**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

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

 

**For the quarterly period ended March 31, 2005**

 

**Commission file number 0-9993**

 

**MICROS SYSTEMS, INC.**

(Exact name of Registrant as specified in its charter)

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

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such report(s)), and (2) has been subject tosuch filing requirements for the past 90 days.

 

YES ý  NOo

 

Indicate by check markwhether the Registrant is an Accelerated Filer (as defined in Rule 12b-2 of theSecurities Exchange Act of 1934).

 

YES ý  NOo

 

As of April 30, 2005, there were 38,031,192 shares of Common Stock,$0.0125 par value, outstanding.

 

 

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MICROSSYSTEMS, INC. AND SUBSIDIARIES

Form10-Q

Forthe Quarter Ended March 31, 2005

 

PartI - Financial Information

 

**Item 1.    Financial Statements**

 

General

 

The information containedin this report is furnished for the Registrant, MICROS Systems, Inc., and itssubsidiaries (referred to collectively herein as “MICROS” or the “Company”).  In the opinion of management, the informationin this report contains all adjustments, consisting only of normal recurringadjustments, which are necessary for a fair statement of the results for theinterim periods presented.  The financialinformation presented herein should be read in conjunction with the financialstatements included in the Registrant’s Annual Report filed on Form 10-K forthe fiscal year ended June 30, 2004, as filed with the Securities and ExchangeCommission.

 

2

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MICROS SYSTEMS,INC. AND SUBSIDIARIES

CONSOLIDATEDBALANCE SHEETS

(in thousands)

 
| ** **                                                                                                                                     | ** ** | **March 31,  2005** | ** ** | **June 30,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|--------------------|------------|
| ** **                                                                                                                                     | ** ** | **(unaudited)**     | ** ** | ** **         | ** ** |
| ASSETS                                                                                                                                         |       |                |       |               |       |
| Current assets:                                                                                                                                |       |                |       |               |       |
| Cash and cash  equivalents                                                                                                                     |       | $                   | 93,925     |               | $          | 83,451 |   |
| Short term  investments                                                                                                                        |       | 22,000              |       | 8,000              |       |
| Accounts  receivable, net of allowance for doubtful accounts of $15,599 at March 31,  2005 and $11,903 at June 30, 2004                        |       | 124,830             |       | 101,367            |       |
| Inventories, net  of allowance for obsolescence of $7,271 at March 31, 2005 and $6,380 at June  30, 2004                                       |       | 44,754              |       | 36,095             |       |
| Deferred income  taxes                                                                                                                         |       | 7,971               |       | 9,396              |       |
| Prepaid expenses  and other current assets                                                                                                     |       | 33,599              |       | 16,242             |       |
| Total current  assets                                                                                                                          |       | 327,079             |       | 254,551            |       |
|                                                                                                                                           |       |                |       |               |       |
| Property, plant  and equipment, net of accumulated depreciation and amortization of $65,549 at  March 31, 2005 and $58,245 at June 30, 2004    |       | 21,285              |       | 19,550             |       |
| Deferred income  taxes, non-current                                                                                                            |       | 25,923              |       | 24,288             |       |
| Goodwill, net of  accumulated amortization of $29,780 at March 31, 2005 and $28,687 at June 30,  2004                                          |       | 80,451              |       | 70,715             |       |
| Intangible  assets, net of accumulated amortization of $2,913 at March 31, 2005 and $2,291  at June 30, 2004                                   |       | 6,945               |       | 5,476              |       |
| Purchased and  internally developed software costs, net of accumulated amortization of  $36,505 at March 31, 2005 and $30,484 at June 30, 2004 |       | 40,561              |       | 41,112             |       |
| Other  investments                                                                                                                             |       | 411                 |       | 415                |       |
| Other assets                                                                                                                                   |       | 2,016               |       | 2,785              |       |
| Total assets                                                                                                                                   |       | $                   | 504,671    |               | $          | 418,892 |   |
|                                                                                                                                           |       |                |       |               |       |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY                                                                                                     |       |                |       |               |       |
| Current liabilities:                                                                                                                           |       |                |       |               |       |
| Bank lines of  credit                                                                                                                          |       | $                   | 2,585      |               | $          | 2,481 |   |
| Current portion  of capital lease obligations                                                                                                  |       | 194                 |       | 139                |       |
| Accounts payable                                                                                                                               |       | 29,865              |       | 29,681             |       |
| Accrued expenses  and other current liabilities                                                                                                |       | 66,336              |       | 58,693             |       |
| Income taxes  payable                                                                                                                          |       | 2,992               |       | 1,541              |       |
| Deferred income  taxes                                                                                                                         |       | 956                 |       | 512                |       |
| Deferred service  revenue                                                                                                                      |       | 61,147              |       | 43,019             |       |
| Total current  liabilities                                                                                                                     |       | 164,075             |       | 136,066            |       |
|                                                                                                                                           |       |                |       |               |       |
| Capital lease  obligations, net of current portion                                                                                             |       | 184                 |       | 166                |       |
| Deferred income  taxes, non-current                                                                                                            |       | 16,511              |       | 15,544             |       |
| Other  non-current liabilities                                                                                                                 |       | 1,507               |       | 1,401              |       |
|                                                                                                                                           |       |                |       |               |       |
| Commitments and  contingencies                                                                                                                 |       |                |       |               |       |
|                                                                                                                                           |       |                |       |               |       |
| Minority  interests                                                                                                                            |       | 2,881               |       | 2,742              |       |
|                                                                                                                                           |       |                |       |               |       |
| Shareholders’  equity:                                                                                                                    |       |                |       |               |       |
| Common stock,  $0.0125 par; authorized 50,000 shares; issued and outstanding 37,976 shares  at March 31, 2005 and 36,670 at June 30, 2004      |       | 475                 |       | 457                |       |
| Capital in  excess of par                                                                                                                      |       | 86,494              |       | 71,525             |       |
| Retained  earnings                                                                                                                             |       | 221,250             |       | 185,660            |       |
| Accumulated  other comprehensive income                                                                                                        |       | 11,294              |       | 5,331              |       |
| Total  shareholders’ equity                                                                                                               |       | 319,513             |       | 262,973            |       |
| Total  liabilities and shareholders’ equity                                                                                               |       | $                   | 504,671    |               | $          | 418,892 |   |

 

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

 

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MICROS SYSTEMS,INC. AND SUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF OPERATIONS

 (Unaudited, in thousands, except per sharedata)

 
| ** **                                                                        | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------------------|------------|----------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                          | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenue:                                                                          |       |                              |       |                             |       |   |   |   |   |
| Hardware                                                                          |       | $                                 | 49,871     |                             | $          | 35,811 |   | $ | 131,804 |   | $ | 104,057 |   |
| Software                                                                          |       | 28,762                            |       | 21,509                           |       | 75,183 |   | 58,273 |   |
| Service                                                                           |       | 74,719                            |       | 63,647                           |       | 218,257 |   | 182,308 |   |
| Total revenue                                                                     |       | 153,352                           |       | 120,967                          |       | 425,244 |   | 344,638 |   |
|                                                                              |       |                              |       |                             |       |   |   |   |   |
| Cost of sales:                                                                    |       |                              |       |                             |       |   |   |   |   |
| Hardware                                                                          |       | 32,628                            |       | 23,705                           |       | 88,220 |   | 72,162 |   |
| Software                                                                          |       | 6,704                             |       | 5,471                            |       | 17,965 |   | 14,312 |   |
| Service                                                                           |       | 36,226                            |       | 29,665                           |       | 105,040 |   | 82,831 |   |
| Total cost of  sales                                                              |       | 75,558                            |       | 58,841                           |       | 211,225 |   | 169,305 |   |
|                                                                              |       |                              |       |                             |       |   |   |   |   |
| Gross margin                                                                      |       | 77,794                            |       | 62,126                           |       | 214,019 |   | 175,333 |   |
|                                                                              |       |                              |       |                             |       |   |   |   |   |
| Selling, general  and administrative expenses                                     |       | 48,540                            |       | 40,375                           |       | 134,397 |   | 114,065 |   |
| Research and  development expenses                                                |       | 7,201                             |       | 6,623                            |       | 20,864 |   | 19,957 |   |
| Depreciation and  amortization                                                    |       | 2,681                             |       | 2,330                            |       | 7,627 |   | 7,078 |   |
| Total operating  expenses                                                         |       | 58,422                            |       | 49,328                           |       | 162,888 |   | 141,100 |   |
|                                                                              |       |                              |       |                             |       |   |   |   |   |
| Income from  operations                                                           |       | 19,372                            |       | 12,798                           |       | 51,131 |   | 34,233 |   |
|                                                                              |       |                              |       |                             |       |   |   |   |   |
| Non-operating  (expense) income:                                                  |       |                              |       |                             |       |   |   |   |   |
| Interest income                                                                   |       | 616                               |       | 406                              |       | 1,547 |   | 920 |   |
| Interest expense                                                                  |       | (946                              | )          | (71                              | )          | (1,177 | ) | (769 | ) |
| Other income  (expense), net                                                      |       | 76                                |       | (218                             | )          | 711 |   | 1,422 |   |
| Total  non-operating (expense) income                                             |       | (254                              | )          | 117                              |       | 1,081 |   | 1,573 |   |
|                                                                              |       |                              |       |                             |       |   |   |   |   |
| Income before  taxes, minority interests and equity in net earnings of affiliates |       | 19,118                            |       | 12,915                           |       | 52,212 |   | 35,806 |   |
|                                                                              |       |                              |       |                             |       |   |   |   |   |
| Income tax  provision                                                             |       | 4,777                             |       | 5,230                            |       | 16,029 |   | 14,501 |   |
|                                                                              |       |                              |       |                             |       |   |   |   |   |
| Income before  minority interests and equity in net earnings of affiliates        |       | 14,341                            |       | 7,685                            |       | 36,183 |   | 21,305 |   |
|                                                                              |       |                              |       |                             |       |   |   |   |   |
| Minority  interests and equity in net earnings of affiliates                      |       | (163                              | )          | (168                             | )          | (591 | ) | (471 | ) |
|                                                                              |       |                              |       |                             |       |   |   |   |   |
| Net income                                                                        |       | $                                 | 14,178     |                             | $          | 7,517 |   | $ | 35,592 |   | $ | 20,834 |   |
|                                                                              |       |                              |       |                             |       |   |   |   |   |
| Net income per  common share:                                                     |       |                              |       |                             |       |   |   |   |   |
| Basic                                                                             |       | $                                 | 0.37       |                             | $          | 0.20 |   | $ | 0.96 |   | $ | 0.57 |   |
| Diluted                                                                           |       | $                                 | 0.35       |                             | $          | 0.19 |   | $ | 0.90 |   | $ | 0.54 |   |
|                                                                              |       |                              |       |                             |       |   |   |   |   |
| Weighted-average  number shares outstanding:                                      |       |                              |       |                             |       |   |   |   |   |
| Basic                                                                             |       | 37,885                            |       | 36,771                           |       | 37,255 |   | 36,398 |   |
| Diluted                                                                           |       | 40,038                            |       | 38,877                           |       | 39,503 |   | 38,374 |   |

