UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
Fiscal Year Ended June 30, 2008
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 For the Transition Period From ____________to__________
|
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 No.)
|
|
|
7031
Columbia Gateway Drive, Columbia, Maryland
21046-2289
|
(Address
of Principal Executive Offices, Including Zip
Code)
|
443-285-6000
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of Each Class
|
|
Name of Exchange
|
Common Stock, par value $0.00625 per share
|
|
The NASDAQ Stock Market LLC
|
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
YES
þ
NO
o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
YES
o
NO
þ
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the Registrant was required
to file such report(s)), and (2) has been subject to such filing requirements
for the past 90 days.
YES
þ
NO
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.
þ
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
þ
|
Accelerated
filer
o
|
Non-accelerated
filer
o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
YES
o
NO
þ
The
aggregate market value of the common equity (all of which is voting) held by
non-affiliates computed by reference to the price at which the common equity
was
last sold as of December 30, 2007 was $2,848,019,543.
At
the
close of business on July 31, 2008, there were issued and outstanding 80,694,771
shares of Registrant’s Common Stock at $0.00625 par value.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Registrant’s definitive Proxy Statement, to be filed with the Securities
and Exchange Commission, and delivered to stockholders in connection with the
Annual Meeting of Stockholders to be held November 21, 2008, are incorporated
by
reference into Part III of this Form 10-K.
TABLE
OF CONTENTS
|
|
Page
No.
|
PART
I
|
|
|
|
|
|
|
|
Item
1.
|
Business
|
4
|
|
Item
1A.
|
Risk
Factors
|
16
|
|
Item
1B.
|
Unresolved
Staff Comments
|
18
|
|
Item
2.
|
Properties
|
18
|
|
Item
3.
|
Legal
Proceedings
|
20
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
20
|
|
|
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PART
II
|
|
|
|
|
|
|
|
Item
5.
|
Market
for the Registrant’s Common Equity, Related Stockholder Matters, and
|
21
|
|
|
Issuer
Purchases of Equity Securities
|
|
|
Item
6.
|
Selected
Consolidated Financial Data
|
22
|
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
22
|
|
Item
7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
36
|
|
Item
8.
|
Financial
Statements and Supplementary Data
|
37
|
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
37
|
|
Item
9A.
|
Controls
and Procedures
|
37
|
|
Item
9B.
|
Other
Information
|
37
|
|
|
|
|
|
PART
III
|
|
|
|
|
|
|
|
Item
10.
|
Directors
and Executive Officers of the Registrant
|
38
|
|
Item
11.
|
Executive
Compensation
|
38
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related
|
38
|
|
|
Stockholder
Matters
|
|
|
Item
13.
|
Certain
Relationships and Related Transactions
|
38
|
|
Item
14.
|
Principal
Accounting Fees and Services
|
38
|
|
|
|
|
|
PART
IV
|
|
|
|
|
|
|
|
Item
15.
|
Exhibits
and Financial Statement Schedules
|
39
|
|
Signatures
|
72
|
|
Exhibit
Index
|
73
|
|
PART
I
ITEM
1.
BUSINESS
INTRODUCTION
MICROS
Systems, Inc. is a leading worldwide designer, manufacturer, marketer, and
servicer of enterprise information solutions for the global hospitality and
specialty retail industries. MICROS Systems, Inc. was incorporated in the State
of Maryland in 1977 as Picos Manufacturing, Inc. and, in 1978, changed its
name
to MICROS Systems, Inc.
References
to “MICROS,” the “Company,” “we,” “us,” and “our” herein include the operations
of MICROS Systems, Inc. and also our subsidiaries on a consolidated basis,
unless the context indicates otherwise. Our fiscal year runs from July 1 through
June 30, and so that references to a fiscal year mean the 12-month period ending
June 30 of that year; i.e., fiscal year 2008 means the 12-month period ending
June 30, 2008.
We
operate in two reportable segments for financial reporting purposes: U.S. and
International. You can find financial information for each reportable segment,
as well as certain financial information about geographic areas, in Note 18,
“Segment Information” in our Notes to Consolidated Financial Statements included
in this Annual Report on Form 10-K. In each of these two reportable segments,
we
have developed an infrastructure through which we license and sell all of our
products and services. While the products and services that are sold may be
configured for each segment to address local issues, laws, tax requirements
and
customer preferences, the products and services are substantively similar
worldwide.
Almost
all of our customers are in the hospitality industry or the specialty retail
industry. The hospitality industry comprises numerous defined markets, including
lodging (e.g., individual hotel sites, hotel chains and franchise groups, and
centrally deployed systems, such as hotel central reservation systems), table
service restaurants, quick service restaurants, entertainment venues (e.g.,
stadiums and arenas), business foodservice operations, casinos, transportation
foodservice, government operations, and cruise ships. The specialty retail
industry consists of retail operations selling directly to consumers, including
retailers of clothing, shoes, food, hardware, jewelry, and other specialty
items.
Our
enterprise information solutions comprise three major areas: (1) hotel
information systems; (2) restaurant information systems; and (3) specialty
retail information systems. In addition to our software enterprise solutions
and
hardware products, we offer an extensive array of services and other products
for our hotel, restaurant and retail information systems. The hotel information
systems consist mainly of software, encompassing property based management
systems (“PMS”), related property-specific modules and applications, and central
systems, including central reservation systems (“CRS”). The restaurant
information systems consist of hardware and software for point-of-sale (“POS”)
and operational applications, a suite of back office applications, including
inventory, labor, and financial management, and certain centrally hosted
enterprise applications. The specialty retail systems consist of software
encompassing POS, loss prevention, web commerce applications, business
analytics, customer gift cards, and enterprise applications.
We
market
our hotel systems directly to U.S.-based customers, and through our subsidiaries
and international distributors to non-U.S.-based customers. Our hotel PMS
applications are installed worldwide in leading hotel chains, including the
following:
·
Accor (France)
|
·
Hilton International
|
·
Peninsula (Hong Kong)
|
·
Best Western
|
·
Hyatt International
|
·
Shangri-La (Hong Kong)
|
·
Camino Real (Mexico)
|
·
InterContinental Hotels Group
|
·
Société du Louvre (France)
|
·
Carlson Hotels
|
·
Kempinski (Germany)
|
·
Solare (Japan)
|
·
Danubius (Bulgaria)
|
·
Loews
|
·
Starwood International
|
·
Dusit Thani (Thailand)
|
·
MGM Mirage
|
·
Steigenberger
|
·
Extended Stay America
|
·
Marriott International
|
·
Thistle (United Kingdom)
|
·
Fairmont
|
·
Millennium
|
·
Wyndham Worldwide, and
|
·
Federal (Malaysia)
|
·
Mövenpick (Switzerland)
|
·
Wynn Resorts
|
·
Four Seasons
|
·
Omni
|
|
Globally,
there are approximately 25,000 MICROS PMS applications installed (most of which
are accompanied by other property-specific modules and
applications.)
