----

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

**FORM 10-Q**

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

**For the quarterly period ended December 31, 2006 Commission file number0-9993**

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

| **MARYLAND**                                          |   | **52-1101488**                              |
|-------------------------------------------------------|--------|---------------------------------------------|
|                                                       |   |                                             |
| *(State   of incorporation)*                          |   | *(I.R.S.   Employer Identification Number)* |
|                                                  |   |                                        |
| **7031 Columbia Gateway Drive,   Columbia, Maryland** |   | **21046-2289**                              |
|                                                       |   |                                             |
| *(Address   of principal executive offices)*          |   | *(Zip   code)*                              |

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

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

| YES  x | NO  o |
|------------------|-----------------|

Indicate by check mark whether the Registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of theExchange Act.

|   | Large accelerated filer  x | Accelerated filer  o | Non-accelerated filer  o |
|--------|--------------------------------------|--------------------------------|------------------------------------|

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

| YES  o | NO  x |
|------------------|-----------------|

As of January 31, 2007, there were issued and outstanding 40,613,972 shares ofRegistrant’s Common Stock, at $0.0125 par value.

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MICROS SYSTEMS, INC. AND SUBSIDIARIES

**Form 10-Q**For the three months and six months ended December 31,2006

**PART I – FINANCIAL INFORMATION**

**ITEM 1.          FINANCIALSTATEMENTS**

2

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

|                                                                                                                                          |   | **Dec. 31,   2006** |    | **June 30,   2006** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|---------------------|--------|
|                                                                                                                                          |   |                     |         |                |        |  |   |
| ASSETS                                                                                                                                        |   |                |    |                |   |   |   |
| Current Assets:                                                                                                                               |   |                |    |                |   |   |   |
| Cash   and cash equivalents                                                                                                                   |   | $                   | 285,289 |                | $      | 237,222 |   |
| Accounts receivable, net of allowance for doubtful accounts of $22,615 atDecember 31, 2006 and $20,335 at June 30, 2006                       |   |                | 148,629 |                |   | 141,159 |   |
| Inventory,   net                                                                                                                              |   |                | 47,144  |                |   | 46,637 |   |
| Deferred   income taxes                                                                                                                       |   |                | 22,226  |                |   | 16,649 |   |
| Prepaid   expenses and other current assets                                                                                                   |   |                | 35,074  |                |   | 15,485 |   |
|                                                                                                                                          |   |                     |         |                |        |  |   |
| Total   current assets                                                                                                                        |   |                | 538,362 |                |   | 457,152 |   |
| Property, plant and equipment, net of accumulated depreciation and amortizationof $71,063 at December 31, 2006 and $65,582 at June 30, 2006   |   |                | 24,743  |                |   | 23,794 |   |
| Deferred income taxes,   non-current                                                                                                          |   |                | 17,644  |                |   | 16,192 |   |
| Goodwill                                                                                                                                      |   |                | 107,020 |                |   | 98,581 |   |
| Intangible assets, net of accumulated amortization of $3,309 at December 31,2006 and $2,592 at June 30, 2006                                  |   |                | 11,457  |                |   | 10,427 |   |
| Purchased and internally developed software costs, net of accumulatedamortization of $47,722 at December 31, 2006 and $43,267 at June 30,2006 |   |                | 36,004  |                |   | 38,328 |   |
| Other assets                                                                                                                                  |   |                | 4,031   |                |   | 3,383 |   |
|                                                                                                                                          |   |                     |         |                |        |  |   |
| Total assets                                                                                                                                  |   | $                   | 739,261 |                | $      | 647,857 |   |
|                                                                                                                                          |   |                     |         |                |        |  |   |
| LIABILITIES AND SHAREHOLDERS’   EQUITY                                                                                                   |   |                |    |                |   |   |   |
| Current Liabilities:                                                                                                                          |   |                |    |                |   |   |   |
| Bank   lines of credit                                                                                                                        |   | $                   | 3,507   |                | $      | 2,134 |   |
| Accounts   payable                                                                                                                            |   |                | 37,227  |                |   | 36,022 |   |
| Accrued   expenses and other current liabilities                                                                                              |   |                | 93,997  |                |   | 84,897 |   |
| Current   portion of capital lease obligations                                                                                                |   |                | 124     |                |   | 89 |   |
| Income   taxes payable                                                                                                                        |   |                | 12,741  |                |   | 12,416 |   |
| Deferred   income taxes                                                                                                                       |   |                | 265     |                |   | 227 |   |
| Deferred   service revenue                                                                                                                    |   |                | 62,740  |                |   | 68,246 |   |
|                                                                                                                                          |   |                     |         |                |        |  |   |
| Total   current liabilities                                                                                                                   |   |                | 210,601 |                |   | 204,031 |   |
| Capital lease obligations,   net of current portion                                                                                           |   |                | 408     |                |   | 424 |   |
| Deferred income taxes,   non-current                                                                                                          |   |                | 16,750  |                |   | 14,998 |   |
| Other non-current   liabilities                                                                                                               |   |                | 9,093   |                |   | 8,146 |   |
| Minority interests                                                                                                                            |   |                | 3,795   |                |   | 3,142 |   |
| Commitments and   contingencies                                                                                                               |   |                |    |                |   |   |   |
| Shareholders’ Equity:                                                                                                                    |   |                |    |                |   |   |   |
| Common stock, $0.0125 par value; authorized 50,000 shares; issued andoutstanding 40,293 at December 31, 2006 and 38,980 at June 30, 2006      |   |                | 504     |                |   | 487 |   |
| Capital   in excess of par                                                                                                                    |   |                | 141,522 |                |   | 100,723 |   |
| Retained   earnings                                                                                                                           |   |                | 335,976 |                |   | 302,848 |   |
| Accumulated   other comprehensive income                                                                                                      |   |                | 20,612  |                |   | 13,058 |   |
|                                                                                                                                          |   |                     |         |                |        |  |   |
| Total   shareholders’ equity                                                                                                             |   |                | 498,614 |                |   | 417,116 |   |
|                                                                                                                                          |   |                     |         |                |        |  |   |
| Total liabilities and   shareholders’ equity                                                                                             |   | $                   | 739,261 |                | $      | 647,857 |   |
|                                                                                                                                          |   |                     |         |                |        |  |   |

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

3

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

|                                                                               |   | **Three   Months Ended   December 31,** |    | **Six Months   Ended   December 31,** |   |
|------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|---------------------------------------|--------|
|                                                                               |   |                                         |    |                                       |   |
|                                                                               |   | **2006**                                |    | **2005**                              |   | **2006** |   | **2005** |   |
|                                                                               |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
| Revenue:                                                                           |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Hardware                                                                           |   | $                                       | 55,460  |                                  | $      | 52,445 |   | $ | 109,603 |   | $ | 96,498 |   |
| Software                                                                           |   |                                    | 32,752  |                                  |   | 28,378 |   |   | 60,508 |   |   | 56,257 |   |
| Service                                                                            |   |                                    | 101,663 |                                  |   | 83,156 |   |   | 193,466 |   |   | 163,228 |   |
|                                                                               |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
| Total   revenue                                                                    |   |                                    | 189,875 |                                  |   | 163,979 |   |   | 363,577 |   |   | 315,983 |   |
|                                                                               |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
| Cost of sales:                                                                     |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Hardware                                                                           |   |                                    | 36,270  |                                  |   | 35,555 |   |   | 70,236 |   |   | 65,137 |   |
| Software                                                                           |   |                                    | 6,635   |                                  |   | 6,606 |   |   | 13,996 |   |   | 12,407 |   |
| Service                                                                            |   |                                    | 48,116  |                                  |   | 39,746 |   |   | 91,822 |   |   | 78,206 |   |
|                                                                               |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
| Total   cost of sales                                                              |   |                                    | 91,021  |                                  |   | 81,907 |   |   | 176,054 |   |   | 155,750 |   |
|                                                                               |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
| Gross   margin                                                                     |   |                                    | 98,854  |                                  |   | 82,072 |   |   | 187,523 |   |   | 160,233 |   |
| Selling, general and   administrative expenses                                     |   |                                    | 62,445  |                                  |   | 52,454 |   |   | 120,726 |   |   | 103,688 |   |
| Research and development   expenses                                                |   |                                    | 7,975   |                                  |   | 6,378 |   |   | 14,891 |   |   | 12,757 |   |
| Depreciation and   amortization                                                    |   |                                    | 3,338   |                                  |   | 2,610 |   |   | 6,161 |   |   | 5,107 |   |
|                                                                               |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
| Total   operating expenses                                                         |   |                                    | 73,758  |                                  |   | 61,442 |   |   | 141,778 |   |   | 121,552 |   |
|                                                                               |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
| Income from operations                                                             |   |                                    | 25,096  |                                  |   | 20,630 |   |   | 45,745 |   |   | 38,681 |   |
| Non-operating income   (expense):                                                  |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Interest   income                                                                  |   |                                    | 2,634   |                                  |   | 1,162 |   |   | 4,831 |   |   | 1,987 |   |
| Interest   expense                                                                 |   |                                    | (95     | )                                     |   | (13 | ) |   | (190 | ) |   | (75 | ) |
| Other   expense, net                                                               |   |                                    | (144    | )                                     |   | (329 | ) |   | (16 | ) |   | (735 | ) |
|                                                                               |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
| Total   non-operating income, net                                                  |   |                                    | 2,395   |                                  |   | 820 |   |   | 4,625 |   |   | 1,177 |   |
|                                                                               |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
| Income before taxes,   minority interests and equity in net earnings of affiliates |   |                                    | 27,491  |                                  |   | 21,450 |   |   | 50,370 |   |   | 39,858 |   |
| Income tax provision                                                               |   |                                    | 9,072   |                                  |   | 6,971 |   |   | 16,737 |   |   | 12,954 |   |
|                                                                               |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
| Income before minority interests   and equity in net earnings of affiliates        |   |                                    | 18,419  |                                  |   | 14,479 |   |   | 33,633 |   |   | 26,904 |   |
| Minority interests and   equity in net earnings of affiliates                      |   |                                    | (401    | )                                     |   | (275 | ) |   | (505 | ) |   | (348 | ) |
|                                                                               |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
| Net income                                                                         |   | $                                       | 18,018  |                                  | $      | 14,204 |   | $ | 33,128 |   | $ | 26,556 |   |
|                                                                               |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
| Net income per common   share:                                                     |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Basic                                                                              |   | $                                       | 0.45    |                                  | $      | 0.37 |   | $ | 0.84 |   | $ | 0.69 |   |
| Diluted                                                                            |   | $                                       | 0.44    |                                  | $      | 0.35 |   | $ | 0.81 |   | $ | 0.65 |   |
| Weighted-average number of   shares outstanding:                                   |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Basic                                                                              |   |                                    | 39,826  |                                  |   | 38,718 |   |   | 39,420 |   |   | 38,474 |   |
| Diluted                                                                            |   |                                    | 41,225  |                                  |   | 40,798 |   |   | 40,949 |   |   | 40,604 |   |