 

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

 

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MICROS SYSTEMS,INC. AND SUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

For the NineMonths Ended March 31, 2005

(Unaudited, inthousands)

 
| ** **                                       | ** ** | **Common Stock** | ** ** | **Capital  in Excess  of Par** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income** | ** ** | **Total** | ** ** |
|--------------------------------------------------|------------|------------------|------------|--------------------------------|------------|------------------------|------------|-----------------------------------------------|------------|-----------|------------|
| **Shares**                                       | ** ** | **Amount**       |
| Balance, June  30, 2004                          |       | 36,670           |       | $                              | 457        |                   | $          | 71,525                                        |       | $         | 185,660    |   | $ | 5,331 |   | $ | 262,973 |   |
| Comprehensive  income:                           |       |             |       |                           |       |                   |       |                                          |       |      |       |   |   |
| Net income                                       |       | —           |       | —                         |       | —                 |       | 35,590                                        |       | —    |       | 35,590 |   |
| Foreign currency  translation adjustments        |       | —           |       | —                         |       | —                 |       | —                                        |       | 5,963     |       | 5,963 |   |
| Total  comprehensive income                      |       | —           |       | —                         |       | —                 |       | 35,590                                        |       | 5,963     |       | 41,553 |   |
| Stock issued  upon exercise of options           |       | 2,061            |       | 27                             |       | 23,002                 |       | —                                        |       | —    |       | 23,029 |   |
| Repurchases of  stock                            |       | (755             | )          | (9                             | )          | (21,591                | )          | —                                        |       | —    |       | (21,600 | ) |
| Income tax  benefit from stock options exercised |       | —           |       | —                         |       | 13,558                 |       | —                                        |       | —    |       | 13,558 |   |
| Balance, March  31, 2005                         |       | 37,976           |       | $                              | 475        |                   | $          | 86,494                                        |       | $         | 221,250    |   | $ | 11,294 |   | $ | 319,513 |   |

 

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

 

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MICROS SYSTEMS,INC. AND SUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(Condensed andunaudited, in thousands)

 
| ** **                                                   | ** ** | **Nine Months Ended March 31,** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                   | ** ** | **2005**                        | ** ** | **2004** | ** ** |
|                                                         |       |                            |       |   |   |
| Net cash flows  provided by operating activities:            |       | $                               | 49,140     |   | $ | 51,725 |   |
|                                                         |       |                            |       |   |   |
| Cash flows from  investing activities:                       |       |                            |       |   |   |
| Purchases of  short term investments                         |       | (156,200                        | )          | (21,000 | ) |
| Proceeds from  sales of short term investments               |       | 142,200                         |       | 13,000 |   |
| Purchases of  property, plant and equipment                  |       | (7,382                          | )          | (5,394 | ) |
| Proceeds from  dispositions of property, plant and equipment |       | —                          |       | 5 |   |
| Internally  developed software                               |       | (4,421                          | )          | (3,617 | ) |
| Net cash paid  for acquisition                               |       | (13,863                         | )          | — |   |
| Purchases of  other investments                              |       | —                          |       | (500 | ) |
| Net cash used in  investing activities                       |       | (39,666                         | )          | (17,506 | ) |
|                                                         |       |                            |       |   |   |
| Cash flows from  financing activities:                       |       |                            |       |   |   |
| Principal  payments on lines of credit                       |       | (31                             | )          | (11,837 | ) |
| Proceeds from  lines of credit                               |       | 34                              |       | 3,847 |   |
| Principal  payments on pre-acquisition shareholder loan      |       | —                          |       | (363 | ) |
| Principal  payments on capital lease obligations             |       | (94                             | )          | (69 | ) |
| Dividends to  minority owners                                |       | (319                            | )          | (161 | ) |
| Repurchases of  stock                                        |       | (21,600                         | )          | (10,115 | ) |
| Proceeds from  issuance of stock                             |       | 23,029                          |       | 12,288 |   |
| Net cash provided  (used) in financing activities            |       | 1,019                           |       | (6,410 | ) |
|                                                         |       |                            |       |   |   |
| Effect of  exchange rate changes on cash                     |       | (19                             | )          | 25 |   |
|                                                         |       |                            |       |   |   |
| Net increase in  cash and cash equivalents                   |       | 10,474                          |       | 27,834 |   |
|                                                         |       |                            |       |   |   |
| Cash and cash  equivalents at beginning of period            |       | 83,451                          |       | 45,682 |   |
|                                                         |       |                            |       |   |   |
| Cash and cash  equivalents at end of period                  |       | $                               | 93,925     |   | $ | 73,516 |   |

 

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

 

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MICROS SYSTEMS, INC. ANDSUBSIDIARIES

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

For the Quarter EndedMarch 31, 2005

(Unaudited, $ inthousands, except per share data)

 

1.             Basisof Presentation

 

Theaccompanying consolidated financial statements of MICROS Systems, Inc. and itssubsidiaries (collectively, the “Company”) have been prepared by the Companypursuant to the rules and regulations of the Securities and Exchange Commission(“SEC”).  This Quarterly Report on Form10-Q should be read in conjunction with the Company’s Annual Report on Form10-K for the year ended June 30, 2004.

 

OnJanuary 5, 2005, the Company announced that its Board of Directors approved atwo-for-one stock split effected in the form of a 100 percent stock dividend.Stockholders received one additional share for every share they owned as of theclose of business on January 17, 2005. The additional shares were distributedon January 31, 2005 and reporting of the Company’s share price on asplit-adjusted basis commenced immediately. As a result, the Company’s sharesoutstanding, as of January 31, 2005, increased from approximately 18,923,640shares to 37,847,280 shares. All references in the consolidated financialstatements to common shares, share prices, per share amounts and stock planshave been retroactively restated for the two-for-one stock split.

 

OnJanuary 6, 2005, the Company announced the acquisition of JTECH Communications,Inc. (“JTECH”), and has since operated JTECH as a wholly-owned subsidiary ofthe Company.  JTECH is considered anindustry pioneer and leader in on-premises wireless paging solutions forhospitality, retail and other markets. The acquisition of JTECH has not been materialto the overall financial statements presented herein.

 

Certaininformation and footnote disclosures which are normally included in financialstatements prepared in accordance with generally accepted accounting principleshave been condensed or omitted pursuant to SEC rules and regulations.  The information reflects all normal andrecurring adjustments that, in the opinion of management, are necessary for afair statement of the financial position of the Company, and its results ofoperations for the interim periods set forth herein.  The results for the three- and nine- monthsended March 31, 2005 are not necessarily indicative of the results to beexpected for the full year or any future period.

 

The prior yearconsolidated financial statements and the related notes include areclassification to conform to the current presentation. Cash and cash equivalentsand short term investments were reclassified as of June 30, 2004 to reflect thereclassification of short-term investments amounting to $8.0 million fromcash equivalents. The reclassification is reflected in the consolidated balancesheet and in the consolidated statements of cash flows, and is discussedfurther in Note 9 - “Investments”.