The
MICROS CRS is installed in numerous hotel chains, including the
following:
·
Boscolo (Italy)
|
·
MacDonalds (UK)
|
·
Sokos (Finland)
|
·
Camino Real
|
·
MGM Mirage
|
·
Starhotels (Italy)
|
·
Constellation (Australia)
|
·
Oberoi (India)
|
·
Sun International (South Africa)
|
·
Equatorial (Malaysia)
|
·
Omni
|
·
Thistle
|
·
Fairmont
|
·
Pan Pacific (Singapore)
|
·
Westmark
|
·
Four Seasons
|
·
Red Lion
|
·
Wyndham Worldwide, and
|
·
Great Wolf Resorts
|
·
Rydges (Australia)
|
·
Wynn Resorts
|
·
Hard Rock Hotels
|
·
Shangri-La
|
|
·
Loews Hotels
|
·
Société du Louvre
|
|
Globally,
over 80 hotel chains or individual hotel sites have installed MICROS’s CRS
applications.
We
market
our restaurant systems directly, through certain subsidiaries, and through
our
domestic and international dealers. Our restaurant POS systems are installed
worldwide. Major table service restaurant chain customers include the
following:
·
Bertucci’s
|
·
Fazer Amica (Finland)
|
·
Lone Star
|
·
Chevy’s
|
·
Friendly’s
|
·
Marie Callender’s
|
·
Corporación Mexicana de
|
·
Groupe Le Duff (France)
|
·
Mitchells and Butlers (U.K.)
|
Restaurantes (Mexico)
|
·
Hard Rock Café
|
·
Perkins
|
·
Cracker Barrel
|
·
HMS Host
|
·
Rainforest Cafe
|
·
Denny’s
|
·
Hooters
|
·
Ruby Tuesday’s
|
·
Eat ‘n Park
|
·
International House of Pancakes
|
·
T.G.I. Friday’s
|
·
El Torito
|
·
Johnny Carinos
|
·
VIPS (Spain)
|
·
ESPN Zone
|
·
La Madeleine
|
·
Whitbread PLC (United Kingdom).
|
Major
quick service chain restaurant (“QSR”) customers include Burger King, as well as
numerous franchisees of the following:
·
Atlanta Bread
|
·
Fuddruckers
|
·
Starbucks (mainly international sites)
|
·
Arby’s
|
·
Grandy’s
|
·
Subway
|
·
Auntie Anne’s
|
·
Krispy Kreme
|
·
Tropical Smoothie Café
|
·
Baja Fresh
|
·
Nordsee (Germany)
|
·
Wendy’s
|
·
Ben & Jerry’s
|
·
Pollo Campero (Guatemala)
|
·
Zaxby’s, and
|
·
Burger King
|
·
Panera Bread
|
·
Yum! Brands (Pizza Hut, KFC
|
·
Checkers
|
·
Popeye’s
|
International, and Taco Bell).
|
·
El Pollo Loco
|
·
Red Rooster (Australia)
|
|
·
Fazoli’s
|
·
Retail Brand Group
|
|
Our
restaurant POS systems are also installed in hotel restaurants in chains,
including Boyd Gaming, Camino Real, Danubius, Fairmont, Four Seasons, Global
Hyatt, Hilton International, Hilton, Hyatt, InterContinental Hotels, Kempinski,
Mandarin Oriental, Marriott International, Millennium, Omni, Pan Pacific,
Peninsula, Radisson, Starwood, and Wyndham International. Additional significant
markets for our POS systems include complex foodservice environments, such
as
casinos, cruise ships, sports arenas, airport concourses, theme parks,
recreational centers, institutional food service organizations, and specialty
retail shops. Users include Aramark, Anton’s, Compass, Delaware North, HMS Host,
and various government entities. We have installed large POS systems in the
Foxwoods Hotel and Casino (Ledyard, CT), Grand Casino (Australia), Atlantis
(Bahamas), Mandalay Resorts Group, Sun City (South Africa), Harrah’s Casinos,
Luxor Hotel and Casino, The Venetian and Wynn Resorts. We supply and service
POS
systems for users in the complex foodservice environments identified above
both
directly and through distribution channels, including through specialty reseller
relationships with Blackboard Inc. and The CBORD Group Inc.
We
also
market restaurant POS systems through our Hospitality Solutions International
(“HSI”) division. The HSI restaurant POS product is a Windows
®
based
software product. Additionally, we market a POS product through our Indatec
GmbH
(“Indatec”) subsidiary. The Indatec product is a proprietary POS hardware system
with embedded software. The Indatec product is sold exclusively in Europe and
is
targeted to small restaurants.
Through
our JTECH Communications, Inc. (“JTECH”) subsidiary, we market a range of
on-premises paging and alert solutions for restaurants, retail, and medical
environments.
MICROS
Retail customers include the following retailers:
·
Abercrombie & Fitch
|
·
Home Depot Canada
|
·
S
& K Famous Brands
|
·
Adidas AG (Germany) and Adidas USA
|
·
Hugo Boss AG (Germany)
|
·
Señor Frogs (Mexico)
|
·
Armani Exchange
|
·
J. Jill Group
|
·
Shaw’s Markets
|
·
Barney’s New York
|
·
Jos. A. Banks Clothiers
|
·
Steve Madden Retail
|
·
Books-A-Million
|
·
Limited Too
|
·
Talbots
|
·
Blain Supply
|
·
Michael’s Arts and Crafts
|
·
Urban Brands
|
·
Blue Spirit (Italy)
|
·
Polo Ralph Lauren
|
·
the U.S. Mint
|
·
Brazin Ltd. (Australia)
|
·
Reebok Retail
|
·
Zales, and
|
·
CSK Auto
|
·
Ritz Camera
|
· the four largest grocery chains in the
UK
|
·
Garnet Hill
|
·
Roots Canada Ltd.
|
|
|
·
Starbucks
|
|
Our
specialty retail solutions are provided through our subsidiaries Datavantage,
CommercialWare,
Advance Retails Systems (Mexico), RedSky (United Kingdom), and eOne. In our
marketing, we sometimes refer to this group of subsidiaries as the “MICROS
Retail” group.