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

4

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

|                                                           |   | **Six Months   Ended   December 31,** |               |
|----------------------------------------------------------------|--------|---------------------------------------|--------------------|
|                                                           |   |                                       |               |
|                                                           |   | **2006**                              |               | **2005** |   |
|                                                           |   |                                       |                    |   |  |  |   |
| Net cash flows provided by   operating activities              |   | $                                     | 27,314             |   | $ | 30,148 |   |
| Cash flows from investing   activities:                        |   |                                  |               |   |   |   |   |
| Purchases   of property, plant and equipment                   |   |                                  | (6,241             | ) |   | (5,324 | ) |
| Cash   paid for acquisitions, net of cash acquired             |   |                                  | (5,512             | ) |   | —   |   |
| Internally   developed software                                |   |                                  | (858               | ) |   | (2,320 | ) |
| Purchases   of other intangible assets                         |   |                                  | —   |   |   | (575 | ) |
| Disposal   of property, plant and equipment                    |   |                                  | 238                |   |   | 46 |   |
|                                                           |   |                                       |                    |   |  |  |   |
| Net   cash flows used in investing activities                  |   |                                  | (12,373            | ) |   | (8,173 | ) |
|                                                           |   |                                       |                    |   |  |  |   |
| Cash flows from financing   activities:                        |   |                                  |               |   |   |   |   |
| Proceeds   from stock option exercises                         |   |                                  | 24,240             |   |   | 10,829 |   |
| Realized   tax benefits from stock option exercises            |   |                                  | 12,659             |   |   | 8,398 |   |
| Repurchases   of stock                                         |   |                                  | (2,395             | ) |   | (26,203 | ) |
| Principal   payments on lines of credit                        |   |                                  | (2,483             | ) |   | (628 | ) |
| Dividends   to minority owners                                 |   |                                  | (277               | ) |   | (262 | ) |
| Proceeds   from lines of credit                                |   |                                  | 1,650              |   |   | —   |   |
| Net   decrease in capital lease obligations                    |   |                                  | (41                | ) |   | (3 | ) |
|                                                           |   |                                       |                    |   |  |  |   |
| Net   cash flows provided by (used in) financing activities    |   |                                  | 33,353             |   |   | (7,869 | ) |
|                                                           |   |                                       |                    |   |  |  |   |
| Effect of exchange rate   changes on cash and cash equivalents |   |                                  | (227               | ) |   | 1 |   |
|                                                           |   |                                       |                    |   |  |  |   |
| Net increase in cash and   cash equivalents                    |   |                                  | 48,067             |   |   | 14,107 |   |
| Cash and cash equivalents   at beginning of period             |   |                                  | 237,222            |   |   | 153,521 |   |
|                                                           |   |                                       |                    |   |  |  |   |
| Cash and cash equivalents   at end of period                   |   | $                                     | 285,289            |   | $ | 167,628 |   |
|                                                           |   |                                       |                    |   |  |  |   |

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

5

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MICROS SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (Unaudited, inthousands)

|                                        |   | **Common   Stock** |               | **Capital   in Excess   of Par** |   | **Retained   Earnings** |   | **Accumulated   Other   Comprehensive   Income** |               | **Total** |   |
|---------------------------------------------|--------|--------------------|--------------------|----------------------------------|--------|-------------------------|--------|--------------------------------------------------|--------------------|-----------|--------|
|                                        |   |                    |               |                             |   |                    |   |
|                                        |   | **Shares**         |               | **Amount**                       |   |                    |   |                                             |               |
|                                        |   |                    |                    |                             |        |                         |   |                                                  |                    |      |        |  |   |  |  |   |  |  |   |
| Balance, June 30, 2006                      |   |               | 38,980             |                             | $      | 487                     |   | $                                                | 100,723            |      | $      | 302,848 |   | $ | 13,058 |   | $ | 417,116 |   |
| Comprehensive income:                       |   |               |               |                             |   |                    |   |                                             |               |      |   |   |   |   |   |   |   |   |   |
| Net   income                                |   |               | —   |                             |   | —        |   |                                             | —   |      |   | 33,128 |   |   | —   |   |   | 33,128 |   |
| Foreign   currency translation adjustments  |   |               | —   |                             |   | —        |   |                                             | —   |      |   | —   |   |   | 7,554 |   |   | 7,554 |   |
|                                        |   |               |               |                             |   |                    |   |                                             |               |      |   |   |   |   |   |   |  |  |   |
| Total   comprehensive income                |   |               |               |                             |   |                    |   |                                             |               |      |   |   |   |   |   |   |   | 40,682 |   |
| Share-based compensation                    |   |               | —   |                             |   | —        |   |                                             | 5,510              |      |   | —   |   |   | —   |   |   | 5,510 |   |
| Stock issued upon exercise   of options     |   |               | 1,375              |                             |   | 18                      |   |                                             | 24,222             |      |   | —   |   |   | —   |   |   | 24,240 |   |
| Repurchases of stock                        |   |               | (62                | )                                |   | (1                      | )      |                                             | (2,394             | )         |   | —   |   |   | —   |   |   | (2,395 | ) |
| Income tax benefit from   options exercised |   |               | —   |                             |   | —        |   |                                             | 13,461             |      |   | —   |   |   | —   |   |   | 13,461 |   |
|                                        |   |                    |                    |                             |        |                         |   |                                                  |                    |      |        |  |   |  |  |   |  |  |   |
| Balance, December 31, 2006                  |   |               | 40,293             |                             | $      | 504                     |   | $                                                | 141,522            |      | $      | 335,976 |   | $ | 20,612 |   | $ | 498,614 |   |
|                                        |   |                    |                    |                             |        |                         |   |                                                  |                    |      |        |  |   |  |  |   |  |  |   |

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

6

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MICROS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSFor the three months and six months ended December 31, 2006(unaudited)

1.       Basis of presentation

          The accompanyingcondensed consolidated financial statements of MICROS Systems, Inc. and itssubsidiaries (collectively, the “Company”) have been prepared by theCompany pursuant to the rules and regulations of the Securities and ExchangeCommission (“SEC”).  This Quarterly Report on Form 10-Q should beread in conjunction with the Company’s Annual Report on Form 10-K for theyear ended June 30, 2006.

          Certain informationand footnote disclosures that are normally included in financial statementsprepared in accordance with generally accepted accounting principles have beencondensed or omitted as permitted by SEC rules and regulations.  Thecondensed consolidated financial statements included in this report reflect allnormal and recurring adjustments that, in the opinion of management, arenecessary for a fair statement of the financial position of the Company, itsresults of operations and cash flows for the interim periods set forthherein.  The results for the three and six months ended December 31, 2006are not necessarily indicative of the results to be expected for the full yearor any future periods.

2.        Acquisitions

           During the sixmonths ended December 31, 2006, the Company acquired certain assets, and full orcontrolling interests in various distributors of MICROS products and servicesand two other companies with complementary products and services.  Theaggregate cash purchase price for these acquisitions was approximately $9.0million, which includes certain amounts that were held back to be released oneither an agreed upon date or upon the resolution of a contractual indemnityobligation of the sellers.  The assets acquired included approximately $1.2million in cash.  The aggregate goodwill for these acquisitions wasapproximately $8.6 million.  The pro forma effect on operating results dueto these acquisitions was not material to the financial statements presentedherein.

3.        Share-based compensation

          The Company hasincentive and non-qualified stock options outstanding that were granted todirectors, officers, and other employees pursuant to authorization by the Boardof Directors.  Currently, options are not granted to directors who are notemployees of or consultants to the Company.  The exercise price per shareof each option equals the market value of a share of the Company’s commonstock on the date of the grant.  Substantially all of the options grantedare exercisable pursuant to a three-year vesting schedule whereby one-third ofthe options vest upon the first anniversary of the grant, the second third ofthe options vest upon the second anniversary of the grant, and the final thirdof the options vest upon the third anniversary of the grant.   All outstanding options expire ten years from the date of grant.  TheCompany has authorized approximately 16.4 million shares for issuance uponexercise of options granted, of which approximately 1.8 million shares wereavailable for future grants as of December 31, 2006.  As of December 31,2006, options to purchase approximately 3.9 million shares were outstanding,including currently exercisable options to purchase approximately 2.5 millionshares.

          The Company accountsfor its option awards in accordance with Statement of Financial AccountingStandards (“SFAS”) No. 123(R), “Share-Based Payment.” The fair value of awards granted under the stock option program are measured,and non-cash share-based compensation expense, adjusted for expected pre-vestingforfeitures, are recognized ratably over the requisite service period of optionsin the consolidated statements of operations.  In addition, non-cashshare-based compensation expense is recognized for the non-vested portion ofawards that were granted before the effective date of SFAS No. 123(R) as thoseoptions become vested.  The non-cash share-based compensation expenses, netof tax, reduced the diluted earnings per share by $0.05 and $0.04 for the threemonths ended December 31, 2006 and 2005, respectively, and by $0.11 and $0.07for the six months ended December 31, 2006 and 2005, respectively.