 

2.             Stock-based compensation

 

The Company has incentiveand non-qualified stock options outstanding that were granted to directors,officers, and other employees pursuant to authorization by the Board ofDirectors.  The exercise price of alloptions equals the market value on the date of the grant.  Substantially all of the options granted areexercisable pursuant to a three-year vesting schedule whereby one-third of theoptions vest upon the first anniversary of the grant, the second third of theoptions vest upon the second anniversary of the grant, and the final third ofthe options vest upon the third anniversary of the grant.  Currently, all outstanding options expire tenyears from the date of grant.

 

The Company applies theintrinsic value based method of accounting prescribed by Accounting PrinciplesBoard Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” inaccounting for the stock option awards. The Company has not recognized any related compensation expense in theconsolidated statements of operations because the fair value of the stockunderlying the options granted did not exceed the exercise price of the optionson the date of grant.  If compensationexpense had been determined based on the weighted-average estimate of the fairvalue of each option granted consistent with the provisions of the Statement ofFinancial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based

 

7

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Compensation”, as amendedby SFAS No. 148, the Company’s net income would be reduced to pro forma amountsas follows:

 
| ** **                                                                                                   | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                   | ** ** | **2005**                          | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income - as  reported                                                                                    |       | $                                 | 14,178     |                             | $          | 7,517 |   | $ | 35,592 |   | $ | 20,834 |   |
| Deduct: total  stock-based employee compensation expense determined under the fair value  method, net of tax |       | (1,594                            | )          | (1,428                           | )          | (4,210 | ) | (3,979 | ) |
| Net income - pro  forma                                                                                      |       | $                                 | 12,584     |                             | $          | 6,089 |   | $ | 31,382 |   | $ | 16,855 |   |
|                                                                                                         |       |                              |       |                             |       |   |   |   |   |
| Basic net income  per share                                                                                  |       |                              |       |                             |       |   |   |   |   |
| As reported                                                                                                  |       | $                                 | 0.37       |                             | $          | 0.20 |   | $ | 0.96 |   | $ | 0.57 |   |
| Pro forma                                                                                                    |       | $                                 | 0.33       |                             | $          | 0.17 |   | $ | 0.84 |   | $ | 0.25 |   |
|                                                                                                         |       |                              |       |                             |       |   |   |   |   |
| Diluted net  income per share                                                                                |       |                              |       |                             |       |   |   |   |   |
| As reported                                                                                                  |       | $                                 | 0.35       |                             | $          | 0.19 |   | $ | 0.90 |   | $ | 0.54 |   |
| Pro forma                                                                                                    |       | $                                 | 0.31       |                             | $          | 0.16 |   | $ | 0.79 |   | $ | 0.24 |   |

 

The weighted average fairvalue of options granted during the third quarter of fiscal year 2005 and 2004was $16.12 and $10.65, respectively.  Theweighted average fair value of each option granted for the first nine months offiscal year 2005 and 2004 was $16.14 and $10.75, respectively.  The fair value of options granted isestimated on the date of grant using the Black-Scholes option-pricing modelwith the following weighted-average assumptions:

 
| ** **               | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|--------------------------|------------|-----------------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **2005**                          | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| Risk-free  interest rate |       | 4.1                               | %          | 3.3                              | %          | 3.8 | % | 3.7 | % |
| Expected life            |       | 6.0 years                         |       | 5.4 years                        |       | 6.0 years |   | 6.0 years |   |
| Expected  volatility     |       | 46                                | %          | 48                               | %          | 46 | % | 49 | % |
| Expected  dividend yield |       | 0                                 | %          | 0                                | %          | 0 | % | 0 | % |

 

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

 

3.             Thecomponents of inventories are as follows:

 
| ** **      | ** ** | **March 31,  2005** | ** ** | **June 30,  2004** | ** ** |
|-----------------|------------|---------------------|------------|--------------------|------------|
| Raw materials   |       | $                   | 7,766      |               | $          | 5,592 |   |
| Work-in-process |       | 72                  |       | 91                 |       |
| Finished goods  |       | 36,916              |       | 30,412             |       |
|            |       | $                   | 44,754     |               | $          | 36,095 |   |

 

TheCompany maintains a reserve for obsolescence for inventory in the amount of$7,271 at March 31, 2005 compared to $6,380 at June 30, 2004.

 

8

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4.             Recentaccounting standards

 

In December 2004, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standard (“SFAS”) No. 123(R), “Share-Based Payment,” a revision ofSFAS No. 123, “Accounting for Stock-Based Compensation” and superseding APBOpinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123(R)requires the Company to expense grants made under the stock option program.That cost will be recognized over the vesting period of the plans. TheSecurities and Exchange Commission subsequently issued a rule that allowspublicly traded companies to adopt FAS 123(R) for the annual period beginningafter June 15, 2005. Upon adoption of SFAS No. 123(R), amounts previouslydisclosed under SFAS No. 123 will be recorded in the consolidated incomestatement.

 

Currently, the Company isevaluating the overall impact on the financial statements. However, the Companyplans to value stock options using the Black-Scholes-Merton closed-form model,and also plans to adopt the “Modified Prospective Application with restatementof prior interim periods”. This application of FAS 123(R) allows the company toadopt the standard without restating any prior periods since the Company isrequired to adopt beginning in the first quarter of fiscal year 2006.

 

On October 22, 2004, theAmerican Jobs Creation Act (“AJCA”) was signed into law by President Bush.  The AJCA broadly impacts the Company in thefollowing manner: the phase out of the Extraterritorial Income Exclusion Act of2000 (“ETI”) over a three year period, the introduction of a qualifiedmanufacturing deduction, and a one-time election to repatriate foreign earningsat reduced rates.  At this time theCompany is evaluating the potential impact on the Company’s financial positionand results of operation as a result of this legislation, but expects areduction in the effective tax rate.

 

5.             Netincome per share

 

Basic net income percommon share is computed by dividing net income by the weighted average numberof shares outstanding.  Diluted netincome per share includes the dilutive effect of stock options.

 

A reconciliation of theweighted average number of common shares outstanding assuming dilution is asfollows (1):

 
| ** **                                                  | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|-------------------------------------------------------------|------------|-----------------------------------|------------|----------------------------------|------------|
| ** **                                                  | ** ** | **2005**                          | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income                                                  |       | $                                 | 14,178     |                             | $          | 7,517 |   | $ | 35,592 |   | $ | 20,834 |   |
|                                                        |       |                              |       |                             |       |   |   |   |   |
| Average common  shares outstanding                          |       | 37,885                            |       | 36,771                           |       | 37,255 |   | 36,398 |   |
| Dilutive effect  of outstanding stock options               |       | 2,153                             |       | 2,106                            |       | 2,249 |   | 1,976 |   |
| Average common  shares outstanding assuming dilution        |       | 40,038                            |       | 38,877                           |       | 39,503 |   | 38,374 |   |
|                                                        |       |                              |       |                             |       |   |   |   |   |
| Basic net income  per share                                 |       | $                                 | 0.37       |                             | $          | 0.20 |   | $ | 0.96 |   | $ | 0.57 |   |
| Diluted net  income per share                               |       | $                                 | 0.35       |                             | $          | 0.19 |   | $ | 0.90 |   | $ | 0.54 |   |
|                                                        |       |                              |       |                             |       |   |   |   |   |
| Anti-dilutive  weighted shares excluded from reconciliation |       | —                            |       | 546                              |       | 342 |   | 781 |   |

 

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(1)   SeeFootnote 1 - Basis of Presentation.

 

6.             Segmentreporting data

 

TheCompany develops, manufactures, sells, and services point-of-sale computer systems,property management systems, central reservation and central informationsystems products for the hospitality industry and information technologysolutions for the specialty and general merchandise retail industry.

 

9

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TheCompany is organized and operates in two segments: U.S. and International.  The International segment is primarily inEurope, the Pacific Rim and Latin America. For purposes of applying SFAS No. 131, “Disclosures about Segments of anEnterprise and Related Information,” management views the U.S. andInternational segments separately in operating the business, although theproducts and services are similar for each segment.