PRODUCTS
AND SERVICES
Summary
of Product Solutions (Software and Hardware):
Hotel Products
|
|
Description
|
|
|
|
Software
|
|
|
|
|
|
Fidelio
Versions 7 and 8 PMS
|
|
PMS
software products for hotel reservations
|
|
|
|
OPERA
PMS
|
|
PMS
software product for hotel reservations, targeted to full service
hotels
|
|
|
|
OPERA
Xpress PMS
|
|
PMS
software product for hotels, targeted to limited service
hotels
|
|
|
|
OPERALite
PMS
|
|
PMS
software for hotels, targeted to smaller hotels
|
|
|
|
OPERA
Revenue Management System
|
|
Software
that helps hotels develop and manage pricing strategies
|
|
|
|
OPERA
Customer Information System
|
|
Software
that manages customer information and loyalty programs
|
|
|
|
OPERA
Vacation Ownership System
|
|
Software
that manages reservations for hotel condominiums and related condominium
management
|
|
|
|
OPERA
Web Booking Suite System
|
|
Software
that enables OPERA PMS to receive Internet reservations
|
|
|
|
OPERA
Sales and Catering
|
|
Software
that helps hotels manage meeting needs (food, hotel rooms, meeting
space,
and other customer needs)
|
|
|
|
OPERA
Sales Force Automation (SFA)
|
|
Software
that manages leads, meeting agendas, and contracting, and provides
other
support to the national and regional sales teams for hotel
chains
|
|
|
|
OPERA
Activity Scheduler
|
|
Software
that manages the scheduling and billing for hotel resort recreational
activities, such as golf, tennis, spas, etc.
|
|
|
|
OPERA
Kiosk
|
|
Enables
guest check-in and check-out at stand-alone kiosk, and other interactive
features
|
|
|
|
myfidelio.net
|
|
An
Internet based hotel reservation service and network
|
|
|
|
Fidelio
Cruise Systems
|
|
A
suite of software products that manages reservations, POS and other
activities for the cruise industry
|
|
|
|
Materials
Management
|
|
Software
that provides inventory control and costing for food production,
mainly
marketed to hotel restaurants
|
|
|
|
RedSky
ImagInn
|
|
PMS
software products for hotels, targeted at limited-service, independent,
and economy hotels.
|
Restaurant Products
|
|
Description
|
|
|
|
Software
|
|
|
|
|
|
9700
HMS
|
|
POS
software for large foodservice, leisure and entertainment
venues
|
|
|
|
Simphony
|
|
Centrally-hosted
POS for large foodservice, leisure and entertainment
venues
|
|
|
|
3700
POS
|
|
POS
software for table service and quick service
restaurants
|
|
|
|
Restaurant
Enterprise Series (RES) 3000
|
|
Suite
of software products for 3700 POS
|
|
|
|
Kitchen
Display System
|
|
Component
of RES 3000, providing additional reporting capabilities and
information
|
|
|
|
RES
Kiosk
|
|
Component
of RES 3000, for self-ordering and customer information via kiosk
or other
hardware
|
|
|
|
HSI
Profit Series POS
|
|
POS
software for table service restaurants (only marketed through the
HIS
division)
|
|
|
|
Indatec
|
|
POS
software for small restaurants (only marketed in
Europe)
|
|
|
|
mymicros.net
|
|
Suite
of web based software products for use with restaurant POS
products
|
|
|
|
myhsi.net
|
|
Suite
of web based software products for HSI Profit Series
|
|
|
|
e7
POS
|
|
POS
product for small restaurants (only marketed in North and South
America)
|
|
|
|
Tangent
POS
|
|
POS
software for stadiums, arenas, and similar venues
|
|
|
|
Hardware
|
|
|
|
|
|
Workstation
5 Terminal
|
|
Windows
CE POS and WEPOS terminal for restaurants
|
|
|
|
Workstation
4-LX Terminal;
|
|
Windows
CE POS terminal for restaurants-enhanced version of Workstation
4
|
|
|
|
2010
PC Workstation
|
|
PC
based POS terminal for restaurants
|
|
|
|
Keyboard
Workstation Terminal
|
|
Windows
CE POS terminal used in large complex foodservice, leisure and
entertainment venues
|
|
|
|
Indatec
POS Terminal
|
|
POS
terminal that operates the Indatec POS software
|
|
|
|
JTECH
Paging Products
|
|
Suite
of paging products
|
|
|
|
Kitchen
Display System
|
|
Hardware
for kitchen display systems
|
Retail
Products
|
|
Description
|
|
|
|
Software
|
|
|
|
|
|
Store
21 Store Management System
|
|
POS
retail software product targeted for specialty retailers
|
|
|
|
Tradewind
Store Management System
|
|
POS
retail software product targeted for stores with high volume
transactions
|
|
|
|
Xstore
Management System
|
|
Java
based POS retail software product
|
|
|
|
Home
Office Business Intelligence Suite
|
|
Suite
of software products that analyzes, manages and reports on business
activities at the store level for corporate control (which includes
XBR
Loss Prevention)
|
|
|
|
Gift
Cards Software
|
|
Software
product that manages a retailer’s gift card program
|
|
|
|
CWDirect
Cross Channel Order Management System
|
|
Software
that manages orders across multiple methods of ordering (phone, kiosk,
Internet, etc.)
|
|
|
|
CWLocate
Merchandise Location System
|
|
Software
that enables a retailer to locate inventory across multiple
locations
|
|
|
|
CWCollaborate
|
|
Software
that connects retailers with suppliers to efficiently manage inventory
and
reorder levels
|
|
|
|
Creations
|
|
Software
that manages and tracks a product’s lifecycle and its supply
chain
|
|
|
|
eOneCommerce
|
|
Web
site development and portal management services for business to business
order management, customer list management and sales promotion
support
|
Hotel
Information Systems
For
the
hotel and resort industry, we develop, distribute, and support a complete line
of hotel software products and services. The hotel information systems include
PMS, sales and catering systems, CRS, customer information systems, revenue
management systems, and an Internet/Global Distribution System based hotel
reservation service called myfidelio.net. We also provide installation and
end-user training services, and support services (including help desk) for
our
various software products.
Globally,
there are approximately 25,000 active MICROS PMS installations, which includes
some sites using PMS products for which MICROS has ceased ongoing development
(although in many instances we continue to provide limited support services
to
those sites). Most of the hotels with MICROS PMS have also installed other
MICROS property-specific modules and applications; additionally, there are
over
2,000 hotels running various MICROS property-specific modules and applications
without a MICROS PMS.
The
PMS
software provides for check-in and check out, reservations, guest accounting,
travel agent accounting, engineering management, and interfaces to central
reservation systems, to on-line travel services (also known as alternative
distribution services, e.g., Expedia), and to global distribution systems (e.g.,
Sabre, Galileo, Amadeus and WorldSpan). The sales and catering software enables
hotel sales staff to evaluate, reserve and invoice meetings, banquets and
related events for a property. The CRS software enables hotels to coordinate,
process, track, and analyze hotel room reservations at a central facility for
electronic distribution to the appropriate lodging site. The customer
information system software enables hotels to efficiently capture and track
relevant guest information. The revenue management system software enables
hotels to manage room rates, occupancy, and the mix of business between
corporate and transient customers. We also offer an Internet-based hotel
reservation service via our myfidelio.net service. This service enables
corporations, tourist representation services, and consumers to reserve rooms
and manage reservations directly with designated hotels. This service also
enables those hotel properties without internal reservation capabilities to
outsource to us the maintenance of their connectivity to the global distribution
systems, and to certain alternative distribution systems.
We
market
a comprehensive suite of hotel software products under the OPERA brand name.