7

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          The non-cashshare-based compensation expenses included in the condensed consolidatedstatements of operations are as follows:

|                                        |   | **Three   Months Ended   December 31,** |   | **Six Months   Ended   December 31,** |   |
|---------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                        |   |                                         |   |                                       |   |
| **(in thousands)**                          |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
|                                             |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
| Selling, general and   administrative       |   | $                                       | 2,578  |                                  | $      | 2,155 |   | $ | 5,270 |   | $ | 4,030 |   |
| Research and development                    |   |                                    | 117    |                                  |   | 32 |   |   | 240 |   |   | 70 |   |
|                                        |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
| Non-cash share-based   compensation expense |   | $                                       | 2,695  |                                  | $      | 2,187 |   | $ | 5,510 |   | $ | 4,100 |   |
|                                        |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |

          No compensationexpense was capitalized for the three and six months ended December 31, 2006 and2005 because no stock options had been granted to employees whose labor costswere capitalized as software development costs.

          The Company valuesstock options using the Black-Scholes option-pricing model, which was developedfor use in estimating the fair value of traded options that are fullytransferable and have no vesting restrictions.  In determining the expectedterm, the Company separates groups of employees that have historically exhibitedsimilar behavior with regard to option exercises and post-vestingcancellations.  The option-pricing model requires the input of highlysubjective assumptions, including assumptions about volatility rates, expectedterm of options, and applicable interest rates.  

          Expected volatilityis based on historical stock prices. The expected term of options granted isbased on historical data, adjusted for the remaining option life cycle byassuming ratable exercise of any unexercised vested options over the remainingterm. The risk-free interest rate is based on the U.S. Treasury yield curve ineffect at the time of grant.  The total expense to be recorded in futureperiods will depend on several variables, including the number of share-basedawards that vest, pre-vesting cancellations and the fair value of those vestedawards. 

          The fair values ofoptions granted during the three and six months ended December 31, 2006 and 2005were estimated on the date of grant using the following assumptions:

|                                   |   | **Three   Months Ended   December 31,** |                   | **Six Months   Ended   December 31,** |   |
|----------------------------------------|--------|-----------------------------------------|------------------------|---------------------------------------|--------|
|                                   |   |                                         |                   |                                       |   |
|                                   |   | **2006**                                |                   | **2005**                              |   | **2006** |   | **2005** |   |
|                                   |   |                                         |                        |                                  |        |  |   |  |  |   |  |  |   |
| Weighted-average expected   volatility |   |                                    | 38                     | %                                     |   | 45 | % |   | 38 | % |   | 44 | % |
| Expected volatility                    |   |                                    | 36%   - 38             | %                                     |   | 36%   - 46 | % |   | 36%   - 38 | % |   | 34%   - 46 | % |
| Expected term                          |   |                                    | 4.7   – 5.7 years |                                  |   | 4.7–5.7   years |   |   | 4.7   – 5.7 years |   |   | 4.0   - 5.7 years |   |
| Expected dividend yield                |   |                                    | 0                      | %                                     |   | 0 | % |   | 0 | % |   | 0 | % |
| Risk-free interest rate                |   |                                    | 4.5%   - 4.6           | %                                     |   | 4.3%   - 4.4 | % |   | 4.5%   - 4.7 | % |   | 3.9%   - 4.4 | % |

          The following is asummary of option activity:

| **(in thousands, except per share data and number of years)** |   | **Number of    Shares** |   | **Weighted-   Average   Exercise   Price** |   | **Weighted-   Average   Remaining   Contractual   Term   (in years)** |   | **Aggregate   Intrinsic Value** |   |
|---------------------------------------------------------------|--------|-------------------------|--------|--------------------------------------------|--------|-----------------------------------------------------------------------|--------|---------------------------------|--------|
|                                                               |   |                         |        |                                       |        |                                                                       |   |                                 |        |   |  |  |   |
| Outstanding at June 30,   2006                                |   |                    | 4,810  |                                       | $      | 25.34                                                                 |   |                            |   |   |   |   |   |
| Granted                                                       |   |                    | 487    |                                       | $      | 51.33                                                                 |   |                            |   |   |   |   |   |
| Exercised                                                     |   |                    | (1,375 | )                                          | $      | 17.62                                                                 |   |                            |   |   |   |   |   |
| Forfeited   or expired                                        |   |                    | (15    | )                                          | $      | 45.81                                                                 |   |                            |   |   |   |   |   |
|                                                          |   |                         |        |                                       |   |                                                                  |   |                            |   |   |   |   |   |
| Outstanding at December 31,   2006                            |   |                    | 3,907  |                                       | $      | 31.22                                                                 |   |                            | 6.9    |   | $ | 83,912 |   |
|                                                          |   |                         |        |                                       |   |                                                                  |   |                            |   |   |   |   |   |
| Exercisable at December 31,   2006                            |   |                    | 2,487  |                                       | $      | 23.08                                                                 |   |                            | 5.7    |   | $ | 73,648 |   |
|                                                          |   |                         |        |                                       |   |                                                                  |   |                            |   |   |   |   |   |

8

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          The weighted-averagegrant-date fair value per share of options granted during the six months endedDecember 31, 2006 and 2005 was $21.96 and $22.08, respectively.  The totalintrinsic value, the difference between the exercise price and the market priceon the date of exercise, of options exercised during the six months endedDecember 31, 2006 and 2005 was approximately $43.9 million and $23.3 million,respectively.

          As of December 31,2006, there were approximately $25.8 million in non-cash share-basedcompensation costs related to non-vested awards not yet recognized in theCompany’s consolidated statements of operations.  This cost isexpected to be recognized over a weighted-average period of 2.1years.

          Cash received fromoptions exercised during the six months ended December 31, 2006 and 2005 wasapproximately $24.2 million and $10.8 million, respectively.

4.       Inventory

          The components of inventory are as follows:

| **(in thousands)** |   | **December   31,   2006** |   | **June 30,   2006** |   |
|--------------------|--------|---------------------------|--------|---------------------|--------|
|                    |   |                           |        |                |        |  |   |
| Raw materials      |   | $                         | 9,390  |                | $      | 8,290 |   |
| Work-in-process    |   |                      | 20     |                |   | 20 |   |
| Finished goods     |   |                      | 37,734 |                |   | 38,327 |   |
|               |   |                           |        |                |        |  |   |
|               |   | $                         | 47,144 |                | $      | 46,637 |   |
|               |   |                           |        |                |        |  |   |

          The Companymaintained a reserve for obsolescence for inventory of approximately $10.0million at December 31, 2006 compared to approximately $9.9 million at June 30,2006.  The Company reserved approximately $1.4 million and $2.1 millionduring the six months ended December 31, 2006 and 2005, respectively, related toolder products.  Inventory as of December 31, 2006 was increased by foreigncurrency translation adjustments of approximately $0.3 million as compared toJune 30, 2006.

5.       Goodwill and intangible assets

          During the three months endedSeptember 30, 2006, the Company completed its annual impairment tests on itsgoodwill and trademarks as of July 1, 2006.  Based on its annual impairmenttest results, the Company determined that no impairment of goodwill ortrademarks existed as of July 1, 2006.

6.       Other comprehensive income

          The components of comprehensiveincome, net of tax, were as follows:

|                                                      |   | **Three   Months Ended   December 31,** |   | **Six Months   Ended   December 31,** |   |
|-----------------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                                      |   |                                         |   |                                       |   |
| **(in thousands)**                                        |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
|                                                           |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
| Net income                                                |   | $                                       | 18,018 |                                  | $      | 14,204 |   | $ | 33,128 |   | $ | 26,556 |   |
| Other comprehensive income   (loss):                      |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Change   in cumulative translation adjustment, net of tax |   |                                    | 8,613  |                                  |   | (2,378 | ) |   | 7,554 |   |   | (3,304 | ) |
|                                                      |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
|                                                      |   | $                                       | 26,631 |                                  | $      | 11,826 |   | $ | 40,682 |   | $ | 23,252 |   |
|                                                      |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |

7.       Line of credit

          The Company has in place twocredit agreements (the “Credit Agreements”), an international facilityand a U.S. facility that in the aggregate provide a $65.0 million multi-currencycommitted line of credit which expires on July 31, 2009.  The internationalfacility is secured by 65% of the capital stock of the Company’s Irelandsubsidiary and 100% of all of the capital stock of the Company’s otherforeign subsidiaries.  The U.S. facility is secured by 100% of the capitalstock of the Company’s major U.S. subsidiaries as well as all of theCompany’s inventory and receivables located in the U.S.

9

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          The interest rateunder the Credit Agreements is at the prime rate or federal funds rate plus 125to 200 basis points for borrowings in U.S. currency, and LIBOR plus 125 to 200basis points for borrowings in foreign currencies, depending upon theCompany’s consolidated earnings before interest, taxes, depreciation andamortization (“EBITDA”) for the immediately preceding four calendarquarters.  The Company is required to pay insignificant commitment fees onthe unused portion of the line of credit to the Lenders.  The CreditAgreements also contain certain financial covenants and restrictions on theCompany’s ability to assume additional debt, repurchase stock, sellsubsidiaries, or acquire companies.  In case of an event of default, asdefined in the Credit Agreements, that is not cured within the applicable cureperiod (with respect to those defaults for which the Credit Agreements provide acure period), the Lenders’ remedies include their ability to declare alloutstanding loans, plus interest and other related amounts owed, to beimmediately due and payable in full, and to pursue all rights and remediesavailable to them under the Credit Agreements or under applicablelaw.

          As of December 31,2006, the Company had approximately $3.5 million outstanding and hadapproximately $61.5 million available under the above lines of credit for futureborrowings.  The total outstanding balance consisted of thefollowing:

| • | JPY (Japanese Yen) - 224.0 million (approximately $1.9 million at the December31, 2006 exchange rate);     |
|--------|------------------------------------------------------------------------------------------------------------|
| • | SEK (Swedish Krona) - 5.0 million (approximately $0.7 million at the December31, 2006 exchange rate), and  |
| • | NZD (New Zealand Dollar) - 1.3 million (approximately $0.9 million at theDecember 31, 2006 exchange rate.) |

          The Company also hasa credit relationship with a European bank in the amount of EUR 1.0 million(approximately $1.3 million at the December 31, 2006 exchange rate.)  Underthe terms of this facility, the Company may borrow in the form of either a lineof credit or term debt.  As of December 31, 2006, there were no balancesoutstanding on this credit facility, but approximately EUR 0.2 million(approximately $0.3 million at the December 31, 2006 exchange rate) of thecredit facility has been utilized for guarantees.  As of December 31, 2006,approximately $1.0 million is available for future borrowings.