 

A summary of the Company’soperating segments is as follows:

 
| ** **                                                                              | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-----------------------------------|------------|----------------------------------|------------|
| ** **                                                                              | ** ** | **2005**                          | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues (1):                                                                           |       |                              |       |                             |       |   |   |   |   |
|                                                                                    |       |                              |       |                             |       |   |   |   |   |
| United States                                                                           |       | $                                 | 85,836     |                             | $          | 71,208 |   | $ | 244,736 |   | $ | 199,234 |   |
| International                                                                           |       | 85,139                            |       | 65,740                           |       | 232,692 |   | 191,949 |   |
| Intersegment  eliminations                                                              |       | (17,623                           | )          | (15,981                          | )          | (52,184 | ) | (46,545 | ) |
| Total revenues                                                                          |       | $                                 | 153,352    |                             | $          | 120,967 |   | $ | 425,244 |   | $ | 344,638 |   |
|                                                                                    |       |                              |       |                             |       |   |   |   |   |
| Income before  taxes, minority interests and equity in net earnings of affiliates (1):  |       |                              |       |                             |       |   |   |   |   |
|                                                                                    |       |                              |       |                             |       |   |   |   |   |
| United States                                                                           |       | $                                 | 8,648      |                             | $          | 7,617 |   | $ | 22,300 |   | $ | 17,485 |   |
| International                                                                           |       | 24,526                            |       | 17,661                           |       | 71,446 |   | 54,862 |   |
| Intersegment  eliminations                                                              |       | (14,056                           | )          | (12,363                          | )          | (41,534 | ) | (36,541 | ) |
| Total income  before taxes, minority interests and equity in net earnings of affiliates |       | $                                 | 19,118     |                             | $          | 12,915 |   | $ | 52,212 |   | $ | 35,806 |   |

 
| ** **                 | ** ** | **March 31,  2005** | ** ** | **June 30,  2004** | ** ** |
|----------------------------|------------|---------------------|------------|--------------------|------------|
| Identifiable  assets (2):  |       |                |       |               |       |
| United States              |       | $                   | 296,167    |               | $          | 232,577 |   |
| International              |       | 208,504             |       | 186,315            |       |
| Total  identifiable assets |       | $                   | 504,671    |               | $          | 418,892 |   |

 

----

(1)   Amountsbased on the location of the customer.

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

 

7.             Shareholders’ Equity

 

Infiscal year 2002, the Board of Directors authorized the purchase of up to twomillion shares (stock split adjusted) of the Company’s common stock.Subsequently, during fiscal year 2005, the Board of Directors authorized thepurchase of an additional two million shares (stock split adjusted). A summaryof the cumulative number of whole shares (stock-split adjusted) purchasedthrough March 31, 2005, is as follows:

 
| ** **                                                | ** ** | **Whole  Shares** | ** ** | **Average  Purchase Price** | ** ** | **Principal** | ** ** |
|-----------------------------------------------------------|------------|-------------------|------------|-----------------------------|------------|---------------|------------|
| Total shares purchased as of June 30, 2004                |       | 1,599,462         |       | $                           | 16.51      |          | $          | 26,403 |   |
| Shares purchased  from July 1, 2004 — March 31, 2005 |       | 754,782           |       | $                           | 28.62      |          | 21,600     |   |
| Total shares  purchased as March 31, 2005                 |       | 2,354,244         |       | $                           | 20.39      |          | $          | 48,003 |   |

 

10

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8.             Pension Benefits

 

On November 19, 2004, theCompany’s Board of Directors (with Messrs. A.L. Giannopoulos and Louis M.Brown, Jr. abstaining as a result of their participation in this plan)authorized the establishment of a Supplemental Executive Retirement Plan, toprovide designated officers and executives of the Company with benefits uponretirement effective as of August 25, 2004.  On April 27, 2005, the Company’sBoard of Directors (with A.L. Giannopoulos and Louis M. Brown, Jr. abstaining asa result of their participation in this plan) amended the Supplemental Executive Retirement Plan, to provide forvesting of benefits in the event of a participant’s death.  The plan is accounted for inaccordance with Statement of Financial Accounting Standard (“SFAS”) 87 –Employers Accounting for Pensions.

 

Under the terms of theplan, participants who are vested in the plan (or their designatedbeneficiaries in the event of death) will receive 10 payments over nine yearscommencing 6 months after the earlier of death or retirement on or after age62.  The payment amount is determinedbased on the participant’s age at retirement or death and the base salaryreceived by the participant during the 12 months immediately preceding his orher retirement or death.  A participant(or his or her designated beneficiary) shall not be eligible to receive anybenefit under the plan unless and until the participant has no fewer than eightyears of service and either (i) the participant has attained age 62, or (ii)there is a change in control (which is defined to include a merger and anacquisition of 50% or more of the voting shares of the Company), or (iii) theparticipant dies prior to attaining age 62. If a participant terminates employment with the Corporation prior tosatisfaction of the above vesting conditions, such participant shall not beentitled to receive any benefits under the plan.  The payment amount is determined based on theparticipant’s age at retirement or death and the base salary received by theparticipant during the 12 months immediately preceding his or her retirement ordeath.

 

The SupplementalExecutive Retirement Plan is currently an unfunded plan providing supplementaryretirement benefits to higher level, longer-service employees.  The Company is contemplating funding thebenefits under the plan with corporate owned life insurance policies held by asegregated trust (known as a “Rabbi Trust”), whose assets are subject to theclaims of creditors of the Company. Total pension cost for the three- and nine-month periods ended March 31,2005 and 2004 includes the following components ($ in thousands):

 
| ** **                                     | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|------------------------------------------------|------------|-----------------------------------|------------|----------------------------------|------------|
| ** **                                     | ** ** | **2005**                          | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service cost                                   |       | $                                 | 432        |                             | —     |   | $ | 1,095 |   | — |   |
| Interest cost on  projected benefit obligation |       | 18                                |       | —                           |       | 55 |   | — |   |
| Total pension  cost                            |       | $                                 | 450        |                             | —     |   | $ | 1,150 |   | — |   |

 

9.             Investments

 

The Company has reclassifiedauction rate securities from cash equivalents to short-term investments.Auction rate securities are variable rate bonds tied to short-term interestrates with maturities on the face of the securities in excess of 90 days.Auction rate securities have interest rate resets through a modified Dutchauction, at pre-determined short-term intervals, usually every 7, 28 or35 days. They trade at par and are callable at par on any interest paymentdate at the option of the issuer. The Company had historically classified theseinstruments as cash equivalents if the period between interest rate resets was90 days or less, which was based on the Company’s ability to eitherliquidate its holdings or roll its investment over to the next reset period.

 

Based upon re-evaluationof these securities, the Company has classified its auction rate securities,previously classified as cash equivalents, as short-term investments for eachof the periods presented in the accompanying consolidated balance sheets. Theamount of auction rate securities totaled $22.0 million and $8.0 million atMarch 31, 2005 and June 30, 2004, respectively. Purchases of investments andsales of investments, included in the accompanying consolidated statements ofcash flows, have been revised to reflect the purchase and sale of auction ratesecurities in cash flows from investing activities during the periodspresented.

 

11

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**Item2.   Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

Forward-LookingStatements

 

The following discussionand analysis of our financial condition and results of operations should beread in conjunction with the Condensed Consolidated Financial Statements andthe related notes and other financial information included elsewhere in thisQuarterly Report on Form 10-Q. The discussion and analysis containsforward-looking statements which are made in reliance upon safe harborprovisions of the Private Securities Litigation Reform Act of 1995. Our actualresults may differ materially from those anticipated in these forward-lookingstatements and other forward-looking statements made elsewhere in thisQuarterly Report on Form 10-Q as a result of specified factors, including thoseset forth under the caption “Factors that May Affect Future Results.”

 

Overview

 

MICROS is a leading global provider of software and hardwaresystems, and associated goods and services, primarily to the hospitalityindustry and the specialty retail industry. In addition, MICROS recently completed the acquisition of JTECHCommunications (“JTECH”), which is a leader in on-premise wireless messagingsystems. MICROS’s products include hotel information systems (e.g., propertymanagement systems, sales and catering systems, central reservation systems,and customer information systems), restaurant information systems (e.g.,hospitality-oriented point-of-sale systems, specialized computer hardware, backoffice applications, on-premise wireless messaging systems, and some centrallyhosted applications), and specialty retail systems (e.g., retail-orientedpoint-of-sale systems, and back-office loss prevention applications).  MICROS also provides services related to itsproducts, including installation, training, maintenance and support, customdevelopment, and software hosting.   Over200,000 MICROS restaurant information systems are currently installed in tableand quick service restaurants, hotels, motels, casinos, leisure andentertainment, and retail operations in more than 140 countries, and on allseven continents.   In addition, MICROShas provided hotel information systems to more than 20,000 hotels worldwide,and retail systems to more than 50,000 specialty retail stores worldwide.  MICROS distributes its products and servicesdirectly and through its district and subsidiary offices, as well as through anetwork of independent dealers and distributors.

 

MICROS operates in highlycompetitive markets.  MICROS’s productsand services compete with those of numerous other third-party providers ofhardware, software, and services geared toward the hospitality and retailindustries, as well as systems developed and maintained by the customersthemselves.  MICROS believes that itscompetitive strengths include its established global distribution and servicenetwork, its commitment to research and development, and the breadth of itsproduct lines and services. MICROS continues to experience growth in revenueand in net income.  The increases in revenuereflect increases in software sales, several large major account installationsof hotel information systems and restaurant information systems, both in the USand internationally, improved sales of the MICROS Workstation 4 hardwareplatform, and an increase in support and installation revenues commensuratewith increases in the overall customer base. However, we Selling, general, andadministrative expenses as a percentage of sales remain lower comparatively,but the total dollar amounts have increased worldwide in the third quarter duein part to additional headcount, merit increases, and administrative expensesassociated with MICROS’s implementation of procedures mandated by Section 404of the Sarbanes-Oxley Act of 2002.