OPERA includes modules for property management, central reservations, customer
information systems, sales and catering, revenue management, sales support,
data
mining, financial statements, condominium reservations and accounting, golf
reservations, spa management, and quality management. We also offer a module
that enables guest check in and check out, and other interactive features,
via
kiosk.
In
addition to industry standard PCs, the OPERA platform will also run on large
PC
servers. OPERA can be run on two operating systems: Microsoft
Windows
®
(Server
and XP) and IBM AIX
®
,
and
uses an Oracle
®
database.
We
believe that the OPERA software suite is important product line for our
continued growth in the hotel information systems market, because we believe
it
reflects the future direction of PMS technology for us and the industry, and
because it has been a material source of our revenue growth within the hotel
industry. Over 75 hotel chains have implemented OPERA, many of which are in
the
midst of multi-year rollouts.
We
also
offer limited versions of the OPERA property management system called
OPERAXpress and OPERALite. These products enable smaller properties to deploy
the OPERA PMS, but at a lower price and with more limited product features.
As
of June 30, 2008, about 11,000 hotel sites have installed either Opera,
OPERAXpress PMS, or OPERALite.
OPERA’s
software architecture enables the product to be deployed either on-premises
or
hosted in an off-site location. We offer hosting services for hotel customers
in
various data centers around the world (Ashburn and Manassas, Virginia; Buenos
Aires, Argentina; Frankfurt, Germany, and Singapore) with the application
accessed via Internet or similar high speed connections. Currently, there are
approximately 2,000 hotels running Opera PMS or Opera Xpress PMS in a hosted
environment.
In
addition, we market a suite of hotel software products (PMS and other modules)
under the Fidelio Version 7.0 brand name. Fidelio Version 7.0 uses the Microsoft
Windows
®
graphical user interface and runs on an Oracle
®
database. As of June 30, 2008, over 5,100 hotels were using Fidelio Version
7.0.
We
also
offer a comprehensive portfolio of integrated, highly functional hotel PMS
software solutions under the tradename ImagInn, which is targeted toward the
limited-service, independent and economy hotel market. We acquired this product
line as part of our acquisition of RedSky, which is now part of the MICROS
Retail group. There are more than 2,000 sites using the Red Sky ImagInn PMS
product.
Furthermore,
in Europe we market a PMS product under the brand name Fidelio Version 8. This
product contains certain Internet-based features and uses the
Windows
®
operating system with an Oracle
®
database. The product is designed to meet the needs of independent hotel
operators and smaller chains based in Europe. The product is installed in over
1,800 hotel sites as of June 30, 2008.
Additionally,
we market Fidelio Cruise PMS, a specialized version of our PMS product, to
the
cruise industry. The Fidelio Cruise PMS enables cruise ships to manage their
reservations and on-board operational needs including check-in and check-out,
point-of-sale, passenger and crew administration, invoicing, maintenance
tracking and passport document management. Fidelio Cruise software is installed
in over 170 cruise ships. Customers include Carnival Cruise Lines, Cunard Line,
Holland America, Norwegian Cruise Lines, P. & O. Cruises, Princess Cruises,
Radisson Seven Seas Cruises, Star Cruises, Royal Caribbean International, and
the U.S. Navy.
Restaurant
Information Systems
Our
restaurant systems include full-featured point of sale (“POS”) applications,
hardware, and support services. Most of the products are designed to operate
on
industry standard PCs. Our products for order entry operate on either industry
standard PCs or proprietary terminals with additional functionality and design
appropriate for foodservice environments, including two types of proprietary
intelligent terminals developed and designed by us.
Hardware
The
workstations we have designed, and that we currently market and sell, are
Workstation 5, Workstation 4-LX and Workstation 2010. We also integrate other
hardware devices (e.g., printers, cash drawers, handheld order entry and credit
card remote payment terminals, and pole displays) into our complete product
offerings.
Workstation
5 is a PC based POS terminal using Microsoft’s XP operating system. The terminal
is based upon the successful Workstation 4 POS terminal, which we previously
marketed. Workstation 5 incorporates a faster microprocessor, a larger screen
and advanced networking capabilities than Workstation 4. Key design elements
of
MICROS’s PC workstations, which Workstation 5 builds upon, are the encased
nature of the screen, special materials to withstand various levels of
temperature and humidity, more efficient energy use and sound capabilities.
Workstation 5 is manufactured for us by GES Singapore Pte. Ltd. of Singapore
(“GES”), a third party contract manufacturing company.
Workstation
4-LX is a thin-client POS terminal, using Microsoft’s Windows
®
CE
operating system. The terminal has standalone resiliency, which means that
even
if the system server malfunctions, the POS terminal can continue to function
and
store data until the server is operational. Workstation 4-LX is manufactured
by
GES. Workstation 4-LX is also an updated version of our Workstation 4, but
has a
faster microprocessor and other improvements in memory management and data
recovery over the prior model.
The
2010
Workstation is a high-performance POS terminal designed to run our restaurant
applications and other third party PC-based software applications. The product
uses an Intel
®
Pentium
chip architecture. It can be configured to accommodate various memory and
storage requirements. The product supports various Microsoft operating systems
and Linux. The 2010 Workstation is manufactured by GES.
We
also
distribute a product named the Keyboard Workstation, which GES also manufactures
for us. This product enables orders to be entered into the MICROS 9700 HMS
(a
software product that is described below) via a lower cost, durable workstation
with a keyboard interface in lieu of a touchscreen. The Keyboard Workstation
is
primarily used in institutional foodservice environments, convention centers,
and sports complexes.
Through
our JTECH subsidiary, we offer pagers, wireless systems, alert software, and
related products (all manufactured for us by third party contract manufacturers)
for use in restaurants, retail, medical, and other
environments.
Additionally,
we resell various other hardware products, including personal computers,
servers, printers, network cards, and other related computer equipment. We
maintain a global, non-exclusive preferred provider agreement with Hewlett
Packard Corporation. This relationship enables us to resell Hewlett Packard
personal computers, printers, and networking equipment on a global
basis.
Software
Our
main
restaurant POS software systems are the 9700 Hospitality Management System
(“HMS”), Simphony, the 3700 POS system, HSI POS, Indatec, the e7 Series, and
Tangent POS. These systems provide transaction control for table service, quick
service and large foodservice and entertainment venues.
Leisure
and Entertainment Restaurants
The
9700
HMS is designed for larger leisure and entertainment venues, which include
resorts, casinos, airport and other travel-related food service concessions,
stadiums/arenas, theme parks, table service and quick service restaurants in
hotels, and larger stand-alone restaurants. The 9700 HMS product has an open
systems architecture running on Microsoft’s Windows
®
2000
operating system. The product can be deployed on site in a client-server
configuration or on a multi-property configuration where a remote server can
address multiple restaurant operations. The product uses either an Oracle
database or a proprietary database.
Simphony
is a centrally-hosted POS product designed for leisure and entertainment venues.
Simphony runs on either Microsoft SQL Server or Oracle databases. Its features
and functionality are similar to those of the 9700 HMS. Simphony enables
customers to deploy a POS product via a centrally-hosted architecture, thus
eliminating the overhead cost of having software deployed at multiple
locations.