          As of December 31,2006, the Company had approximately $62.5 million available to borrow under allof its credit facilities available at that time.  The weighted-averageinterest rate on the outstanding balances under the lines of credit as ofDecember 31, 2006 was 4.2%.

8.       Recent accounting pronouncements

          SFAS No. 158

          In September 2006,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158,“Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and132(R)” (“SFAS No. 158”), to require an employer to recognize theoverfunded or underfunded status of a defined benefit postretirement plan (otherthan a multiemployer plan) as an asset or liability on its statement offinancial position and to recognize changes in that funded status in the year inwhich the changes occur through comprehensive income.  The statement alsorequires an employer to measure the funded status of a plan as of the date ofits year-end statement of financial position, with limited exceptions. SFAS No. 158 is effective for fiscal years ending after December 15, 2006. SFAS No. 158 will not change the amount of net periodic benefit expenserecognized in an entity’s results of operations.  Application of thisstatement at June 30, 2006 would have required adjustment to the Company’saccrued pension liability relating to its Supplemental Executive Retirement Plan(the “SERP Plan”), resulting in an increase to accrued employeebenefit liabilities of approximately $4.8 million and a decrease instockholders’ equity of approximately $4.8 million, net of tax.  Theeffect at June 30, 2007, the adoption date, or any other future date couldsignificantly differ depending on the measurement of pension obligations at suchdate, but the Company does not believe SFAS No. 158 will have a material impacton the Company’s consolidated financial position, results of operations andcash flows.

10

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          SFAS No. 157

          In September 2006,the FASB issued SFAS No. 157 “Fair Value Measurements”(“SFAS No. 157”) to establish a framework for measuring fairvalue under generally accepted accounting principles and to expand disclosureson fair value measurements.  The statement applies to previouslyestablished valuation pronouncements, but is to be applied prospectively, sothat it does not require the changing of any previous fair valuemeasurements.  SFAS No. 157 may cause some valuation procedures to changeafter its adoption.  Under SFAS No. 157, fair value is established bythe price that would be received to sell the item or the amount to be paid totransfer the liability or the asset (an exit price), as opposed to the price tobe paid for the asset or received to assume the liability (an entryprice).  SFAS No. 157 is effective for all assets valued in financialstatements for fiscal years beginning after November 15, 2007.  TheCompany is currently reviewing the impact of the adoption of the SFAS 157 on theCompany’s consolidated financial position, results of operations and cashflows.

          SAB 108

          In September 2006,the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”), whichprovides interpretive guidance on the process of quantifying financial statementmisstatements.  As permitted by SAB 108, the provisions under SAB 108 willbe applied in the first fiscal year ending after November 15, 2006, theCompany’s current fiscal year.  The Company does not believe SAB 108will have a material impact on the Company’s consolidated financialposition, results of operations and cash flows.

          FIN 48

          In June 2006, theFASB issued Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes,” an interpretation of FAS 109, “Accounting for IncomeTaxes” (“FIN 48”), to create a single model to address accountingfor uncertainty in tax positions.  FIN 48 clarifies the accounting forincome taxes, by prescribing a minimum recognition threshold a tax position isrequired to meet before being recognized in the financial statements.  FIN48 also provides guidance on derecognition, measurement, classification,interest and penalties, accounting in interim periods, disclosure andtransition.  FIN 48 is effective for fiscal years beginning after December15, 2006.  As required, the Company will adopt FIN 48 in fiscal year 2008. The cumulative effect of adopting FIN 48 will be recorded in retainedearnings and other accounts as applicable.  The Company is currentlyreviewing the impact of the adoption of FIN 48 on the Company’sconsolidated financial position, results of operations and cashflows.

9.       Net income per share

          Basic net income per commonshare is computed by dividing net income by the weighted-average number ofshares outstanding.  Diluted net income per share includes the dilutiveeffect of stock options.  A reconciliation of the weighted-average numberof common shares outstanding assuming dilution is as follows:

|                                                         |   | **Three   Months Ended   December 31,** |   | **Six Months   Ended   December 31,** |   |
|--------------------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                                         |   |                                         |   |                                       |   |
| **(in thousands, except per share data)**                    |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
|                                                              |   |                                         |   |                                       |   |  |   |  |   |
| Net income                                                   |   | $                                       | 18,018 |                                  | $      | 14,204 |   | $ | 33,128 |   | $ | 26,556 |   |
|                                                         |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
| Average common shares   outstanding                          |   |                                    | 39,826 |                                  |   | 38,718 |   |   | 39,420 |   |   | 38,474 |   |
| Dilutive effect of   outstanding stock options               |   |                                    | 1,399  |                                  |   | 2,080 |   |   | 1,529 |   |   | 2,130 |   |
|                                                         |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
| Average common shares   outstanding assuming dilution        |   |                                    | 41,225 |                                  |   | 40,798 |   |   | 40,949 |   |   | 40,604 |   |
|                                                         |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
| Basic net income per share                                   |   | $                                       | 0.45   |                                  | $      | 0.37 |   | $ | 0.84 |   | $ | 0.69 |   |
|                                                         |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
| Diluted net income per   share                               |   | $                                       | 0.44   |                                  | $      | 0.35 |   | $ | 0.81 |   | $ | 0.65 |   |
|                                                         |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
| Anti-dilutive weighted   shares excluded from reconciliation |   |                                    | 1,137  |                                  |   | 356 |   |   | 1,076 |   |   | 241 |   |
|                                                         |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |

10.      Segment reporting data

           SFAS No. 131,“Disclosures about Segments of an Enterprise and Related Information,”establishes standards for reporting information about operating segments. This standard requires segmentation based on the Company’s internalorganization and reporting of financial results.  The Company’sfinancial reporting systems present various data for management to run thebusiness.  The segments are designed to allocate resources internally andprovide a framework to determine management responsibility.  Operatingsegments are defined as components of an enterprise about which separatefinancial information is available that is evaluated regularly by the chiefoperating decision maker, or decision making group, in deciding how to allocateresources and in assessing performance.  The Company’s chief operatingdecision maker is the Company’s Chief Executive Officer.

11

----

          The Company managesits business geographically and is organized and operates in four operatingsegments:  U.S., Europe, the Pacific Rim and Latin America regions. For the purposes of applying SFAS No. 131, the Company has identified U.S. as aseparate reportable segment and has aggregated its three international operatingsegments into one reportable segment, International, as the three internationaloperating segments share many similar economic characteristics.  Themanagement views the U.S. and International segments separately in operating thebusiness, although the products and services are similar for eachsegment.

          A summary of theCompany’s reportable segments is as follows:

|                                                                                   |   | **Three   Months Ended   December 31,** |    | **Six Months   Ended   December 31,** |   |
|----------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|---------------------------------------|--------|
|                                                                                   |   |                                         |    |                                       |   |
| **(in thousands)**                                                                     |   | **2006**                                |    | **2005**                              |   | **2006** |   | **2005** |   |
|                                                                                        |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
| Revenue(1):                                                                            |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| U.S.                                                                                   |   | $                                       | 90,309  |                                  | $      | 89,077 |   | $ | 176,368 |   | $ | 171,013 |   |
| International                                                                          |   |                                    | 135,260 |                                  |   | 103,469 |   |   | 256,271 |   |   | 204,605 |   |
| Intersegment   eliminations                                                            |   |                                    | (35,694 | )                                     |   | (28,567 | ) |   | (69,062 | ) |   | (59,635 | ) |
|                                                                                   |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
|                                                                                   |   | $                                       | 189,875 |                                  | $      | 163,979 |   | $ | 363,577 |   | $ | 315,983 |   |
|                                                                                   |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
| Income before taxes,   minority interests and equity in net earnings of affiliates(1): |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| U.S.                                                                                   |   | $                                       | 7,478   |                                  | $      | 7,188 |   | $ | 14,296 |   | $ | 10,442 |   |
| International                                                                          |   |                                    | 49,157  |                                  |   | 37,040 |   |   | 92,352 |   |   | 77,097 |   |
| Intersegment   eliminations                                                            |   |                                    | (29,144 | )                                     |   | (22,778 | ) |   | (56,278 | ) |   | (47,681 | ) |
|                                                                                   |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |
|                                                                                   |   | $                                       | 27,491  |                                  | $      | 21,450 |   | $ | 50,370 |   | $ | 39,858 |   |
|                                                                                   |   |                                         |         |                                  |        |  |   |  |  |   |  |  |   |

| **(in thousands)**       |   | **December   31,   2006** |    | **June 30,   2006** |   |
|--------------------------|--------|---------------------------|---------|---------------------|--------|
|                          |   |                           |         |                |        |  |   |
| Identifiable assets (2): |   |                      |    |                |   |   |   |
| U.S.                     |   | $                         | 382,485 |                | $      | 383,663 |   |
| International            |   |                      | 356,776 |                |   | 264,194 |   |
|                     |   |                           |         |                |        |  |   |
|                     |   | $                         | 739,261 |                | $      | 647,857 |   |
|                     |   |                           |         |                |        |  |   |

|     |
|-----|
| (1) | Amounts based on the location of the selling entity, and include export   sales. |
| (2) | Amounts based on the   physical location of the asset. |

11.     Shareholders’ equity 

          In fiscal year 2005,the Board of Directors authorized the purchase of up to two million shares ofthe Company’s common stock.  Since the inception of the repurchaseprograms, the Company has incurred approximately $0.1 million in fees related tothe programs.  A summary of the cumulative number of shares purchased andretired since the inception of the repurchase programs through December 31, 2006is as follows:

|                                       |   | **Number of   Shares** |      | **Average   Purchase Price   Per Share** |   | **Total   Purchase   Value****(in   thousands)** |   |
|--------------------------------------------|--------|------------------------|-----------|------------------------------------------|--------|--------------------------------------------------|--------|
|                                       |   |                        |           |                                     |        |                                                  |   |  |  |   |
| Total shares purchased as of June 30, 2006 |   |                   | 3,417,999 |                                     | $      | 27.33                                            |   | $ | 93,414 |   |
| July   2006 - December 2006                |   |                   | 62,100    |                                     | $      | 38.56                                            |   |   | 2,395 |   |
|                                       |   |                        |           |                                     |   |                                             |   |  |  |   |
|                                       |   |                   | 3,480,099 |                                     | $      | 27.53                                            |   | $ | 95,809 |   |
|                                       |   |                        |           |                                     |   |                                             |   |  |  |   |