 

On January 5, 2005, theCompany announced that its Board of Directors approved a two-for-one stocksplit effected in the form of a 100 percent stock dividend. Stockholdersreceived one additional share for every share they owned as of the close ofbusiness on January 17, 2005. The additional shares were distributed on January31, 2005 and reporting of the Company’s share price on a split-adjusted basiscommenced shortly thereafter. As a result, the Company’s shares outstanding, asof January 31, 2005, increased from approximately 18,923,640 shares to37,847,280 shares. All references in Item 2 “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” to common shares,share prices, per share amounts and stock plans have been retroactivelyrestated for the two-for-one stock split.

 

**Resultsof Operations – Third Quarter and Nine-Month Comparisons**

*(Earnings per share figures are presented on a stock split-adjustedbasis)*

 

MICROS recorded dilutednet income of $0.35 per common share in the third quarter of fiscal year 2005,compared with diluted net income of $0.19 per common share in the third quarterof fiscal year 2004.  For the nine months

 

12

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ended March 31, 2005,diluted net income was $0.90 per common share compared with diluted net incomeof $0.54 per common share for the nine months ended March 31, 2004.  The quarter and year-to-date increases weremainly due to increased sales volume. Sales continued to grow due to thestrength of our products and services in the business markets we serve: hotels,restaurants, and specialty retail. Service revenues remain strong asmaintenance revenue and installation related revenues continue to grow as ourvolume increases. Gross margin contributions from hardware, software andservice revenue for the most recent three and nine month periods remainedconsistent with last year, which coupled with our effort to control expenses,as a percent of our revenue, have contributed to the overall growth in ourbusiness. In addition, our overall tax rate decreased compared to last year.

 

Revenue increasedapproximately $32.4 million, or 26.8% to $153.4 million in the third quarter offiscal year 2005 compared to the third quarter of fiscal year 2004, whileyear-to-date revenue increased $80.6 million, or 23.4%, to $425.2 millioncompared to the same period last year.

 

An analysis of the salesmix by reportable segments is as follows (total amounts are net of intersegmenteliminations and based on location of the selling entity):

 
| ** **         | ** ** | **U.S.  Three Months Ended  March 31,** | ** ** | **International  Three Months Ended  March 31,** | ** ** | **U.S.  Nine Months Ended  March 31,** | ** ** | **International  Nine Months Ended  March 31,** | ** ** |
|--------------------|------------|-----------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------|------------|-------------------------------------------------|------------|
| **(in thousands)** | ** ** | **2005**                                | ** ** | **2004**                                         | ** ** | **2005**                               | ** ** | **2004**                                        | ** ** | **2005** | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Hardware           |       | $                                       | 30,195     |                                             | $          | 23,192                                 |       | $                                               | 19,676     |   | $ | 12,619 |   | $ | 77,786 |   | $ | 67,478 |   | $ | 54,018 |   | $ | 36,579 |   |
|               |       |                                    |       |                                             |       |                                   |       |                                            |       |   |   |   |   |   |   |   |   |
| Software           |       | 15,497                                  |       | 12,866                                           |       | 13,265                                 |       | 8,643                                           |       | 36,845 |   | 33,404 |   | 38,338 |   | 24,869 |   |
|               |       |                                    |       |                                             |       |                                   |       |                                            |       |   |   |   |   |   |   |   |   |
| Service            |       | 37,347                                  |       | 32,787                                           |       | 37,372                                 |       | 30,860                                          |       | 108,714 |   | 95,163 |   | 109,543 |   | 87,145 |   |
|               |       |                                    |       |                                             |       |                                   |       |                                            |       |   |   |   |   |   |   |   |   |
| Total Revenue      |       | $                                       | 83,039     |                                             | $          | 68,845                                 |       | $                                               | 70,313     |   | $ | 52,122 |   | $ | 223,345 |   | $ | 196,045 |   | $ | 201,899 |   | $ | 148,593 |   |

 

An analysis of thecorporate sales mix as a percentage of total revenue is as follows:

 
| ** ** | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|------------|------------|-----------------------------------|------------|----------------------------------|------------|
| ** ** | ** ** | **2005**                          | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| Hardware   |       | 32.5                              | %          | 29.6                             | %          | 31.0 | % | 30.2 | % |
| Software   |       | 18.8                              | %          | 17.8                             | %          | 17.7 | % | 16.9 | % |
| Service    |       | 48.7                              | %          | 52.6                             | %          | 51.3 | % | 52.9 | % |
| Total      |       | 100.0                             | %          | 100.0                            | %          | 100.0 | % | 100.0 | % |

 

For the three monthsended March 31, 2005, the U.S. segement sales increased approximately $14.2million while the international reporting unit sales increased $18.2million.  The increase in the U.S. forthe current quarter, compared to the prior fiscal year quarter, was a result ofseveral factors (illustrated below as percent of the total change). They are asfollows:

 

•      35% -acquisition of JTECH Communications;

•      33% - continuedincreases in service and support revenues from expansion of the MICROS customerbase coupled with recurring support revenue from existing customers;

•      14% - hardwaresales due to overall sales volume increases, particularly Computer Equipmentand Workstation 4; and

•      18% - softwaresales due to overall sales volume increases, particularly third party softwareand Yield Management software.

 

The increase in theinternational segment for the current quarter, compared to the same period in2004, was due to several factors (illustrated below as percent of the totalchange). They are as follows:

 

•      37% - hardwaresales due to sales volume increases, particularly Workstation 4 and OEMequipment;

 

13

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•      34% - continuedincreases in service and support revenues from expansion of the MICROS customerbase coupled with recurring support revenue from existing customers;

•      24% - softwaresales due to overall sales volume increases, particularly third party and Operasoftware sales; and

•      5% - due tochanges in foreign currency exchange rates.

 

For the nine months endedMarch 31, 2005, the U.S. segment sales increased $27.3 million while theinternational reporting unit sales increased $53.3 million.  The increase in the U.S. year-to-date,compared to the prior fiscal year-to-date, was a result of several factors(illustrated below as percent of the total change). They are as follows:

 

•      50% - continuedincreases in service and support revenues from expansion of the MICROS customerbase coupled with recurring support revenue from existing customers;

•      20% - hardwaresales due to overall sales volume increases, particularly Computer Equipment,Printers, E7 Hardware, 3700 hardware and Workstation 4;

•      12% - softwaresales due to overall sales volume increases, particularly third party, Opera,and Yield Management software; and

•      18% -acquisition of JTECH Communications

 

The increase in theinternational segment year-to-date, compared to the same period in 2004, was aresult of several factors (illustrated below as percent of the total change).They are as follows:

 

•      39% - continuedincreases in service and support revenues from expansion of the MICROS customerbase coupled with recurring support revenue from existing customers;

•      24% - softwaresales due to overall sales volume increases, particularly 9700, 3700, thirdparty and Opera software

•      31% - hardwaresales due to overall sales volume increases, particularly Workstation 4 and OEMequipment; and

•      6% - due tochanges in foreign currency exchange rates.

 

MICROS’s cost ofsales increased $16.7 million, or 28.4%, to $75.6 million in the third quarterof fiscal year 2005 compared to the same period last year.  On a year-to-date basis, costs of salesincreased by $41.9 million, or 24.8%, to $211.2 million compared to $169.3million in same period in the prior year. In the quarter and year-to-date,JTECH contributed approximately $1.8 million of the increase in cost of sales,however the overall increase was mainly due to increased volume, costsassociated with 3rd party software and increased outsourcedinstallation labor associated with large customer contracts.

 

An analysis of the changein cost of sales is as follows ($ in thousands):

 
| ** **           | ** ** | **Three Months Ended March 31,** | ** ** | **Nine Months Ended March 31,** | ** ** |
|----------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **           | ** ** | **2005**                         | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| **(in thousands)**   | ** ** | **Costs of  Sales**              | ** ** | **% of  related  revenue**      | ** ** | **Costs of  Sales** | ** ** | **% of  related  revenue** | ** ** | **Costs of  Sales** | ** ** | **% of  related  revenue** | ** ** | **Costs of  Sales** | ** ** | **% of  related  revenue** | ** ** |
| Hardware             |       | $                                | 32,628     |                            | 65.4       | % | $ | 23,705 |   | 66.2 | % | $ | 88,220 |   | 66.9 | % | $ | 72,162 |   | 69.3 | % |
| Software             |       | 6,704                            |       | 23.3                            | %          | 5,471 |   | 25.4 | % | 17,965 |   | 23.9 | % | 14,312 |   | 24.6 | % |
| Service              |       | 36,226                           |       | 48.5                            | %          | 29,665 |   | 46.6 | % | 105,040 |   | 48.1 | % | 82,831 |   | 45.4 | % |
| Total Cost of  Sales |       | $                                | 75,558     |                            | 49.3       | % | $ | 58,841 |   | 48.6 | % | $ | 211,225 |   | 49.7 | % | $ | 169,305 |   | 49.1 | % |

 

For the threemonths ended March 31, 2005, total cost of sales, as a percentage of revenue,increased to 49.3% from 48.6% in the same period in the prior fiscal year.  Cost of sales for hardware, as a percentageof related revenue, decreased to 65.4% compared to 66.2% for the same periodlast year. The hardware cost of sales decrease is a result of increasedWorkstation 4 sales, which generate slightly higher margins.  Software costs, as a percentage of relatedrevenue, decreased to 23.3% from 25.4% for the same period last year. Thesoftware cost of sales decrease is primarily due to improved sales of our OperaSoftware and our Yield Management software, which generate higher margins thanour third party software.  Service costsas a percentage of related revenue increased to 48.5%

 

14

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compared to 46.6%for the same period last year. The service cost of sales increase is primarilydue to outsourced installation labor associated with large customer contracts.