The
Tangent POS includes POS and related functions, and is designed for sports
and
entertainment facilities. Tangent POS is currently installed in more than 200
stadiums, arenas, and other large facilities in North America.
Table
Service and Quick Service Restaurants
The
3700
POS is designed for table service and quick service restaurants. It has an
open
systems architecture using Microsoft’s Windows
®
XP
operating system and a Sybase
®
relational
database, and can run on standard PCs or proprietary workstations. It uses
a
color touch screen with a Microsoft Windows
®
based
graphical user interface.
We
have
developed and we market a suite of back office and operation focused software
solutions that extend beyond POS. The suite is called the Restaurant Enterprise
Series (“RES”). RES is an important component of our strategy to fully integrate
point-of-sale transaction processing with other restaurant operational and
management functions. The RES software solutions include point-of-sale
transaction control, restaurant operations, data analysis, and communications.
The POS software comprises the front-end application for the RES system. The
restaurant operations modules include inventory, product forecasting, labor
management, financial management, gift cards, and enterprise data management.
One of those modules is the Kitchen Display System, which displays food orders
and offers additional reporting capabilities on restaurant service. Another
component is RES Kiosk, which enables customer information and self-ordering
on
third-party kiosks or other hardware. All of these modules are designed to
operate at a single restaurant site.
For
management of multiple restaurants, RES includes a suite of software products
called Enterprise Management. This suite enables data to be transmitted to
a
remote site (e.g., the headquarters of a restaurant chain) for data collection
and analysis. Additionally, pricing and menu changes can be made from a remote
site and downloaded to specified restaurant locations.
We
market
a POS system called e7 mainly to smaller restaurants in North and South America.
This product runs on the Workstation 5 and uses the Microsoft
Windows
®
CE
Operating system.
Through
our HSI division, we market the HSI POS product primarily to table service
restaurant customers in North America. The product contains a wide array of
POS
features.
The
Indatec POS product is marketed only in Europe and primarily to smaller table
service restaurants and small hotels with restaurants that do not require the
higher-level functionality of other MICROS POS products. The Indatec POS is
designed to serve smaller restaurants seeking a lower cost product in terms
of
purchase and installation expense.
Ancillary
Applications
Our
design architecture enables existing users of many MICROS POS products to access
new technologies and third party software applications in conjunction with
their
existing MICROS POS systems. In addition, many MICROS restaurant information
system products interface with various back office accounting and property
management systems, including our hotel PMS products.
We
also
have developed and market an Internet-based portal product called
“mymicros.net.” Mymicros.net posts restaurant transaction POS detail to a
centralized data warehouse in near real time. This product enables the customer
to view reports and charts for a single site, a group of restaurants, or the
entire enterprise from any location that has an Internet connection. The
mymicros.net software product can either be purchased via a perpetual use
license or by an annual or multi-year “software as a service” subscription
contract. The HSI division also markets a portal called “myhsi.net.” The
product’s functionality is similar to the mymicros.net portal, but is designed
for use with the HSI POS product.
We
host
these applications in the same data centers where Opera is hosted. As of June
30, 2008, we are hosting applications supporting approximately 6,700
restaurants.
Retail
Information Systems
Through
our MICROS Retail subsidiaries (“MICROS Retail”), we market retail store
software automation systems and business intelligence applications. The retail
store systems are called Store21 Store Management System (“Store21”), Tradewind
Store Management System (“Tradewind”) and Xstore Store Management System
(“Xstore”). Store21 is a POS product designed for smaller retail operations,
while Tradewind is a POS product targeted at larger format stores and at high
transaction volume stores. The products operate on Microsoft’s
Windows
®
NT and
2000 operating systems and use Sybase
®
as the
database. Both products can be integrated with the retailer’s back office
systems, and we also offer certain additional back office, communications,
and
reporting modules for use with Tradewind and Store21.
Xstore
is
our next generation retail POS software system. It runs on the Sun
Microsystems
®
Java
®
operating system, and its architecture enables it to be integrated to both
Windows and Linux-based back office systems. Like Store21 and Tradewind, its
predecessor products, Xstore is a front-end POS software system that may be
integrated with the retailer’s back office systems. Xstore is highly
customizable by the customer, and is designed to respond to the trend among
large retailers to move to Linux-based systems. Xstore is designed to be able
to
be run in a Windows or a Linux environment, while Store21 and Tradewind, as
currently designed, can only operate in a Windows
®
environment.
We
also
offer the MICROS Retail Home Office Business Intelligence Suite for retail
stores, which includes loss prevention (marketed under the tradename “XBR”),
customer relationship management, gift cards, and audit control.
All
of
these applications and systems run on both industry standard PCs and specially
designed PC-based POS terminals manufactured by IBM, MICROS, Dell, and
NCR.
MICROS
Retail also offers software and services that enable a retailer to manage
customer purchase transactions across multiple touch-points (CW Direct).
Specifically, these applications and services enable a merchant to efficiently
handle customer transactions from a store, the Internet, catalog phone-in
orders, call centers, kiosk, and wireless devices. The solutions enable the
merchant to provide the customer with full transparency through the purchasing
process, e.g., from research from one channel, purchasing from a second channel
and implementing a return or exchange through a third channel.
MICROS
Retail also has developed and distributes Creations, a fully integrated
lifecycle management and supply chain traceability product. Lifecycle management
refers to the ability to track and manage inventory from the manufacturer
through the point of distribution. Creations is currently licensed to the four
largest grocers located in the United Kingdom.
Finally,
through MICROS Retail’s eOne Group division, we offer web site development and
portal management for retail customers. These solutions allow a retailer to
have
MICROS Retail develop and manage a customer’s web site for ordering, sales
promotion, and marketing.
Services
We
provide a wide range of services to our customers. Our services include system
installation, operator and manager training, on-site hardware maintenance,
customized software development, application software support, credit card
software support, systems configuration, network support and professional
consulting. We also offer software-hosting capabilities, which enable customers
to use the software without investing in hardware and a network.
We
provide field hardware and software maintenance via a combination of direct
and
indirect channels – authorized U.S. dealers and international distributors.
The field hardware maintenance is provided mainly to customers using MICROS
POS
hardware and software systems. Depot field maintenance is also provided. We
sometimes contract with PC manufacturers to provide either first or second
line
support for PC servers for hotel, restaurant and retail customers.
We
operate several help desks around the world. There is a 24 hours per day, seven
days a week (24/7) help desk in our Columbia, Maryland headquarters. We also
maintain other 24/7 regional and product specific help desks in the following
locations:
·
Galway,
Ireland – primarily for customers in Europe, Africa, and the Middle
East
·
Buenos
Aires, Argentina – primarily for customers in Latin America
·
Singapore –
primarily for customers in the Asia-Pacific region
·
Cleveland,
Ohio – for MICROS Retail products and services.