12

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12.     Pension benefits

          The Company’sSERP plan provides designated officers and executives of the company withbenefits upon retirement or immediate vesting of benefits upon aparticipant’s pre-retirement death.  The Company funds the benefitsunder the plan with corporate owned life insurance policies held by a segregatedtrust (known as a “Rabbi Trust”), whose assets are subject to theclaims of creditors of the Company.  The plan is accounted for inaccordance with SFAS No. 87, “Employers Accounting forPensions.”  The components of net period pension cost are asfollows:

|                                 |   | **Three   Months Ended   December 31,** |   | **Six Months   Ended   December 31,** |   |
|--------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                 |   |                                         |   |                                       |   |
| **(in thousands)**                   |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
|                                      |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
| Service cost                         |   | $                                       | 139    |                                  | $      | 127 |   | $ | 278 |   | $ | 254 |   |
| Interest cost                        |   |                                    | 174    |                                  |   | 124 |   |   | 348 |   |   | 249 |   |
| Amortization of prior   service cost |   |                                    | 137    |                                  |   | 124 |   |   | 274 |   |   | 247 |   |
|                                 |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
|                                 |   | $                                       | 450    |                                  | $      | 375 |   | $ | 900 |   | $ | 750 |   |
|                                 |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |

13.     Contingencies

          The Company 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 or cash flows. 

14.     Subsequent Events

          On January 26, 2007, the Company acquired RedSky IT Hospitality-Travel and RedSky IT Retail subsidiaries of RedSky IT by acquiring all of the issued and outstanding stock of the acquired companies for a total cash purchase price of approximately $32.0 million.  Headquartered in United Kingdom, the acquired companies provide hotel property management software solutions targeted toward the limited-service, independent and economy hotel market and software solutions for the grocery industry.

13

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

Forward-looking statements

          The followingdiscussion and analysis of our financial condition and results of operationsshould be read in conjunction with the condensed consolidated financialstatements and the related notes and other financial information includedelsewhere in this Quarterly Report on Form 10-Q.  Statements contained inthis Quarterly Report on Form 10-Q that are not historical facts are forwardlooking statements within the meaning of Section 27A of the Securities Act of1933, as amended (the “Securities Act”), and Section 21E of theSecurities Exchange Act of 1934, as amended (the “Exchange Act”),that involve risks and uncertainties, and are made in reliance upon safeharbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from those anticipated in theseforward-looking statements as a result of specified factors, including those setforth below under the heading “Factors that May Affect FutureResults.”  

          Examples of suchforward-looking statements include:

| • | our expectation that product and service margins may decline in response to thecompetitive nature of our market;                                                                                                                         |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | our statements regarding the effects of currency fluctuations (in particular,Euro fluctuations) on our financial performance;                                                                                                            |
| • | our expectations that the customers with whom we do the largest amount ofbusiness will fluctuate from year to year, and our statements about the effectsof large customer orders on our quarterly earnings, revenues, and totalrevenues; |
| • | our statements concerning the fluctuations in the market price of our commonstock, whether as a result of variations in our quarterly operating results orother factors;                                                                 |
| • | our belief that any existing legal claims or proceedings will not have amaterial adverse effect on our results of operations or financialposition;                                                                                       |
| • | our   expectations regarding effective tax rates in future periods;                                                                                                                                                                      |
| • | our expectations regarding the impact or lack of impact on our financialposition and results of operations of the application of recent accountingstandards;                                                                             |
| • | our expectations about the adequacy of our cash flows and our available lines ofcredit to meet our working capital needs, and our ability to raise additionalfunds if and when needed;                                                   |
| • | our expectations that our exposure to interest rate risk will not materiallychange in the future;                                                                                                                                        |
| • | our expectation that we will evaluate our need to invest in instruments toprotect against interest rate fluctuations and our exposure to such interestrate risk;                                                                         |
| • | our statements about the effects on our revenue recognition as a result ofchanges to a customers’ delivery requirements or a products’completion;                                                                              |
| • | our   statements regarding our ability to increase sales of our higher margin   products; and                                                                                                                                            |
| • | our expected costs associated with modifying our products to comply withapplicable legal rules, regulations, and guidelines, including the credit cardassociations’ security and data protection rules.                             |

**Factors that may affect future results**

          Current marketconditions, and world political and economic uncertainty, make it difficult topredict whether we can continue to achieve revenue and profitability growth overthe remainder of the current fiscal year.  One reason for this difficultyis that our primary customers – the hospitality, travel, restaurant, andretail industries – are highly sensitive to economic, political, andenvironmental disturbances, all of which are not only outside of our (and,frequently, their) control, but also are extraordinarily difficult to predictwith any accuracy.  Accordingly, there can be no assurance that anyparticular level of growth is reasonable or can be achieved.  

          We continue toexperience gross margin pressure on our hardware and software products, and ourservice offerings, due to the highly competitive nature of the market for ourproducts and services, and we expect that product and service margins will tendgenerally to decline.  There can be no assurance that we will be able toincrease sufficiently the sales of our higher margin products, includingsoftware, to prevent future declines in our overall gross margin.

14

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          Currencyfluctuations directly affect our financial results because we conduct businessin many different currencies.  In particular, a weakening or strengtheningEuro could significantly affect our financial performance due to the volume ofbusiness that we conduct in the European market.

          Our quarterlyfinancial results are dependent upon the timing and size of customerorders.  Large software orders from customers may account for more than aninsignificant portion of earnings in any quarter.  Based on pastexperience, we expect that the list of customers with whom we do the largestamount of business will vary from year to year, in part as a result of thetiming of the rollouts of each customer’s systems.  Further, if acustomer delays or accelerates its delivery requirements, or if a product’scompletion is delayed or accelerated, revenues that we may have expected in onequarter could be deferred or accelerated into a subsequent or earlierquarter.

          The market price ofour common stock is volatile.  It may be subject to significantfluctuations in response to variations in our quarterly operating results, andalso may vary as a result of other factors, such as announcements oftechnological developments or new products by us or by our competitors, customerrollouts, the emergence of new competitors and consolidations of our existingcompetitors, and general market conditions in the hospitality, travel,restaurant, and retail industries.  In addition, conditions in the stockmarket in general, and shares of technology companies in particular, haveexperienced significant price and volume fluctuations, which we believe have, attimes, been unrelated to the operating performance of the companies.

          Because of thenature of the industries in which our customers operate, we are subject topolitical risk, including as a result of instability in the Middle East and theworldwide threat of terrorism, and especially in developing countries withuncertain or unstable political structures or regimes.  Additionally, weare subject to the effects of, and changes in, laws and regulations, and otheractivities of governments, agencies and similar regulatory organizations. Moreover, to be able to offer commercially viable and competitive products, wemust also assure that our products and services comply with applicable rules ofthe credit card associations, including their security and data protectionrules.  These rules have changed over time, and may change again in thefuture; we anticipate that we will continue to incur costs associated withmodifying our products and services to become and remain compliant with theserules.

          Past performance isnot necessarily a strong or reliable indicator of future performance. Actual results could differ materially from past results, estimates, orprojections, or forward-looking statements made by, or on behalf ofus.

          The foregoing is inaddition to those other risks and uncertainties disclosed in our periodic pressreleases and SEC filings, including those disclosed under “RiskFactors” in Item 1A of our Annual Report on Form 10-K for the Fiscal Yearended June 30, 2006. 

Overview

          We are a leadingworldwide designer, manufacturer, marketer and servicer of enterpriseinformation solutions for the global hospitality and specialty retailindustries. The information solutions consist of application-specific softwareand hardware systems, supplemented by a wide range of services includinginstallation, training, maintenance and support, customer development andsoftware hosting.  Our enterprise solutions comprise three majorareas:

|   | Hotel information systems:                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | consist of software encompassing property management systems, sales and cateringsystems, central reservation systems, and customer information systems; and havebeen provided to more than 20,000 hotels worldwide.                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | Restaurant information systems:                                                                                                                                                                                                                                                                                                                                                                                                                   |
| • | consist of hardware and software for point-of-sale and operational applications,a suite of back office applications, including inventory, labor, and financialmanagement, and certain centrally hosted enterprise applications; and we haveinstalled over 200,000 systems in table and quick service restaurants, hotels,motels, casinos, leisure and entertainment, and retail operations in more than140 countries and on all seven continents. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | Specialty retail information systems:                                                                                                                                                                                                                                                                                                                                                                                                             |
| • | consist of software encompassing point-of-sale, loss prevention, businessanalytics, customer gift cards, and enterprise applications; and have beenprovided to more than 50,000 specialty retail stores worldwide.                                                                                                                                                                                                                                |

15

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          In addition to oursoftware enterprise solutions and hardware products, we offer a wide range ofsupport services to our customers.  These services include installation,operator and manager training, on-site hardware maintenance, customized softwaredevelopment, application software support, credit card software support, helpdesk, systems configuration, network support, consulting and softwarehosting.  We distribute our products and services directly and through ourdistrict and subsidiary offices, as well as through a network of independentdealers and distributors.

          The markets in whichwe operate are highly competitive.  We compete on various bases, includingproduct functionality, service capabilities, price and geography.  Thereare at least 40 competitors worldwide that offer some form of sophisticatedrestaurant point-of-sale system, over 100 hotel systems competitors and over 50retail systems competitors.  We believe that our competitive strengthsinclude our established global distribution and service network, our ability tooffer a broad array of hardware, software and service products to thehospitality and retail industry and our corporate focus on providing specializedinformation systems solutions.

          We manage ourbusiness geographically and are organized and operate in two reportablesegments:  U.S. and International.  The International reportablesegment is primarily in Europe, the Pacific Rim and Latin America.  Forpurposes of applying Statement of Financial Accounting Standards(“SFAS”) No. 131, “Disclosures about Segments of an Enterpriseand Related Information,” management views the U.S. and Internationalreportable segments separately in operating our business, although the productsand services are similar for each segment.