 

For the ninemonths ended March 31, 2005, total cost of sales, as a percentage of revenue,increased slightly to 49.7% from 49.1% in the prior fiscal year.  Cost of sales for hardware, as a percentageof related revenue, decreased to 66.9% compared to 69.3% in the same periodlast year.  The hardware cost of salesdecrease is a result of increased Workstation 4 sales, which generate slightlyhigher margins.  Software costs, as apercentage of related revenue, decreased to 23.9% from 24.6% for the sameperiod last year. The software cost of sales decrease is primarily due toimproved sales of our Opera, 3700 and 9700 software, which generate highermargins than our third party software. Service costs as a percentage of relatedrevenue increased to 48.1% compared to 45.4% for the same period last year. Theservice cost of sales increase is primarily due to outsourced installation laborassociated with large customer contracts.

 

Selling, generaland administrative (“SG&A”) expenses increased 20.2%, to $48.5 million inthe third quarter of fiscal year 2005 compared to $40.4 million for the sameperiod last year.  On a year-to-date basis,selling, general and administrative expenses increased by $20.3 million, or17.8%, to $134.4 million compared to $114.1 million in the same period in theprior year. Approximately, 53% of the quarter increase and 62% of theyear-to-date increase is a result of increased salary costs due to additionalheadcount, annual merit increases and the rising cost of employee relatedexpenses (e.g. Healthcare, 401(k) match). Approximately 16% of the quarterincrease and 6% of the year-to-date increase is the result of the acquisitionof JTECH, which we acquired on January 5, 2005. The remaining variance quarterand year-to-date is partially a result of increased outside consulting servicesassociated with MICROS’s implementation of procedures mandated by Section 404of the Sarbanes-Oxley Act. As a percentage of revenue, selling, general andadministrative expenses decreased to 31.7% and 31.6% in the three- andnine-month periods ended March 31, 2005 from 33.4% and 33.1% in the sameperiods of the previous year, respectively.

 

Research and development(“R&D”) expenses consist primarily of labor costs less capitalized softwaredevelopment costs.  On a quarter andyear-to-date basis, Total R&D increased compared to the prior year as aresult of increasedR&D associated with Datavantage’s development of Xstore, which is aJava-based POS product. As a percentage of revenue, R&D expenses decreasedto 4.7% in third quarter of fiscal year 2005 compared to 5.5% in the thirdquarter of fiscal year 2004.  On ayear-to-date basis, R&D expenses were 4.9% and 5.8% of revenue for fiscalyear 2005 and 2004, respectively.  Acomparative summary of R&D activities is as follows ($ in thousands):

 
| ** **              | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|-------------------------|------------|-----------------------------------|------------|----------------------------------|------------|
| ** **              | ** ** | **2005**                          | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| Total R&D           |       | $                                 | 8,749      |                             | $          | 7,918 |   | $ | 25,285 |   | $ | 23,574 |   |
| R&D  capitalization |       | (1,548                            | )          | (1,295                           | )          | (4,421 | ) | (3,617 | ) |
| Total R&D  expense  |       | $                                 | 7,201      |                             | $          | 6,623 |   | $ | 20,864 |   | $ | 19,957 |   |

 

Depreciation andamortization expense increased $0.4 million, or 15.1%, to $2.7 million in thethird quarter of fiscal year 2005 compared to $2.3 million for the same periodlast year.  On a year-to-date basis,depreciation and amortization expense increased by $0.5 million, or 7.8%, to$7.6 million compared to $7.1 million in the same period in the prioryear.  The slight increase in the quarterand year-to-date is the result of additional fixed asset acquisitions comparedto the respective prior periods.

 

Income from operationsincreased 51.4%, to $19.4 million in the third quarter of fiscal year 2005compared to $12.8 million for the same period last year.  On a year-to-date basis, income fromoperations increased 49.4%, to $51.1 million compared to $34.2 million in thesame period in the prior year.  Thequarter and year-to-date increases are mainly due to an overall increase insales volume. This increase has been partially offset by increases in salariesand related expenses due to additional headcount and merit increases as well asexpenses for outside consulting services associated with MICROS’simplementation of procedures mandated by Section 404 of the Sarbanes-Oxley Act.

 

Non-operating (expense)income decreased $0.4 million, or 317.1%, to an expense of $(0.3) million inthe third quarter of fiscal year 2005 compared to income $0.1 million for thesame period last year.  On a year-to-datebasis, non-operating income decreased by $0.5 million, or 31.3%, to $1.1million compared to $1.6 million in the same period in the prior year. Thequarter and year-to-date decrease in other income is due to additional interestexpense associated with prior years amended federal income tax returns.

 

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Income before taxesincreased $6.2 million to $19.1 million in the third quarter of fiscal2005.  The U.S. segment accounted for the$3.1 million of the increase, and the foreign segment accounted for $3.1million of the remaining total increase. The U.S. and international segment increase is primarily due toincreased sales volume, however changes in foreign currency account for approximately26% of the net increase in the foreign segment compared to the third quarter lastyear. On a year-to-date basis, income before taxes increased $16.4 million to$52.2 million. The U.S. segment accounted for $9.4 million of the increase, andthe foreign segment accounted for $7.0 million of the remaining total increase.The U.S. and international reporting segment increase is primarily due toincreased sales volume, however changes in foreign currency account for approximately36% of the net increase in the foreign segment compared to the prior fiscalyear-to-date.

 

The effective tax ratefor the third quarter of fiscal year 2005 and 2004 was 25.0% and 40.5%,respectively.  On a year-to-date basis,the effective rate for fiscal year 2005 and 2004 was 30.7% and 40.5%,respectively.  On the basis of currentlyavailable information, the Company estimates that the 2005 fiscal year-end taxrate will be approximately 32%.  Thedecrease was a direct result of consolidating functions and activities injurisdictions where the mix of earnings is subjected to a lower than averagetax rate.

 

**Critical Accounting Policies**

 

The accompanying discussion and analysis of our financialcondition and results of operations are based upon our Condensed ConsolidatedFinancial Statements, which have been prepared in accordance with accountingprinciples generally accepted in the U.S. The preparation of these financialstatements requires that we make estimates and judgments that affect the reportedamounts of assets, liabilities, revenue and expenses, and related disclosure ofcontingent assets and liabilities. We base our estimates on historicalexperience and on various other assumptions that we believe to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources.

 

Actual results could differ from the estimates made bymanagement with respect to these and other items that require management’sestimates.

 

We believe that the following accounting policies arecritical to understanding our historical and future performance, as thesepolicies affect the reported amounts of revenue and relate to the moresignificant areas involving management’s judgments and estimates:

 

•              revenue recognition and deferred revenue;

•              allowance for doubtful accounts;

•              allowance for obsolescence;

•              capitalized software development costs;

•              valuation of long-lived assets, including intangibleassets and impairment review of goodwill;

•              contingencies and litigation;

•              income taxes;

•              stock-based compensation plans; and

•              foreign currency translation.

 

Our management has reviewed our critical accounting policies,our critical accounting estimates and the related disclosures with our AuditCommittee. These policies and our procedures related to these policies aredescribed further in our Annual Report on Form 10-K for the year ended June 30,2004 in Item 7, “Management’s Discussion and Analysis of Financial Conditionand Results of Operations,” under the heading “Critical Accounting Policies.”

 

**Liquidityand Capital Resources**

 

On July 17, 2003, weentered into two credit agreements (the “Credit Agreements”) which in theaggregate offer a $65.0 million multi-currency committed line of credit,expiring on July 31, 2005.  The lenders(the “Lenders”) under the Credit Agreements are Bank of America, N.A., WachoviaBank, N. A., and US Bank.  Simultaneouslyupon entering into the Credit Agreements, we entered into: (i) a securityagreement, pursuant to which the Lenders were granted a security interest inall inventory and receivables located in the United States; and (ii) a pledgeagreement and irrevocable stock powers, pursuant to which we pledged the stockof certain of our subsidiaries to the Lenders as collateral. We are currentlyin negotiations with the Lenders to renew this line of credit, which is set toexpire in the

 

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first quarter of fiscal year2006. We plan on extending this line of credit facility for an additional twoyears at agreeable terms and conditions.