·
Scottsdale,
Arizona-for MICROS’s Hospitality Solutions International products
We
also
operate other more limited help desk operations, including the myfidelio.net
and
Fidelio Cruise support desks in Hamburg, Germany, the Fidelio Cruise support
desk in Fort Lauderdale, Florida, the JTECH help desk in Boca Raton, Florida,
casino software related support in Las Vegas, and help desks in Westborough,
Massachusetts, and Omaha, Nebraska, for some of the MICROS Retail products
and
services.
These
help desks receive support calls from customers and either address them
telephonically or on-line, or, where appropriate, dispatch a service call to
the
appropriate local service provider. Internationally, in-country support is
provided by the local sales entity, which may be a MICROS subsidiary or an
authorized independent distributor. Our corporate customer service provides
back-up support for our regional centers in Buenos Aires, Singapore, and Galway,
and our research and development operation in Naples, Florida, provides
higher-level support for the hotel software products. The regional support
centers also provide back-up support and guidance for local and in-country
support providers.
We
have
implemented data centers in Frankfurt; Ashburn and Manassas, Virginia; Buenos
Aires, and Singapore in conjunction with third-party vendors to serve as hosting
centers for customers deploying our various hosted and application service
products. This relationship enables us to more efficiently deploy our hosted
solutions globally.
Services
are a critical component of our business. Service revenue, which is comprised
of
programming, installation, training, in-field support, help desk, and
maintenance, constituted approximately 55.5% ($529.5 million) of our total
revenue in fiscal year 2008 compared to approximately 53.3% ($419.1 million)
in
fiscal year 2007 and approximately 50.6% ($343.3 million) in fiscal year
2006.
Maintenance
service contracts, which include field service, depot hardware maintenance,
and
software support, are a large component of our service offerings. Revenues
for
service maintenance contracts were approximately $291.4 million for fiscal
year
2008, approximately $233.7 million for fiscal year 2007, and approximately
$190.0 million in fiscal year 2006. Service maintenance contract revenue is
included in our service revenue (described above).
SALES,
MARKETING AND DISTRIBUTION
We
consider our direct and indirect global distribution network to be a major
strength and competitive advantage. This network has been built over the past
31
years. We (including our various subsidiaries), our U.S.-based dealers, and
our
international distributors work closely together in seeking to identify new
customers, products, services and markets, as well as to serve our existing
customer base with enhanced products and services. Our restaurant products
and
services are sold primarily through three channels: (i) the Direct Sales
Channel, comprised of our sales distribution network consisting of more than
80
wholly or majority-owned subsidiaries and branch offices; (ii) the MICROS Major
Accounts program directed to designated regional, national, and international
customers; and (iii) the Indirect Sales Channel, an independent sales
distribution network consisting of approximately 55 domestic dealers
and
more
than 60 international distributors and sub-distributors.
During
fiscal year 2008, we acquired Check-In Data AG (including its various
subsidiaries), which had previously been our authorized distributor in
Switzerland. Check-In Data distributed the full line of MICROS restaurant and
hotel systems. We also acquired Brolin Retail Systems and its subsidiaries,
which had previously been our authorized distributor in Ohio, Indiana and
northern Kentucky. Brolin primarily distributed our restaurant systems
products.
Our
hotel
and retail products and services are sold through our direct sales forces,
and
through some international distributors who sell hotel products outside of
the
U.S.
Foreign
sales, including export sales from the United States, accounted for
approximately 56.4% (approximately $537.8 million) of our total revenue in
fiscal year 2008, 53.7% (approximately $421.6 million) in fiscal year 2007,
and
47.7% (approximately $323.8 million) in fiscal year 2006.
We
also
sell products used in the provision of maintenance services, including
miscellaneous spare parts, printer ribbons, paper, printer cartridges, other
consumable media supplies, network products, and printers. We offer these
supplies through our direct sales offices, our dealers and distributors, and,
in
North America, through a telephone and on-line service called POS
Depot.
RESEARCH
AND DEVELOPMENT
Our
products are subject to technological change. Accordingly, we must continually
devote our efforts toward upgrading our existing products and developing
innovative systems incorporating new technologies. Our products, as well as
those of our competitors, have offered an increasingly wider range of features
and capabilities.
Locations
We
conduct our core restaurant POS product software and hardware development,
and
also development of our Internet-based restaurant software products, at our
Columbia, Maryland corporate headquarters. To facilitate rapid responses for
various regional application needs, we also conduct restaurant POS software
development in regional offices located in Sydney, Australia; Neuss, Germany;
and Singapore. Our Indatec subsidiary and our HSI division conduct restaurant
POS product research and development in their facilities in Bernau am Chiemsee,
Germany, and Scottsdale, Arizona, respectively. In addition, we monitor and
evaluate software and hardware products and designs created by third parties,
and we have acquired and may in the future acquire ownership, licensing, or
distribution rights to some of those products and designs.
We
contract the manufacturing of our POS terminals to GES Singapore Pte Ltd. GES
also provides certain hardware design services to us. Our internal hardware
design team participates in the design and development of these units. This
team
also provides oversight of the manufacturing process as a means of insuring
adherence to quality standards. See also “Manufacturing” in Item 1.
Development
of our hotel property management systems, sales and catering systems, central
reservation systems, and myfidelio.net, is primarily conducted in Naples,
Florida. Additional development on the Fidelio Version 8.0 suite of hotel
products is conducted in Neuss, Germany. We maintain close relationships with
major software operating and database companies like Oracle, IBM, Novell,
Sybase, and Microsoft. These relationships enable us to incorporate software
changes from these companies into our products. Our international offices may
also conduct specific product enhancement activities to meet specific interface
needs, local requirements, and specific customer requests.
Product
development for MICROS Retail’s POS products is conducted in Cleveland, Ohio;
MICROS Retail’s other products and services are handled through offices in
Westborough, Massachusetts, Omaha, Nebraska, and in Hounslow, United Kingdom.
MICROS’s Advance Retail Solutions subsidiary conducts product development in
Monterrey, Mexico. JTECH conducts its development at its Boca Raton, Florida
location.
MICROS
has relationships with third party development companies in India and China
for
outsourcing of certain development needs. The amount of work contracted to
these
companies is limited.
R&D
facilities
The
following table shows the location of our main research and development
facilities and the products addressed at each facility.