Results of Operations

***Revenue:***

          *Three Months Ended December 31, 2006:*

          An analysis of thesales mix by reportable segments is as follows (based on location of the sellingentity, and include export sales; intersegment sales are eliminated):

|               |   | **Three   Months Ended December 31,** |   |
|--------------------|--------|---------------------------------------|--------|
|               |   |                                       |   |
|               |   | **U.S.**                              |   | **International** |   | **Total** |   |
|               |   |                                       |   |  |   |  |   |
| **(in thousands)** |   | **2006**                              |   | **2005** |   | **2006** |   | **2005** |   | **2006** |   | **2005** |   |
|                    |   |                                       |        |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Hardware           |   | $                                     | 28,522 |   | $ | 31,594 |   | $ | 26,938 |   | $ | 20,851 |   | $ | 55,460 |   | $ | 52,445 |   |
| Software           |   |                                  | 12,138 |   |   | 13,758 |   |   | 20,614 |   |   | 14,620 |   |   | 32,752 |   |   | 28,378 |   |
| Service            |   |                                  | 46,434 |   |   | 41,648 |   |   | 55,229 |   |   | 41,508 |   |   | 101,663 |   |   | 83,156 |   |
|               |   |                                       |        |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |
|               |   | $                                     | 87,094 |   | $ | 87,000 |   | $ | 102,781 |   | $ | 76,979 |   | $ | 189,875 |   | $ | 163,979 |   |
|               |   |                                       |        |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |

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

|     |   | **Three   Months Ended December 31,** |   |
|----------|--------|---------------------------------------|--------|
|     |   |                                       |   |
|     |   | **2006**                              |   | **2005** |   |
|     |   |                                       |        |   |  |  |   |
| Hardware |   |                                  | 29.2   | % |   | 32.0 | % |
| Software |   |                                  | 17.3   | % |   | 17.3 | % |
| Service  |   |                                  | 53.5   | % |   | 50.7 | % |
|     |   |                                       |        |   |  |  |   |
|     |   |                                  | 100.0  | % |   | 100.0 | % |
|     |   |                                       |        |   |  |  |   |

16

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          For the three monthsended December 31, 2006, total revenue increased approximately $25.9 million, or15.8% to approximately $189.9 million compared to the same period lastyear.  The increase in revenue was a result of the following:

|   | • | approximately $18.5 million or 22% increase in services primarily due tocontinued expansion of our customer base coupled with increased recurringsupport revenue from existing customers (primarily through additional services) and additional revenue generated through the acquisitions ofvarious distributors of MICROS products and services during the three monthsended September 30, 2006 and the acquisition of CommercialWare, Inc.(“CommercialWare”) in February 2006; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | approximately $4.4 million or 15% increase in software primarily due to currencytranslation mainly between the Euro and U.S. dollar and increased sales volume;and,                                                                                                                                                                                                                                                                                                                         |
|   | • | approximately $3.0 million or 6% increase in hardware primarily due to currencytranslation and the additional revenue generated through the acquisition, bothas discussed above.                                                                                                                                                                                                                                                                                                            |

          The recurringsupport revenue contributed 59.1% and the increase in installation revenuecontributed 26.5% of the total service revenue increase of approximately $18.5million for the three months ended December 31, 2006 compared to the same periodlast year.

          The Internationalsegment sales for the three months ended December 31, 2006 increasedapproximately $25.8 million, which was a result of the following (illustratedbelow by percent of the total change for the period):

|   | • | approximately $13.7 million or 33% increase in services primarily due to foreigncurrency transaction as discussed above and the expansion of our customer basecoupled with increased recurring support revenue from existing customers(primarily through additional services); |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | approximately $6.1 million or 29% increase in hardware primarily due toincreased sales volume and currency translation as discussed above;and,                                                                                                                                 |
|   | • | approximately $6.0 million or 41% increase in software primarily due toincreased sales volume.                                                                                                                                                                                 |

          U.S. segment salesfor the three months ended December 31, 2006, including approximately $3.4million additional revenue generated through the acquisition of CommercialWare,were comparable to the same period last year.  The decline in U.S. salesoutside of CommercialWare was primarily due to decreases in hardware andsoftware revenues resulting from decreases in sales, partially offset by anincrease in services revenue.

          *Six MonthsEnded December 31, 2006:*

          An analysis of thesales mix by reportable segments is as follows (based on location of the sellingentity, and include export sales; intersegment sales are eliminated):

|               |   | **Six Months   Ended December 31,** |    |
|--------------------|--------|-------------------------------------|---------|
|               |   |                                     |    |
|               |   | **U.S.**                            |    | **International** |   | **Total** |   |
|               |   |                                     |    |  |   |  |   |
| **(in thousands)** |   | **2006**                            |    | **2005** |   | **2006** |   | **2005** |   | **2006** |   | **2005** |   |
|                    |   |                                     |         |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Hardware           |   | $                                   | 56,997  |   | $ | 58,230 |   | $ | 52,606 |   | $ | 38,268 |   | $ | 109,603 |   | $ | 96,498 |   |
| Software           |   |                                | 23,207  |   |   | 25,245 |   |   | 37,301 |   |   | 31,012 |   |   | 60,508 |   |   | 56,257 |   |
| Service            |   |                                | 89,465  |   |   | 83,116 |   |   | 104,001 |   |   | 80,112 |   |   | 193,466 |   |   | 163,228 |   |
|               |   |                                     |         |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |
|               |   | $                                   | 169,669 |   | $ | 166,591 |   | $ | 193,908 |   | $ | 149,392 |   | $ | 363,577 |   | $ | 315,983 |   |
|               |   |                                     |         |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |

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

|     |   | **Six Months   Ended December 31,** |   |
|----------|--------|-------------------------------------|--------|
|     |   |                                     |   |
|     |   | **2006**                            |   | **2005** |   |
|     |   |                                     |        |   |  |  |   |
| Hardware |   |                                | 30.2   | % |   | 30.5 | % |
| Software |   |                                | 16.6   | % |   | 17.8 | % |
| Service  |   |                                | 53.2   | % |   | 51.7 | % |
|     |   |                                     |        |   |  |  |   |
|     |   |                                | 100.0  | % |   | 100.0 | % |
|     |   |                                     |        |   |  |  |   |

17

----

          For the six monthsended December 31, 2006, total revenue increased approximately $47.6 million, or15.1% to approximately $363.6 million compared to the same period lastyear.  The increase in revenue was a result of the following:

|   | • | approximately $30.2 million or 19% increase in services primarily due tocontinued expansion of our customer base coupled with increased recurringsupport revenue from existing customers (primarily through additional services) and additional revenue generated throughthe acquisitions as discussed above; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | approximately $13.1 million or 14% increase in   hardware primarily due to increased sales volume; and,                                                                                                                                                                                                       |
|   | • | approximately $4.3 million or 8% increase in software primarily due to currencytranslation and additional revenue generated through the acquisition, both asdiscussed above.                                                                                                                                  |

          The recurringsupport revenue contributed 61.8% and the increase in installation revenuecontributed 21.0% of the total service revenue increase of approximately $30.2million for the six months ended December 31, 2006 compared to the same periodlast year.

          The Internationalsegment sales for the six months ended December 31, 2006 increased approximately$44.5 million which was a result of the following (illustrated below by percentof the total change for the period):

|   | • | approximately $23.9 million or 30% increase in services primarily due theexpansion of our customer base coupled with increased recurring support revenuefrom existing customers (primarily through additional services) and currency translation as discussed above; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | approximately $14.3 million or 37% increase in hardware primarily due toincreased sales volume; and,                                                                                                                                                                 |
|   | • | approximately $6.3 million or 20% increase in software primarily due to currencytranslation as discussed above and increased sales volume.                                                                                                                           |

          U.S. segment salesincreased approximately $3.1 million for the six months ended December 31, 2006compared to the same period last year.  The increase was the result of anadditional revenue of approximately $5.7 million generated through theacquisition of CommercialWare for the six months ended December 31, 2006compared to the same period last year and an increase in services revenue. These increases were partially offset by decreases in software and hardwarerevenues resulting from decreases in sales. 

***Cost of Sales:***

          *Three MonthsEnded December 31, 2006:*

          An analysis of thecost of sales is as follows:

|               |   | **Three Months Ended December 31,** |   |
|--------------------|--------|-------------------------------------|--------|
|               |   |                                     |   |
|               |   | **2006**                            |   | **2005** |   |
|               |   |                                     |   |  |   |
| **(in thousands)** |   | **Cost of   Sales**                 |   | **% of    Related   Revenue** |   | **Costs of   Sales** |   | **% of   Related   Revenue** |   |
|                    |   |                                     |        |   |  |  |   |  |  |   |  |  |   |
| Hardware           |   | $                                   | 36,270 |   |   | 65.4 | % | $ | 35,555 |   |   | 67.8 | % |
| Software           |   |                                | 6,635  |   |   | 20.3 | % |   | 6,606 |   |   | 23.3 | % |
| Service            |   |                                | 48,116 |   |   | 47.3 | % |   | 39,746 |   |   | 47.8 | % |
|               |   |                                     |        |   |   |   |   |  |  |   |   |   |   |
|               |   | $                                   | 91,021 |   |   | 47.9 | % | $ | 81,907 |   |   | 49.9 | % |
|               |   |                                     |        |   |   |   |   |  |  |   |   |   |   |

          For the three monthsended December 31, 2006, cost of sales as a percent of revenue decreased 200basis points to 47.9% compared to the same period last year.  Hardware costof sales as a percent of related revenue decreased approximately 240 basispoints compared to the same period last year.  The decrease is primarily asa result of an increase in Workstation 4 revenue, which generate higher marginthan other hardware products, coupled with an improvement in Workstation 4margin percentage compared to the same period last year.

          Software cost ofsales as a percent of related revenue decreased approximately 300 basis pointscompared to the same period last year primarily as a result of the 42% increasein Opera suite software sales for the three months ended December 31, 2006compared to the same period last year.  Opera suite product sales generatemuch higher margin than third party software sales.  Service costs as apercent of related revenue decreased approximately 50 basis points compared tothe same period last year. 