 

The interest rate underthe Credit Agreements is calculated as follows: (i) if the advance is made inU.S. dollars, the greater of the federal funds rate, plus 50 basis points, orthe Bank of America prime rate, plus an additional 25 to 150 basis points,depending upon the Company’s consolidated earnings before interest, taxes,depreciation and amortization (“EBITDA”) for the immediately preceding fourcalendar quarters; and (ii) if the advance is made in a foreign currency, theLIBOR rate for the applicable denominated currency, plus an additional 150 to250 basis points, depending upon the Company’s consolidated EBITDA for theimmediately preceding four calendar quarters. The Credit Agreements alsorequire that the Company pay immaterial commitment fees on the unused portionof the line of credit to the Lenders.

 

The Credit Agreementscontain certain financial covenants and restrictions on the Company’s abilityto assume additional debt and pay cash dividends.  The Company has not been in default under theCredit Agreements or been denied a waiver from the Lenders with respect to anyprovision thereof.

 

The Company also has acredit relationship with a European bank in the amount of EUR 1.0 million(approximately $1.3 million at the March 31, 2005 exchange rate).  Under the terms of this facility, the Companymay borrow in the form of either a line of credit or term debt.  As the Company has significant internationaloperations, its Euro-denominated borrowings do not represent a significantforeign exchange risk.  On an overallbasis, the Company monitors its cash and debt positions in each currency in aneffort to reduce its foreign exchange risk.

 

As of March 31, 2005, thetotal outstanding balance on the lines of credit is $2.6 million consisting of:ZAR (South African Rand) 4.0 million (approximately $0.7 million at the March31, 2005 exchange rate), SEK (Swedish Krona) 7.5 million (approximately $1.1million at the March 31, 2005 exchange rate), and JPY (Japanese Yen) 90.0million (approximately $0.8 million at the March 31, 2005 exchange rate).  As of March 31, 2005, the Company hasapproximately $63.7 million borrowing capacity under the Credit Agreement andEuro-denominated facility.

 

Net cash provided byoperating activities for fiscal year 2005 was $49.1 million versus $51.7million for fiscal year 2004. ** ** The Company used $39.7 million for investingactivities, including $11.8 million for the purchase of property, plant, andequipment and internally developed software. ** **The Company received $1.0 millionfrom financing activities, consisting primarily of proceeds of $23.0 millionfrom the issuance of stock option exercises offset by $21.6 million in therepurchase of the Company’s stock.  Allcash is being retained for the operation and expansion of the business and therepurchase of the Company’s stock.

 

The Company anticipatesthat its cash flow from operations along with available lines of credit, inconjunction with other lines of credit for which the Company may be eligible orlines of credit to be renewed or converted into term debt, are sufficient toprovide the working capital needs of the Company for the next 12 months.  The Company anticipates that its property,plant and equipment expenditures for fiscal year 2005 will be approximately $2.5million higher than in fiscal year 2004.

 

**Off-balancesheet arrangements**

 

The Company does not haveany off-balance sheet arrangements (as defined in the applicable regulations)that have or are reasonably likely to have a current or future effect on theCompany’s financial condition, changes in financial condition, revenues orexpenses, results of operations, liquidity, capital expenditures, or capitalresources that is material to investors.

 

**Factorsthat may affect future results**

 

In light of currentmarket conditions, and world political and economic uncertainty, it isdifficult to determine whether the Company can continue to achieve revenue andprofitability growth in the next year. This is especially true since the primary industries MICROS serves, thehospitality, travel and restaurant industries, are highly sensitive toeconomic, political and environmental disturbances, all of which are not onlyoutside of the control of MICROS, but also extraordinarily difficult to predictwith any accuracy.  Accordingly, therecan be no assurance that any particular level of growth is reasonable or can beachieved.  In addition, due to the competitivenature of the market, the Company continues to experience gross margin pressureon its products (both hardware and software) and service offerings, and theCompany expects product and service margins to decline.  There can be no assurance

 

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that the Company will beable to increase sufficiently sales of its higher margin products, includingsoftware, to prevent future declines in the Company’s overall grossmargin.  Additionally, given the factthat MICROS conducts business in many different currencies, currencyfluctuations directly impact the Company’s financial results.  While the Company recently has enjoyed someof the benefits of a strong Euro since the Company conducts significantbusiness in Europe, a weakening Euro will serve to adversely impact the Company’sfinancial performance.

 

Moreover, MICROS’sfinancial results in any single quarter are dependent upon the timing and sizeof customer orders and the shipment of products for large orders.  Large software orders from customers mayaccount for more than an insignificant portion of earnings in any quarter.  The customers with whom MICROS does thelargest amount of business are expected to vary from year to year as a resultof the timing for the roll-out of each customer’s system.  Furthermore, if a customer delays oraccelerates its delivery requirements or if a product’s completion is delayedor accelerated, the revenues expected in a given quarter may be deferred oraccelerated into subsequent or earlier quarters, respectively.

 

The market price ofMICROS Common Stock is volatile, and may be subject to significant fluctuationsin response to variations in MICROS’s quarterly operating results and otherfactors, such as announcements of technological developments or new products byMICROS, customer roll-outs, technological advances by existing and newcompetitors, and general market conditions in the hospitality and retailindustries.  In addition, conditions inthe stock market in general and shares of technology companies in particularhave experienced significant price and volume fluctuations which have at timesbeen unrelated to the operating performance of companies.

 

Finally, there areongoing legal risks to which the Company is subject, some of which aredifficult to predict, expect or assess. Two such legal risks are as follows:

 

1.  *AllegedPatent Infringement:*  Onoccasion, MICROS will receive unsolicited letters from entities which offer alicense to a patent, and sometimes go as far to suggest that MICROS may beinfringing the patent.  In thoseinstances, MICROS will assess the validity of the claims and the purportedpatent, and determine whether a license is appropriate or necessary.  If MICROS concludes that a license is notnecessary, there is a risk that MICROS could be subject to legal action.  Currently, there is no such pending legalaction.  Recently, however, hundreds ofmerchants throughout the country, some of which license software products fromMICROS and Datavantage, have received patent licensing letters from an allegedpatent holder in connection with credit card transaction processes.  The alleged patent holder has pursuedlitigation against several of these merchants, none of which to MICROS’knowledge is a customer of MICROS.  WhileMICROS strongly believes that its technology does not infringe the patent ofthe above alleged patent-holder, there can be no guarantees that MICROS willnot be embroiled in these matters, or other patent matters.

 

2.  *CreditCard Fraud.*  Credit cardissuers have promulgated credit card security guidelines in their ongoingeffort to battle credit card fraud. MICROS continues to work with credit card issuers to assure that itsproducts comply with these security guidelines. There can be no assurances, however, that the MICROS products areinvulnerable to unauthorized access or “hacking”.  Additionally, there can be no guarantee thatMICROS’ customers implement all of the credit card security features whichMICROS has introduced, or that the customer maintains the appropriate level offirewall protection.  When there isunauthorized access to credit card data which results in loss, there is thepotential that parties could seek damages from MICROS.  Currently, there is no litigation in which damageshave been sought from MICROS in connection with credit card fraud.  However, MICROS has received a demand forpayment where a customer incurred an alleged loss in connection with creditcard theft.  MICROS believes it has noliability in this instance, and in any event the alleged loss is not material.

 

Some of the statementscontained herein not based on historic facts are forward looking statements within the meaning of Section 21E of theSecurities Exchange Act of 1934, as amended, and Section 27A of the SecuritiesAct of 1933, as amended, that involve risks and uncertainties.  Past performance is not necessarily a strongor reliable indicator of future performance. Actual results could differ materially from past results, estimates orprojections.  Some of the additionalrisks and uncertainties are: political and world instability created by thethreat of subsequent terrorist attacks, which gravely impacts the travel andtourism industries; environmental and health disasters, including the Tsunamidisaster in Asia (while preliminary reports indicate that the Tsunami disasterwill adversely impact the financial performance of MICROS’ Asia Pacificdivision for the next several quarters as rebuilding

 

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efforts commence, theimpact is not expected to be material), the product demand and marketacceptance, including demand and acceptance for the OPERA products which aremore complex, implementation of a cost-effective service structure capable ofservicing increasingly complex software systems in increasingly more remotelocations; achieving increased sales of higher margin software products; risksand uncertainties associated with the Company’s recent acquisition of JTECH;hiring and retention of qualified employees with sufficient technicalexpertise; unexpected currency fluctuations; impact of competitive products andpricing on margins; product development delays; technological difficultiesassociated with new product releases; and managing expenses, including thoseover which the Company exercises little or no control, such as health carecosts.  These and other risks aredisclosed in the Company’s releases and SEC filings, including in the sectiontitled “Business and Investment Risks; Information Relating to Forward-LookingStatements”, in the Company’s Annual Report on Form 10-K for the Fiscal Yearended June 30, 2004.