Location
|
|
Products
|
Columbia,
Maryland
|
|
Restaurant
POS software and hardware, Internet-based restaurant
applications
|
Sydney
Australia
|
|
Additional
restaurant POS software development
|
Neuss
Germany
|
|
Additional
restaurant POS software development; Fidelio version 8.
|
Singapore
|
|
Additional
restaurant POS software development
|
Bernau
am Chiemsee, Germany
|
|
Restaurant
POS software and hardware (Indatec only)
|
Scottsdale
Arizona
|
|
Restaurant
POS software (HSI only)
|
Naples,
Florida
|
|
Hotel
PMS software and other modules, also Internet-based hotel
applications
|
Cleveland
Ohio
|
|
Retail
POS software development
|
Westborough,
Massachusetts
|
|
Retail
Loss Prevention software development, cross-channel software
development
|
Omaha,
Nebraska
|
|
Retail
web site development and management services
|
Boca
Raton, Florida
|
|
Paging
software and hardware development
|
Hounslow
UK
|
|
Hotel
product development (ImagInn) and retail product development
(Creations)
|
Expenses
Research
and development (“R&D”) expenses consist primarily of labor costs less
capitalized software development costs. A summary of R&D activities for the
past three fiscal years ended June 30 is as follows:
(in
thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Total
R&D incurred
|
|
$
|
42,048
|
|
$
|
35,859
|
|
$
|
30,643
|
|
Capitalized
software development costs
|
|
|
(1,919
|
)
|
|
(1,974
|
)
|
|
(3,523
|
)
|
Total
R&D expenses
|
|
$
|
40,129
|
|
$
|
33,885
|
|
$
|
27,120
|
|
COMPETITION
The
markets in which we operate are highly competitive. There are at least 20
significant competitors worldwide that offer some form of sophisticated
restaurant POS system, over 15 significant hotel systems competitors, and over
10 significant retail systems competitors. We compete on various bases,
including product functionality, service capabilities, price, and geography.
We
believe that our competitive strengths include our established global
distribution and service network, our ability to offer a broad array of
hardware, software and service products to the hospitality and retail industry,
and our corporate focus on providing specialized information systems
solutions.
Competitors
in the restaurant POS marketplace include: (i) full service providers (hardware,
software and services), such as NCR, Panasonic, Par Technology, Radiant Systems,
Sharp and Torex Retail; (ii) suppliers that mainly provide software, such as
Agilysys, Positouch and Xpient Solutions; and (iii) providers that mainly
provide hardware, such as Casio, Dell, IBM and Wincor-Nixdorf. There are also
numerous other companies that license their POS-oriented software with PC-based
systems in regional markets around the world.
Many
of
our competitors in the hotel systems market are companies with software designed
to run on industry standard PCs. These companies may have several hotel related
software products, or simply one product for a particular niche. These
competitors include Agilysys, Softbrands, Multi-Systems, Northwind, Newmarket
(sales and catering product only), Amadeus Hospitality, Par Technology, and
Protel. Our products also compete with property management systems developed
and
marketed by major hotel chains for their corporate-owned operations and
franchisees. Internationally, we generally face smaller, regionally-oriented
competitors.
The
central reservation system market is highly fragmented and competitive. Many
hotel chains and allied reservation groups use their own customized central
reservation systems. In addition to these internally developed products, our
CRS
products compete with those offered by some of our PMS competitors, e.g.,
Northwind and Par Technology, and with those offered by specialized central
reservation providers, e.g., Amadeus, Pegasus, Vantis Corp., and Trust
International/TravelPort.
The
specialty retail market in which Micros Retail operates is highly competitive.
Competitors include Epicor (through its CRS Retail Systems and NSB divisions),
Escalate Retail, JDA Software, Oracle (through its 360 Commerce division),
and
SAP (through its Triversity division) among many others. Internationally, MICROS
Retail generally competes with smaller, regionally-oriented
competitors.
JTECH’s
competitors include Long Range System, NRN and certain distributors of Motorola
paging products.
MANUFACTURING
AND SUPPLIES
Our
manufacturing program seeks to maintain flexibility and reduce costs by
outsourcing key products and subassemblies. Our primary POS platforms,
Workstation 5, Workstation 4 LX, and 2010 Workstation, are manufactured by
GES
Singapore Pte Ltd. located in Singapore.
Our
Indatec operation provides some basic assembly of its POS systems in a facility
in Bernau am Chiemsee, Germany, and contracts with a third party manufacturer
in
Germany for additional production capacity.
GES
performs certain warranty and post-warranty repairs on equipment that it
manufactures for MICROS at its facilities in Singapore and in Lowell,
Massachusetts. In addition, we maintain a repair capability for certain products
in our distribution facility in Hanover, Maryland. We also perform repairs
at
certain of our direct and subsidiary offices worldwide, and, additionally,
we
contract with third parties to provide repair services.
JTECH’s
paging and related products are largely manufactured by several contract
manufacturers in China and JTECH conducts final assembly of its paging and
related products, including the installation of the applicable software, in
its
Boca Raton, Florida facility.
Material
sourcing is based on availability, service, cost, delivery and quality of the
purchased items from domestic and international suppliers. Some items are custom
manufactured to our design specifications. We believe that the loss of our
current sources for components would not have a material adverse effect on
our
business since other sources of supply are generally available. We believe
that
we maintain good relationships with our suppliers.
EMPLOYEES
As
of
June 30, 2008, we employed 4,619 full-time employees. The table below presents
employees by geographical region, expressed both as a headcount and as a
percentage of total employees:
By Geographical Region
|
|
North
America
|
|
Europe/Africa
Middle East
|
|
Asia/
Pacific
|
|
Latin
America
|
|
Total
|
|
Employees
|
|
|
2,356
|
|
|
1,459
|
|
|
568
|
|
|
236
|
|
|
4,619
|
|
As
% of total
|
|
|
51.0
|
%
|
|
31.6
|
%
|
|
12.3
|
%
|
|
5.1
|
%
|
|
100.0
|
%
|
Approximately
35% of the North America-based employees work out of our two Maryland locations:
our headquarters building in Columbia, Maryland and our Hanover, Maryland
distribution center.
The
table
below presents information, as of June 30, 2008, regarding employees organized
by functional skills:
By Functional Skills
|
|
Sales &
Marketing
|
|
Customer
Support
|
|
Product
Development
|
|
Admin./
Finance
|
|
Operations
|
|
Total
|
|
Employees
|
|
|
2,628
|
|
|
1,049
|
|
|
521
|
|
|
278
|
|
|
143
|
|
|
4,619
|
|
As
% of total
|
|
|
56.9
|
%
|
|
22.7
|
%
|
|
11.3
|
%
|
|
6.0
|
%
|
|
3.1
|
%
|
|
100.0
|
%
|
We
are
not a party to any collective bargaining agreements. None of our employees
are
represented by a labor union, except in those countries as mandated by law,
such
as France, Germany and Spain. We use certain suppliers whose employees may
be
represented by labor unions. We believe that we maintain good relations with
our
employees.
EXECUTIVE
OFFICERS OF THE REGISTRANT
Name
|
|
Position
|
A.
L. Giannopoulos
|
|
Chairman,
President and Chief Executive Officer
|
Bernard
Jammet
|
|
Executive
Vice President, Latin American Sales
|
Gary
C. Kaufman
|
|
Executive
Vice President, Finance and Administration and Chief Financial
Officer
|
Jennifer
Kurdle
|
|
Executive
Vice President, Chief Administrative Officer
|
Thomas
L. Patz
|
|
Executive
Vice President, Strategic Initiatives, and General
Counsel
|
Peter
J. Rogers, Jr.
|
|
Executive
Vice President, Investor Relations and Business
Development
|
Cynthia
A. Russo
|
|
Senior
Vice President and Corporate
Controller
|
A.