18

----

          *Six MonthsEnded December 31, 2006:*

          An analysis of thecost of sales is as follows:

|               |   | **Six Months Ended December 31,** |    |
|--------------------|--------|-----------------------------------|---------|
|               |   |                                   |    |
|               |   | **2006**                          |    | **2005** |   |
|               |   |                                   |    |  |   |
| **(in thousands)** |   | **Cost of    Sales**              |    | **% of   Related   Revenue** |   | **Costs of   Sales** |   | **% of   Related   Revenue** |   |
|                    |   |                                   |         |   |  |  |   |  |  |   |  |  |   |
| Hardware           |   | $                                 | 70,236  |   |   | 64.1 | % | $ | 65,137 |   |   | 67.5 | % |
| Software           |   |                              | 13,996  |   |   | 23.1 | % |   | 12,407 |   |   | 22.1 | % |
| Service            |   |                              | 91,822  |   |   | 47.5 | % |   | 78,206 |   |   | 47.9 | % |
|               |   |                                   |         |   |   |   |   |  |  |   |   |   |   |
|               |   | $                                 | 176,054 |   |   | 48.4 | % | $ | 155,750 |   |   | 49.3 | % |
|               |   |                                   |         |   |   |   |   |  |  |   |   |   |   |

          For the six monthsended December 31, 2006, cost of sales as a percent of revenue decreased 90basis points to 48.4% compared to the same period last year.  Hardware costof sales as a percent of related revenue decreased approximately 340 basispoints compared to the same period last year.  The decrease is primarily asa result of an increase in Workstation 4 revenue, which generate higher marginthan other hardware products, coupled with an improvement in Workstation 4margin compared to the same period last year.

          Software cost ofsales as a percent of related revenue increased approximately 100 basis pointscompared to the same period last year primarily due to an increase in the saleof third party software products which generate lower margin than internallydeveloped software products.  Service costs as a percent of related revenuedecreased approximately 40 basis points compared to the same period last year.

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

          *Three Months Ended December 31, 2006:*

          SG&A expenses,as a percent of revenue, increased 90 basis points to 32.9% compared to the sameperiod last year.  This increase reflects the following:

|   | • | Higher SG&A expenses as a percent of related   revenue for acquisitions as discussed above in Revenue; and                                                                                                                                                    |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | Increase in payroll and related expenses, as a   percent of revenue, primarily due to an increase in headcount, mostly related   to implementation rollouts of customers’ systems, in addition to the annual   pay increase that took place in October 2006. |

          *Six MonthsEnded December 31, 2006:*

          SG&A expenses,as a percent of revenue, increased 40 basis points to 33.2% compared to the sameperiod last year.  This decrease reflects the following:

|   | • | Higher SG&A expenses as a percent of related revenue for acquisitions asdiscussed above in Revenue;                                                                                                                                                                                              |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | Increase in payroll and related expenses, as a percent of revenue, primarily dueto an increase in headcount, mostly related to implementation rollouts ofcustomers’ programs, in addition to the annual pay increase that took placein October 2006; and                                        |
|   | • | Increase in non-cash share-based compensation expenses of approximately $1.4million recorded as a component of SG&A expenses for the six months endedDecember 31, 2006 compared to the same period last year.  See“Share-Based Compensation Expense” below for furtherdiscussion. |

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

          R&D expensesconsist primarily of labor costs less capitalized software developmentcosts.  Non-cash share-based compensation expenses allocated to R&Dwere not capitalized as software development costs during the three and sixmonths ended December 31, 2006 and 2005 because stock options were not grantedto employees whose labor costs were capitalized as software developmentcosts.  An analysis of R&D activities is as follows:

19

----

|                                   |   | **Three   Months Ended   December 31,** |   | **Six Months   Ended   December 31,** |   |
|----------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                   |   |                                         |   |                                       |   |
| **(in thousands)**                     |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
|                                        |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
| Total R&D incurred                 |   | $                                       | 8,411  |                                  | $      | 7,601 |   | $ | 15,749 |   | $ | 15,077 |   |
| Capitalized software development costs |   |                                    | (436   | )                                     |   | (1,223 | ) |   | (858 | ) |   | (2,320 | ) |
|                                   |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
| Total R&D expenses                 |   | $                                       | 7,975  |                                  | $      | 6,378 |   | $ | 14,891 |   | $ | 12,757 |   |
|                                   |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
| % of Revenue                           |   |                                    | 4.2    | %                                     |   | 3.9 | % |   | 4.1 | % |   | 4.0 | % |
|                                   |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |

          The decreases intotal R&D capitalized software development costs for the three and sixmonths ended December 31, 2006 are primarily due to less projects in processthat had reached the technological feasibility stage for which R&D iscapitalized as a result of the release of Datavantage’s capitalizedsoftware product in December of 2005.

***Depreciation and Amortization Expenses:***

          Depreciation andamortization expenses for the three months ended December 31, 2006 increasedapproximately $0.7 million to approximately $3.3 million compared to the sameperiod last year.  Depreciation and amortization expenses for the sixmonths ended December 31, 2006 increased approximately $1.1 million toapproximately $6.2 million compared to the same period last year.  Theincreases are primarily due to additional depreciation expenses on assetscapitalized since December 31, 2005 and due to acquisitions as discussedabove.

***Share-Based Compensation Expenses:***

          We account for ouroption awards in accordance with SFAS No. 123(R), “Share-BasedPayment.”  The fair value of awards granted under the stock optionprogram are measured and non-cash share-based compensation expenses, adjustedfor expected forfeitures, are recognized ratably over the requisite serviceperiod of options in the consolidated statements of operations.  Inaddition, non-cash share-based compensation expense is recognized for thenon-vested portion of awards that were granted before the effective date of SFASNo. 123(R) as those options become vested.  The non-cash share-basedcompensation expenses, net of tax, reduced the diluted earnings per share by$0.05 and $0.04 for the three months ended December 31, 2006 and 2005,respectively, and by $0.11 and $0.07 for the six months ended December 31, 2006and 2005, respectively.

          The SG&Aexpenses and R&D expenses discussed above include the following allocationsof non-cash share-based compensation expense:

|               |   | **Three   Months Ended   December 31,** |   | **Six Months   Ended   December 31,** |   |
|--------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|               |   |                                         |   |                                       |   |
| **(in thousands)** |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
|                    |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
| SG&A           |   | $                                       | 2,578  |                                  | $      | 2,155 |   | $ | 5,270 |   | $ | 4,030 |   |
| R&D            |   |                                    | 117    |                                  |   | 32 |   |   | 240 |   |   | 70 |   |
|               |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |
|               |   | $                                       | 2,695  |                                  | $      | 2,187 |   | $ | 5,510 |   | $ | 4,100 |   |
|               |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |

***Income from Operations:***

          Income fromoperations for the three months ended December 31, 2006 increased approximately$4.5 million or 21.6%, to approximately $25.1 million, compared to the sameperiod last year.  Income from operations for the six months ended December31, 2006 increased approximately $7.1 million or 18.3%, to approximately $45.7million, compared to the same period last year.  The increases were mainlydue to overall increases in sales coupled with lower overall cost of sales as apercent of revenue.  These increases were partially offset by increase inSG&A expenses as a percent of revenue.

***Non-operating Income:***

          Net non-operatingincome for the three months ended December 31, 2006 increased approximately $1.6million to approximately $2.4 million compared to the same period lastyear.  Net non-operating income for the six months ended December 31, 2006increased approximately $3.4 million to approximately $4.6 million compared tothe same period last year.  The increases were primarily due to increasesin interest income resulting from overall higher cash and cash equivalentsbalances and overall higher interest rates earned on these balances.

20

----

***Income Tax Provisions:***

          The effective taxrates for the three months ended December 31, 2006 and 2005 were 33.0% and32.5%, respectively.  The effective tax rates for the six months endedDecember 31, 2006 and 2005 were 33.2% and 32.5%, respectively.  Theincreases in tax rates were primarily attributable to the negative impact of thechanges in legislation related to extra-territorial income exclusions as well asthe non-deductible nature of certain non-cash share-based compensation items andother non-deductible compensation items.  These negative factors werepartially offset by the benefit recognized from certain activities where the mixof earnings were subject to a lower statutory tax rate than that recognized inthe U.S., renewal of research and development tax credit and the phase-in of thededuction for domestic production activities.

          We believe that dueto the mix of jurisdictional earnings, the fluctuation of earnings and theimpact of the interim reporting requirements of FIN 18, “Accounting forIncome Taxes in Interim Periods” (“FIN 18”), there may be somedegree of adjustment to the effective tax rate on a quarterly basis. 

**Critical accounting policies**

          The preparation ofour financial statements in accordance with accounting principles generallyaccepted in the U.S. requires us to make estimates and judgments that affect thereported amounts of assets, liabilities, revenue and expenses and relateddisclosure of contingent assets and liabilities.  We base our estimates andjudgments on historical experience and on various assumptions that we believe tobe reasonable under the circumstances. Actual results may differ from theseestimates under different assumptions or conditions.

          We believe thefollowing critical accounting policies encompass our more significant judgmentsand estimates used in the preparation of the condensed financialstatements:

| • | Revenue recognition and deferred revenue;                                                        |
|--------|--------------------------------------------------------------------------------------------------|
| • | Allowance for doubtful accounts;                                                                 |
| • | Allowance for inventory obsolescence                                                             |
| • | Non-cash share-based compensation;                                                               |
| • | Capitalized software development costs;                                                          |
| • | Valuation of long-lived assets, including intangible   assets and impairment review of goodwill; |
| • | Contingencies and litigation;                                                                    |
| • | Income taxes; and                                                                                |
| • | Foreign currency translation.                                                                    |

          We have reviewed ourcritical accounting policies, critical accounting estimates and the relateddisclosures with our Audit Committee.  These policies and  estimatesare described in our Annual Report on Form 10-K for the year ended June 30, 2006in Item 7, “Management’s Discussion and Analysis of FinancialCondition and Results of Operations,” under the heading “CriticalAccounting Policies and Estimates.”

**Liquidity and capital resources**

          We have in place twocredit agreements (the “Credit Agreements”) that in the aggregateprovide a $65.0 million multi-currency committed line of credit which expires onJuly 31, 2009.  The international facility is secured by 65% of the capitalstock of our Ireland subsidiary and 100% of all of the foreignsubsidiaries.  The U.S. facility is secured by 100% of the capital stock ofour major U.S. subsidiaries as well as all inventory and receivables located inthe U.S.

