Company is thesole party that has the proprietary knowledge to install the software, revenueis recognized upon installation and when ready to go live, with an appropriatedeferral for any undelivered software contract elements.  This deferral is earned when significantobligations no longer exist.

 

*Service*

Service contract and hosting revenue is initially recorded as deferredservice revenue and is recognized on a pro rata basis over the contractterm.  Revenue for the installation ofthe product, programming and the training of customers’ staff is recognized asthe work is performed.  Revenue fromcustomer-specific development work is recognized under the completed contractmethod.

 

*Multiple-element arrangements*

The Company enters into transactions that include multiple-elementarrangements, which may include any combination of hardware, software and/orservices.  When some elements aredelivered before others in an arrangement and all of the following criteria aremet, revenue for the delivered elements is recognized upon delivery of suchitem.  Otherwise, revenue is deferreduntil the delivery of the last element.

 

•                  Vendor-specificobjective evidence (VSOE) of fair value of undelivered elements is established;

•                  Thefunctionality of delivered elements is not dependent on the undeliveredelements;

•                  Deliveryof the element(s) represents the culmination of the earning process.

 

**Allowance for doubtful accounts**

** **

The Company maintains allowances for doubtful accounts for estimatedlosses that 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 financial condition of our customers were to deteriorate,resulting in an impairment of their ability to make payments, additionalallowances may be required.

 

**Capitalized software development costs**

** **

Software development costs, for software products to be licensed toothers, incurred before 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, at which time 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.

 

**Long-livedassets**

** **

*Long-livedassets*

The Company periodically evaluates the recoverability of long-livedassets, including intangibles, whenever events and changes in circumstancesindicate that the carrying amount of an asset may not be fully recoverable.When indicators of impairment are present, the carrying values of the assetsare evaluated in relation to the operating performance and future cash flows ofthe underlying business. Impairment is measured by the amount by which fairvalues are less than book value. Fair values are based on quoted market pricesand assumptions concerning the amount and timing of estimated future cash flowsand assumed discount rates, reflecting varying degrees of perceived risk. Ifthe Company determines that any of the impairment indicators exist, and theseassets are determined to be impaired, an adjustment to write down thelong-lived assets would be charged to income in the period such determinationis made.  The Company did not recognize any impairment losses forinvestments during the first quarter of fiscal year 2005.

 

14

----

 

*Intangibleassets other than goodwill*

Identified intangible assets were valued based onmanagement’s assumptions and other considerations for estimating fair values.These intangible assets are being amortized over their respective useful livesaccording to the estimated present value of the net earning potential of eachasset category. The amortization expense related to intangible assets was $0.2in the first quarter of fiscal 2005 and in fiscal year 2004.  The Company did not recognize any impairmentloss during the three months ended September 30, 2004.

 

*Goodwill*

The Company assesses whether goodwill and trademarksare impaired on an annual basis during the first quarter of its fiscal year.Upon determining the existence of goodwill and/or trademark impairment, theCompany measures that impairment based on the amount by which the book value ofgoodwill and/or trademarks exceeds its fair value.  The implied fair valueof goodwill is determined by deducting the fair value of a reporting unit’sidentifiable assets and liabilities from the fair value of the reporting unitas a whole, as if that reporting unit had just been acquired and the purchaseprice were being initially allocated.  Additional impairment assessments maybe performed on an interim basis if the Company encounters events of changes incircumstances that would indicate that, more likely than not, the book value ofgoodwill and/or trademarks has been impaired.

 

The process of evaluating the potential impairment ofgoodwill and/or trademark is highly subjective and requires significantjudgment at many points during the analysis. In estimating the fair value of the reporting units with recognizedgoodwill for the purposes of our annual or periodic analyses, the Company makesestimates and judgments about the future cash flows of these businesses.  The cash flow forecasts are based onassumptions that are consistent with the plans and estimates used to manage theunderlying reporting units. MICROS also considers its market capitalization(adjusted for unallocated monetary assets such as cash, marketable debtsecurities and debt) on the date the analysis is performed.