 

**Item 3.  Quantitative and Qualitative Disclosuresabout Market Risk**

 

MICROS’s significantinternational business and presence exposes the Company to a multitude ofmarket risks, such as currency, interest rate and political risks.  With respect to currency risk, the Companytransacts business in 22 different currencies through its foreign subsidiaries.  The fluctuation of currencies impacts salesand profitability.  Frequently, sales andthe costs associated with those sales are not always denominated in the samecurrency.  Given the fact that theCompany transacts business in many different currencies, adverse declines incertain currencies can be offset by favorable advances in othercurrencies.  Strength in the Euro hashelped to bolster sales and profitability in Europe; any subsequent declinewill adversely impact year over year growth comparisons.

 

Additionally, the Companyis subject to interest rate fluctuations in foreign countries to the extentthat the Company elects to borrow in the local foreign currency.  In the past, this has not been an issue ofconcern as the Company has the capacity to elect to borrow in other currencieswith more favorable interest rates. While the Company has not to date invested in financial instrumentsdesigned to protect against interest rate fluctuations, the Company willcontinue to evaluate the need to do so in the future.

 

Further, the Company issubject to political risk, due in part to instability in the Middle East andthe worldwide threat of terrorism, especially in developing countries withuncertain or unstable political structures or regimes.  Contributing to this risk factor is theadverse impact that political instability has on the travel and tourismindustries.  The Company is also subjectto the effects of, and changes in, laws and regulations, other activities ofgovernments, agencies and similar organizations.  To be able to offer commercially viable andcompetitive products, the Company must also comply with the rules andregulations of the credit card associations, including the security and dataprotection rules.  As these guidelinesare subject to change, the Company could and most likely will have ongoingcosts associated with modifying products to comply with future credit card rulechanges.

 

**Item4.  Controls and Procedures**

 

As of the end of the period covered by this quarterlyreport, the Company has conducted an evaluation of the effectiveness of thedesign and operation of the Company’s “Disclosure Controls and Procedures” (asdefined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of1934).  This evaluation was carried outunder the supervision of the Company’s management, including A.L. Giannopoulos,MICROS’s Chairman, Chief Executive Officer and President, and Gary C. Kaufman,MICROS’s Executive Vice President and Chief Financial Officer. DisclosureControls and Procedures are designed with the objective of ensuring thatinformation required to be disclosed in the reports MICROS files or submitsunder the Securities Exchange Act of 1934 (Exchange Act), such as thisquarterly report, is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms.  Disclosure Controls and Procedures are alsodesigned with the objective of ensuring that the information is accumulated andcommunicated to management, including the Chief Executive Officer and ChiefFinancial Officer, to allow timely decisions regarding required disclosure.

 

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

The evaluation of MICROS’s Disclosure Controls andProcedures included a review of the controls’ objectives and design, and thecontrols’ implementation and operational procedures.  In the course of this evaluation, MICROS

 

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sought to identify and analyze the manner in which itcollects information and requires its employees from the four worldwideregional headquarters (North America, Latin America, Europe/Africa/Middle East,and Asia Pacific) to produce the information. Once the information is collected, the Company evaluated how theinformation is analyzed for purposes of determining if, how, when and where todisclose the information.  Finally,MICROS analyzed the forms and guidelines it has developed internally that aredisseminated to all operations, and are required to be resubmitted to thecorporate finance operation.  These formsand documents are designed to elicit pertinent financial and non-financialinformation from the operations on a worldwide basis.

 

MICROS has evaluated and will continue periodically toevaluate its Disclosure Controls and Procedures.  Based on its most recent evaluations, MICROShas concluded that, as of the end of the period covered by this quarterlyreport, its Disclosure Controls and Procedures currently in place are effectiveat such reasonable assurance level that material information relating to MICROSwould be made known to the Chairman, President and Chief Executive Officer, andthe Executive Vice President and Chief Financial Officer on a timely basis.

 

Finally, there have not been any changes in MICROS’ internalcontrol over financial reporting (as such term is defined in Rules 13a-15(f)and 15d-l5(f) under the Exchange Act) during the three months ended March 31,2005 that have materially affected, or are reasonably likely to materiallyaffect, MICROS’ internal control over financial reporting.

 

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**MICROSSYSTEMS, INC. AND SUBSIDIARIES**

**Form10-Q**

**For theQuarter Ended March 31, 2005**

 

**Part II- Other Information**

 

**Item1.****    Legal Proceedings**

 

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

 

**Item2.****    Unregistered Salesof Equity Securities and Use of Proceeds**

 

Issuer Purchases of Equity Securities

 
| ** **                                     | ** ** | **Total Number  of Shares  Purchased****(1)** | ** ** | **Average  Purchase  Price****(1)** | ** ** | **Total Number of  Shares Purchased  as Part of Publicly  Announced Plans  or Programs** | ** ** | **Maximum Number  of Shares that May  Yet be Purchased  Under the Plans or  Programs** | ** ** |
|------------------------------------------------|------------|-----------------------------------------------|------------|-------------------------------------|------------|------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| **Fiscal Year 2002 Authorized  Plan(2)**       |       |                                          |       |                                |       |                                                                                     |       |                                                                                   |       |
| January 1 – 31, 2005                      |       | 31,148                                        |       | $                                   | 34.48      |                                                                                     | 31,148     |                                                                                   | —     |   |
| (15,574 shares purchased prior to stock split) |       |
|                                           |       |                                          |       |                                |       |                                                                                     |       |                                                                                   |       |
| **Fiscal Year 2005 Authorized  Plan(3)**       |       |                                          |       |                                |       |                                                                                     |       |                                                                                   |       |
| January 1 – 31, 2005                      |       | 52,880                                        |       | $                                   | 34.48      |                                                                                     | 52,880     |                                                                                   | 947,120    |   |
| February 1 – 29,  2005                    |       | 191,122                                       |       | $                                   | 33.12      |                                                                                     | 191,122    |                                                                                   | 755,998    |   |
| March 1 – 31,  2005                       |       | 110,242                                       |       | $                                   | 32.85      |                                                                                     | 110,242    |                                                                                   | 645,756    |   |
| Total                                          |       | 354,244                                       |       | $                                   | 33.24      |                                                                                     | 354,244    |                                                                                   | 645,756    |   |

 

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(1)   The number of shares and the average price per shareare presented on a stock split adjusted basis following a 2 for 1 stockdividend, which occurred on January 31, 2005.

(2)   In fiscal year 2002, the Board of Directors of theCompany authorized the purchase of up to two million shares (adjusted for2-for-1 stock dividend) of the Company’s common stock. In January 2005, thecompany purchased all remaining shares authorized under that plan.

(3)   During fiscal year 2005, the Board of Directorsauthorized the purchase of an additional two million shares (adjusted for2-for-1 stock dividend). As of March 31, 2005, the Company has purchased 354,244shares in the open market under this authorized plan.

 

**Items3 (Defaults Upon Senior Securities) and 4 (Submission of Matters to a Vote ofSecurity Holders)**

 

No events occurred during the quarter covered by thereport that would require a response to any of these items.

 

**Item5.  Other Information**

 

On November 19, 2004, the Company’s Board ofDirectors (with A.L. Giannopoulos and Louis M. Brown, Jr. abstaining as aresult of their participation in the plan) authorized the establishment of aSupplemental Executive Retirement Plan, to provide certain designated officersand executives of the Company with retirement benefits upon retirement.  Under the terms of the plan, participants whoare vested in the plan will receive an annual benefit for a period of nineyears upon retirement on or after age 62. The payment amount is determined based on the participant’s age atretirement and the base salary received by the participant during the 12 monthsimmediately preceding his or her retirement. On April 27, 2005, the Company’s Board of Directors (with A.L.Giannopoulos and Louis M. Brown, Jr. abstaining as a result of theirparticipation in the plan) amended the Supplemental Executive Retirement Plan,to provide for vesting of benefits in the event of a participant’s death.  The

 

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foregoing description is qualified in itsentirety by reference to the provisions of the plan, as amended, a copy ofwhich is attached as Exhibit 10.1.

 

**Item6.****    Exhibits**

 

10.1SupplementalExecutive Retirement Plan

 

31.1 Certification by CEOpursuant to Rule 13A-14 or 15D of the Securities Exchange Act of 1934, asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2 Certification by CFOpursuant to Rule 13A-14 or 15D of the Securities Exchange Act of 1934, asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1 Certification by CEOpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

32.2 Certification by CFOpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|         | MICROS SYSTEMS, INC.                     |                  |
|--------------|------------------------------------------|-----------------------|
|         | (Registrant)                             |                  |
|         |                                     |
| May 10, 2005 |                                     | /s/ Gary C.  Kaufman  |   |
|         | Gary C. Kaufman                          |
|         | Executive Vice  President,               |
|         | Finance and  Administration/             |
|         | Chief Financial  Officer                 |
|         |                                     |
|         |                                     |
| May 10, 2005 |                                     | /s/ Cynthia A.  Russo |   |
|         | Cynthia A. Russo                         |
|         | Vice President  and Corporate Controller |
|              |                                          |                       |  |  |  |

 

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