          The interest rateunder the Credit Agreements is at the prime rate or federal funds rate plus 125to 200 basis points for borrowings in U.S. currency, and LIBOR plus 125 to 200basis points for borrowings in foreign currencies, depending upon ourconsolidated earnings before interest, taxes, depreciation and amortization(“EBITDA”) for the immediately preceding four calendar quarters. Under the terms of the Credit Agreements, we are required to pay insignificantcommitment fees on the unused portion of the line of credit to theLenders.  The Credit Agreements also contain certain financial covenantsand restrictions on our ability to assume additional debt, repurchase stock,sell subsidiaries, or acquire companies.  In case of an event of default,as defined in the Credit Agreements, that is not cured within the applicablecure period (with respect to those defaults for which theCredit Agreements provide a cure period), the Lenders’ remedies includetheir ability to declare all outstanding loans, plus interest and other relatedamounts owed, to be immediately due and payable in full, and to pursue allrights and remedies available to them under the Credit Agreements or underapplicable law.

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          As of December 31,2006, we had approximately $3.5 million outstanding on the lines of credit andhad approximately $61.5 million available for future borrowings.  The totaloutstanding balance consisted of the following:

| • | JPY (Japanese Yen) – 224.0 million (approximately $1.9 million at theDecember 31, 2006 exchange rate);     |
|--------|-----------------------------------------------------------------------------------------------------------------|
| • | SEK (Swedish Krona) – 5.0 million (approximately $0.7 million at theDecember 31, 2006 exchange rate), and  |
| • | NZD (New Zealand Dollar) – 1.3 million (approximately $0.9 million at theDecember 31, 2006 exchange rate.) |

          We also have acredit relationship with a European bank in the amount of EUR 1.0 million(approximately $1.3 million at the December 31, 2006 exchange rate.)  Underthe terms of this facility, we may borrow in the form of either a line of creditor term debt.  As of December 31, 2006, there were no balances outstandingon this credit facility, but approximately EUR 0.2 million (approximately $0.3million at the December 31, 2006 exchange rate) of the credit facility has beenutilized for guarantees.  As of December 31, 2006, approximately $1.0million is available for future borrowings.  As we have significantinternational operations, we do not believe that our Euro-denominated borrowingsrepresent a significant foreign exchange risk.  On an overall basis, wemonitor our cash and debt positions in each currency in an effort to reduce ourforeign exchange risk.  

          As of December 31,2006, we had approximately $62.5 million borrowing capacity under all of thecredit facilities described above.  The weighted-average interest rate onthe outstanding balances under the lines of credit as of December 31, 2006 was4.2%.

          Net cash provided byoperating activities for the six months ended December 31, 2006 wasapproximately $27.3 million versus approximately $30.1 million for the sixmonths ended December 31, 2005.  The decrease is primarily due toadditional income tax payments made during the six months ended December 31,2006 compared to the same period last year and an increase in current anddeferred income tax assets as a result of realized tax benefits from increasedstock option exercises.  These decreases were partially offset by anincrease due to increase in net income. We used approximately $12.4 million ininvesting activities, including approximately $6.2 million to purchase property,plant, and equipment, and approximately $0.9 million used to internally developsoftware. ** **We also used approximately $5.5 million for acquisitions,of which approximately $4.7 million was for two international acquisitions inJuly and August of 2006 and approximately $0.8 million was for a domesticacquisition in November of 2006.  Net cash provided by financing activitieswas approximately $33.4 million, consisting primarily of proceeds from theissuance of stock upon exercise of stock options of approximately $24.2 millionand tax benefits realized from stock option exercises of approximately $12.7million, partially offset by our repurchases of stock of approximately $2.4million.  

          We believe that ourcash and cash equivalents, cash generated from operations, and our availablelines of credit will be sufficient to provide our working capital needs for theforeseeable future.  Nevertheless, if we need to raise additional funds, webelieve we will be able to raise the necessary amounts either by entering intoadditional financing agreements or through the issuance of our commonstock.  We currently anticipate that our property, plant, and equipmentexpenditures for fiscal year 2007 will be approximately $11 million.

**Recent accounting standards**

          ***SFAS No. 158***

          In September 2006,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158,“Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and132(R)” (“SFAS No. 158”), to require an employer to recognize theoverfunded or underfunded status of a defined benefit postretirement plan (otherthan a multiemployer plan) as an asset or liability on its statement offinancial position and to recognize changes in that funded status in the year inwhich the changes occur through comprehensive income.  The statement alsorequires an employer to measure the funded status of a plan as of the date ofits year-end statement of financial position, with limited exceptions. SFAS No. 158 is effective for fiscal years ending after December 15, 2006. SFAS No. 158 will not change the amount ofnet periodic benefit expense recognized in an entity’s results ofoperations.  Application of this statement at June 30, 2006 would haverequired adjustment to our accrued pension liability relating to ourSupplemental Executive Retirement Plan (“SERP Plan”), resulting in anincrease to accrued employee benefit liabilities of approximately $4.8 millionand a decrease in stockholders’ equity of approximately $4.8 million, netof tax.  The effect at June 30, 2007, the adoption date, or any otherfuture date could significantly differ depending on the measurement of pensionobligations at such date, but we do not believe SFAS No. 158 will have amaterial impact on our consolidated financial position, results of operationsand cash flows.

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          ***SFAS No. 157***

          In September 2006,the FASB issued SFAS No. 157 “Fair Value Measurements”(“SFAS No. 157”) to establish a framework for measuring fairvalue under generally accepted accounting principles and to expand disclosureson fair value measurements.  The statement applies to previouslyestablished valuation pronouncements, but is to be applied prospectively, sothat it does not require the changing of any fair value measurements.  SFASNo. 157 may cause some valuation procedures to change after its adoption. Under SFAS No. 157, fair value is established by the price that would bereceived to sell the item or the amount to be paid to transfer the liability orthe asset (an exit price), as opposed to the price to be paid for the asset orreceived to assume the liability (an entry price).  SFAS No. 157 iseffective for all assets valued in financial statements for fiscal yearsbeginning after November 15, 2007.  We are currently reviewing theimpact of the adoption of the SFAS 157 on our consolidated financial position,results of operations and cash flows.

          ***SAB 108***

          In September 2006,the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”), whichprovides interpretive guidance on the process of quantifying financial statementmisstatements.  As permitted by SAB 108, the provisions under SAB 108 willbe applied in the first fiscal years ending after November 15, 2006, our currentfiscal year.  We do not believe SAB 108 will have a material impact on ourconsolidated financial position, results of operations and cashflows.

          ***FIN 48***

          In June 2006, theFASB issued Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes,” an interpretation of FAS 109, “Accounting for IncomeTaxes” (“FIN 48”), to create a single model to address accountingfor uncertainty in tax positions.  FIN 48 clarifies the accounting forincome taxes, by prescribing a minimum recognition threshold a tax position isrequired to meet before being recognized in the financial statements.  FIN48 also provides guidance on derecognition, measurement, classification,interest and penalties, accounting in interim periods, disclosure andtransition.  FIN 48 is effective for fiscal years beginning after December15, 2006.   As required, the Company will adopt FIN 48 in fiscal year 2008. The cumulative effect of adopting FIN 48 will be recorded in retainedearnings and other accounts as applicable.  We arecurrently reviewing the impact of the adoption of FIN 48 on our consolidatedfinancial position, results of operations and cash flows.

**ITEM 3.       QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

          The Company recordedforeign sales, including exports from the United States, of approximately $193.9million and approximately $149.4 million during the six months ended December 31,2006 and 2005, respectively, to customers located primarily in Europe, Africa,the Middle East, Australia, Asia, Latin America and Canada.  

          The Company’ssignificant international business and presence expose the Company to certainmarket risks, such as currency fluctuation, interest rate changes, and politicalrisks.  With respect to currency risk, the Company transacts business indifferent currencies through its foreign subsidiaries.  The fluctuation ofcurrencies affects reported sales and profitability.  Frequently, sales andthe costs associated with those sales are not denominated in the samecurrency.

          In the six monthsended December 31, 2006 and 2005, the Company transacted business in 32currencies and 27 currencies, respectively.

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          The relativecurrency mix for the three and six months ended December 31, 2006 and 2005 wereas follows:

|                            |   | **% of   Reported Revenue**             |   | **Exchange   Rates   December 31,**   |   |
|---------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                            |   |                                         |   |                                  |
|                            |   | **Three   Months Ended   December 31,** |   | **Six Months   Ended   December 31,** |   |   |
|                            |   |                                         |   |                                       |   |  |   |
|                            |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   | **2006** |   | **2005** |   |
|                            |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Revenues by currency (1):       |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| United States Dollar            |   |                                    | 52     | %                                     |   | 59 | % |   | 53 | % |   | 60 | % |   | 1.0000 |   |   | 1.0000 |   |
| European   Euro                 |   |                                    | 23     | %                                     |   | 20 | % |   | 22 | % |   | 20 | % |   | 1.3201 |   |   | 1.1840 |   |
| British   Pound Sterling        |   |                                    | 6      | %                                     |   | 5 | % |   | 7 | % |   | 5 | % |   | 1.9580 |   |   | 1.7205 |   |
| Australian   Dollar             |   |                                    | 3      | %                                     |   | 2 | % |   | 3 | % |   | 2 | % |   | 0.7895 |   |   | 0.7333 |   |
| Mexican   Peso                  |   |                                    | 2      | %                                     |   | 2 | % |   | 2 | % |   | 1 | % |   | 0.0926 |   |   | 0.0941 |   |
| All   Other Currencies (2), (3) |   |                                    | 14     | %                                     |   | 12 | % |   | 13 | % |   | 12 | % |   | 0.0271 |   |   | 0.0282 |   |
|                            |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |   |   |   |   |   |   |
| Total                           |   |                                    | 100    | %                                     |   | 100 | % |   | 100 | % |   | 100 | % |   |   |   |   |   |   |
|                            |   |                                         |        |                                  |        |  |   |  |  |   |  |  |   |   |   |   |   |   |   |