 

The Company completed the first step of its annualimpairment analysis in the first quarter of fiscal year 2005.  As the estimated fair value of the U.S. andinternational reporting units exceed the carrying values, the Company concludedthere was no impairment of goodwill or trademarks.  As of September 30, 2004, the net book valueof goodwill and trademarks for the U.S. and international reporting units was$59.9 million and $10.9 million, respectively.

 

**Income taxes**

 

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 not beable 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.

 

**Foreign currency translation**

 

The financial statements of the Company’s non-U.S. operations aretranslated 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 translatedat the quarter-end exchange rates, while revenues and expenses are translatedat month-end exchange rates during the fiscal year.  The cumulative translation effects arereflected in shareholders’ equity.  Gainsand losses on monetary transactions denominated in other than the functionalcurrency of an operation are reflected in other income (expense).

 

**Liquidity and Capital Resources**

 

On July 17, 2003, the Company (and its subsidiaries) entered into twonew credit agreements (the “Credit Agreements”) which in the aggregate offer a$65.0 million multi-currency committed line of credit, expiring on July

 

15

----

 

31, 2005.  The lenders (the “Lenders”)under the Credit Agreements are Bank of America, N.A., Wachovia Bank, N. A.,and US Bank.  Simultaneously uponentering into the Credit Agreements, the Company entered into: (i) a securityagreement, pursuant to which the Lenders were granted a security interest inall inventory and receivables located in the United States; and (ii) a pledgeagreement and irrevocable stock powers, pursuant to which the Company pledgesthe stock of certain of its subsidiaries to the Lenders as collateral.

 

The interest rate under the Credit Agreements is calculated as follows:(i) if the advance is made in U.S. dollars, the greater of the federal fundsrate, plus 50 basis points, or the Bank of America prime rate, plus anadditional 25 to 150 basis points, depending upon the Company’s consolidatedearnings before interest, taxes, depreciation and amortization (“EBITDA”) forthe immediately preceding four calendar quarters; and (ii) if the advance ismade in a foreign currency, the LIBOR rate for the applicable denominatedcurrency, plus an additional 150 to 250 basis points, depending upon theCompany’s consolidated EBITDA for the immediately preceding four calendarquarters. The Credit Agreements also require that the Company pay immaterialcommitment fees on the unused portion of the line of credit to the Lenders.

 

The Credit Agreements contain certain financial covenants andrestrictions on the Company’s ability to assume additional debt and pay cashdividends.  The Company has not been indefault under the Credit Agreement or requested a waiver from the Lenders withrespect to any provision thereof.

 

The Company also has a credit relationship with a European bank in theamount of EUR 1.0 million (approximately $1.2 million at the September 30, 2004exchange rate).  Under the terms of thisfacility, the Company may borrow in the form of either a line of credit or termdebt.  As the Company has significantinternational operations, its Euro-denominated borrowings do not represent asignificant foreign exchange risk.  On anoverall basis, the Company monitors its cash and debt positions in eachcurrency in an effort to reduce its foreign exchange risk.

 

As of September 30, 2004, the total outstanding balance on the lines ofcredit is $2.5 million consisting of: ZAR (South African Rand) 4.0 million(approximately $0.6 million at the September 30, 2004 exchange rate), SEK(Swedish Krona) 7.5 million (approximately $1.1 million at the September 30,2004 exchange rate), and JPY (Japanese Yen) 90.0 million (approximately $0.8million at the September 30, 2004 exchange rate).  As of September 30, 2004, the Company hasapproximately $63.7 million of borrowing capacity under the credit agreementsand Euro-denominated Facility.

 

Net cash provided by operating activities for the first quarter offiscal year 2005 was $15.3 million versus net cash provided by operatingactivities of $11.0 million for fiscal year 2004. ** ** The Company used $4.0 million for investingactivities for the purchase of property, plant, and equipment and internallydeveloped software. ** **The Company used $3.6 million forfinancing activities, consisting primarily of proceeds from the issuance ofstock of $4.4 million offset by $7.9 million in the repurchase of the Company’sstock.  All cash is being held for theoperation and expansion of the business and the repurchase of the Company’sstock.

** **

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 property, plant and equipment expenditures for fiscal year2005 will be approximately $2.0 million higher than in fiscal year 2004.

 

**Summary**

** **

In light of currentmarket conditions, and world political instability, it is difficult todetermine whether the Company can continue to enjoy revenue and profitabilitygrowth in the next year.  Accordingly,there can be no assurance that any particular level of growth is reasonable orcan be achieved.  In addition, due to thecompetitive nature of the market, the Company continues to experience grossmargin pressure on its products and service offerings, and the Company expectsproduct and service margins to decline. There can be no assurance that the Company will be able to increasesufficiently sales of its higher margin products, including software, toprevent future declines in the Company’s overall gross margin.

 

Moreover, MICROS’s financial results in any single quarter aredependent upon the timing and size of customer orders and the shipment ofproducts for large orders.  Largesoftware orders from customers may account for more

 

16

----

 

than an insignificant portion of earnings in any quarter.  The customers with whom MICROS does thelargest amount of business are expected to vary from year to year as a resultof 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 oraccelerated, revenues expected in a given quarter may be deferred or acceleratedinto subsequent 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 and retail industries.  Inaddition, conditions in the stock market in general and shares of technologycompanies in particular have experienced significant price and volumefluctuations which have at times been unrelated to the operating performance ofcompanies.

 

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 Securities Act of 1933, as amended, that involverisks and uncertainties.  Pastperformance is not necessarily a strong or reliable indicator of futureperformance.  Actual results could differmaterially from past results, estimates or projections.  Some of the additional risks anduncertainties are: political and world instability created by the threat ofsubsequent terrorist attacks, which gravely impacts the travel and tourismindustries; product demand and market acceptance, including demand andacceptance for the new OPERA products; implementation of a cost-effectiveservice structure capable of servicing increasingly complex software systems inincreasingly more remote locations; achieving increased sales of higher marginsoftware products; risks and uncertainties associated with the Company’s recentacquisition of Datavantage; hiring and retention of qualified employees withsufficient technical expertise; unexpected currency fluctuations; impact ofcompetitive products and pricing on margins; product development delays;technological difficulties associated with new product releases; and managingexpenses, including those over which the Company exercises little or nocontrol, such as health care costs. 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, 2004.

 

Item 3.  Quantitative and Qualitative Disclosuresabout 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, has adverselyimpacted the financial performance of the Company.  Strength in the Euro has helped to bolstersales and profitability in Europe; any subsequent decline will adversely impactyear over year growth comparisons.

 

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 invested infinancial 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 toinstability in the Middle East and the worldwide threat of terrorism,especially in developing countries with uncertain or unstable politicalstructures or regimes.  Contributing tothis risk factor is the adverse impact that political instability has on thetravel and tourism industries. The Company is also subject to the effects of,and changes in, laws and regulations, other activities of governments, agenciesand similar organizations.

 

17

----

 

Item4.  Controls and Procedures

 

As of the end ofthe period covered by this quarterly report, the Company has conducted anevaluation of the effectiveness of the design and operation of the Company’s “DisclosureControls and Procedures” (as defined in Rules 13a-15 and 15d-15 under theSecurities Exchange Act of 1934).  Thisevaluation was carried out under the supervision of the Company’s management,including A.L. Giannopoulos, MICROS’s Chairman, Chief Executive Officer andPresident, and Gary C. Kaufman, MICROS’s Executive Vice President and Chief FinancialOfficer. Disclosure Controls and Procedures are designed with the objective ofensuring that information required to be disclosed in the reports MICROS filesor submits under the Securities Exchange Act of 1934 (Exchange Act), such asthis quarterly report, is recorded, processed, summarized and reported withinthe time periods specified in the SEC’s rules and forms. Disclosure Controlsand Procedures are also designed with the objective of ensuring that suchinformation is accumulated and communicated to management, including the ChiefExecutive Officer and Chief Financial Officer, to allow timely decisionsregarding required disclosure.

 

The Companydoes not expect that its Disclosure Controls and Procedures will prevent allerrors and all fraud. Despite its level of sophistication, detail andthoroughness, 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.

 

The evaluationof MICROS’s Disclosure Controls and Procedures included a review of the controls’objectives and design, and the controls’ implementation and operationalprocedures. 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. Oncethe information is collected, the Company evaluated how the information isanalyzed for purposes of determining if, how, when and where to disclose suchinformation. Finally, MICROS analyzed the forms and guidelines it has developedinternally that are disseminated to all operations, and are required to beresubmitted to the finance operation. These forms and documents are designed toelicit pertinent financial and non-financial information from the operations ona worldwide basis.

 

MICROS hasevaluated and will continue periodically to evaluate its Disclosure Controlsand Procedures.  Based on its most recentevaluations, MICROS has concluded that, as of the end of the period covered bythis quarterly report, its Disclosure Controls and Procedures currently inplace are effective at such reasonable assurance level that materialinformation relating to MICROS would be made known to the Chairman, Presidentand Chief Executive Officer, and the Executive Vice President and ChiefFinancial Officer on a timely basis.

 

18

----

 

MICROS SYSTEMS, INC. AND SUBSIDIARIES

Form 10-Q

For the Quarter Ended September 30, 2004

 

Part II - Other Information

 

Item1.             LegalProceedings

 

MICROS is and has been involved inlegal proceedings arising in the normal course of business.  The Company is of the opinion, based uponpresently available information and the advice of counsel concerning pertinentlegal matters, that any resulting liability should not have a material adverseeffect on the Company’s results of operations or financial position.

 

Item 2.             Changesin Securities, Use of Proceeds and Issuer Purchase of Equity Securities

 

Issuer Purchases of Equity Securities (1)

 
| ** **                  | ** ** | **Total Number  of Shares  Purchased** | ** ** | **Average  Purchase  Price** | ** ** | **Total Number of  Shares Purchased  as Part of Publicly  Announced Plans  or Programs** | ** ** | **Maximum Number  of Shares that May  Yet be Purchased  Under the Plans or  Programs** | ** ** |
|-----------------------------|------------|----------------------------------------|------------|------------------------------|------------|------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| July 1 – 31, 2004      |       | 55,316                                 |       | $                            | 45.14      |                                                                                     | 55,316     |                                                                                   | 144,953    |   |
| August 1 – 31, 2004    |       | 58,377                                 |       | $                            | 46.15      |                                                                                     | 58,377     |                                                                                   | 86,576     |   |
| September 1 – 30, 2004 |       | 53,631                                 |       | $                            | 50.23      |                                                                                     | 53,631     |                                                                                   | 32,945     |   |
| Total                       |       | 167,324                                |       | $                            | 47.12      |                                                                                     | 167,324    |                                                                                   | 32,945     |   |

 

----

(1)In fiscal year 2002, the Board of Directors of the Company authorized thepurchase of up to one million shares of the Company’s common stock.  As of September 30, 2004, the Company haspurchased 967,055 shares in the open market.

 

Items3   (Defaults Upon Senior Securities), 4(Submission of Matters to a Vote of Security Holders) and 5 (Other Information)

 

No events occurredduring the quarter covered by the report that would require a response to anyof these items.

 

Item 6.             Exhibits and Reportson Form 8-K

 

(a)          Exhibits

 

31.1 Certification by CEO pursuant to Rule 13A-14 or 15D of theSecurities Exchange Act of 1934, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

 

31.2 Certification by CFO pursuant to Rule 13A-14 or 15D of theSecurities Exchange Act of 1934, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

 

32.1 Certification by CEO pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2 Certification by CFO pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

19

----

 

(b)         Reportson Form 8-K

 

Report on Form 8-K was filed on August 26,2004, regarding the release of financial results for the fiscal year ended June30, 2004.

 

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)                             |   |
|              |                                     |
| November 9,  2004 |                                     | /s/    | Gary C.  Kaufman |   |
|              | Gary C.  Kaufman                         |
|              | Executive  Vice President,               |
|              | Finance and  Administration/             |
|              | Chief  Financial Officer                 |
|              |                                     |
|              |                                     |
| November 9,  2004 |                                     | /s/    | Cynthia A.  Russo |   |
|              | Cynthia A.  Russo                        |
|              | Vice  President and Corporate Controller |
|                   |                                          |        |  |  |  |  |  |

 

20

----