L. Giannopoulos
,
68, has
been the Company’s President and Chief Executive Officer of the Company since
May 1993, and the Company
’
s Chairman
of
the Board since April 2001. He has been a Director of the Company since March
1992. Before 1992, Mr. Giannopoulos served in a variety of positions for
Westinghouse, most recently as General Manager of the Westinghouse Information
and Security Systems Divisions. Mr. Giannopoulos is a graduate of Lamar
University with a Bachelor of Science degree in Electrical
Engineering.
Bernard
Jammet
,
50, has
been the Company’s Executive Vice President, Latin American Group since January
2001. Previously, Mr. Jammet served the Company in various capacities. He first
joined the Company in July 1984. Before joining the Company, Mr. Jammet was
employed with the former MICROS distributor for France. Mr. Jammet is a graduate
of the Hotel School of Lausanne, Switzerland, with a Masters degree in Hotel
Administration.
Gary
C. Kaufman
,
58, has
been the Company’s Executive Vice President, Finance and Administration and
Chief Financial Officer since September 1999. Mr. Kaufman served as a Director
of the Company from January 1991 until May 1994, when he was appointed to Vice
President, Finance and Administration and Chief Financial Officer. Previously,
Mr. Kaufman served the Company in various capacities. Mr. Kaufman is a graduate
of the University of Dayton with a Bachelor of Science degree in Accounting
and
is also a Certified Public Accountant.
Jennifer
Kurdle
,
41, has
been the Company’s Executive Vice President, Chief Administrative Officer since
July 2008. Previously, Ms. Kurdle was the Executive Vice President, Leisure
& Entertainment since November 2005. Ms. Kurdle first joined the Company in
1990. Ms. Kurdle graduated from Fairmont State University in 1989.
Thomas
L. Patz
,
48, has
been the Company’s Executive Vice President, Strategic Initiatives, and General
Counsel since January 2000. Previously, Mr. Patz served the Company in various
legal capacities. Mr. Patz first joined the Company in August 1995. Mr. Patz
is
a 1982 graduate of Brown University, and a 1985 graduate of the University
of
Virginia School of Law. Mr. Patz is a member of the Maryland Bar.
Peter
J. Rogers, Jr.
,
53, has
been the Company’s Executive Vice President of Investor Relations and Business
Development since November 2007. From 1996 through November 2007, Mr. Rogers
was
Senior Vice President of Investor Relations and Business Development.
Previously, Mr. Rogers served the Company in various marketing and business
management capacities. Mr. Rogers joined the company in 1987. Mr. Rogers is
a
1977 graduate of the University of Pennsylvania with a Bachelor of Arts degree
in Economics. Mr. Rogers is also a 1979 graduate of the New York University
Stern Graduate School of Business with a Master of Business Administration
degree in Finance.
Cynthia
A. Russo
,
38, has
been the Company’s Senior Vice President and the Corporate Controller since
November 2007. From May 2001 until November 2007, Ms. Russo was Vice President
and Corporate Controller. Ms. Russo previously served the Company in various
capacities, and she joined the Company in January 1996. Ms. Russo holds a
Bachelor of Science degree in Accounting from James Madison University. She
is a
Certified Public Accountant and a Certified Internal Auditor.
FOREIGN
SALES AND FOREIGN MARKET RISK
We
recorded foreign sales, including exports from the United States, of
approximately $537.8 million
during
fiscal year 2008 to customers located primarily in Europe, Asia and Latin
America. Comparable sales in fiscal years 2007 and 2006 were approximately
$421.6 million and $323.8 million, respectively. See Note 18, “Segment
Information” in the Notes to Consolidated Financial Statements as well as Item 7
(Management’s Discussion and Analysis of Financial Condition and Results of
Operations) for additional geographic data.
Our
international business and presence expose us to certain risks, such as
currency, interest rate and political risks. With respect to currency risk,
we
transact business in different currencies primarily through our foreign
subsidiaries. The fluctuation of currencies impacts sales and profitability.
Frequently, sales and the costs associated with those sales are not denominated
in the same currency.
We
transacted business in approximately thirty-six currencies in fiscal years
2008
and 2007 compared to twenty-eight currencies in fiscal year 2006. The relative
currency mix over the past three fiscal years was as follows:
|
|
Fiscal Year Ended June 30,
|
|
|
|
% of Reported Revenues
|
|
Exchange Rates
|
|
Revenues by currency
(1)
:
|
|
2008
|
|
2007
|
|
2006
|
|
2008
|
|
2007
|
|
2006
|
|
United
States Dollar
|
|
|
49
|
%
|
|
53
|
%
|
|
59
|
%
|
|
1.0000
|
|
|
1.0000
|
|
|
1.0000
|
|
European
Euro
|
|
|
22
|
%
|
|
25
|
%
|
|
21
|
%
|
|
1.5744
|
|
|
1.3535
|
|
|
1.2792
|
|
British
Pound Sterling
|
|
|
9
|
%
|
|
6
|
%
|
|
5
|
%
|
|
1.9919
|
|
|
2.0081
|
|
|
1.8493
|
|
Canadian
Dollar
|
|
|
2
|
%
|
|
1
|
%
|
|
1
|
%
|
|
0.9806
|
|
|
0.9385
|
|
|
0.8957
|
|
Australian
Dollar
|
|
|
2
|
%
|
|
2
|
%
|
|
2
|
%
|
|
0.9587
|
|
|
0.8478
|
|
|
0.7432
|
|
Mexican
Peso
|
|
|
2
|
%
|
|
2
|
%
|
|
2
|
%
|
|
0.0970
|
|
|
0.0926
|
|
|
0.0882
|
|
All
Other Currencies
(2)
|
|
|
14
|
%
|
|
11
|
%
|
|
10
|
%
|
|
0.2888
|
|
|
0.1631
|
|
|
0.1941
|
|
Total
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
(1)
|
Calculated
using weighted average exchange rates for the fiscal
year.
|
(2)
|
The
“% of Reported Revenue” for “All Other Currencies” is calculated based on
the weighted average twelve month exchange rates for all other currencies.
The “Exchange Rates as of June 30” for ‘All Other Currencies’ represents
the weighted average June 30 exchange rates for all other currencies.
Weighting is based on the twelve month fiscal year revenue for each
country or region.
|
A
10%
increase or decrease in the value of the Euro in relation to the U.S. dollar
in
fiscal year 2008 would have affected total revenues by approximately $21.2
million, or 2.2%. The sensitivity analysis assumes a weighted average 10% change
in the exchange rate during the year with all other variables being held
constant. This sensitivity analysis does not consider the effect of exchange
rate changes on either cost of sales, operating expenses, or income taxes,
and
accordingly, is not necessarily an indicator of the effect of potential exchange
rate changes on our net income.
We
are
also subject to interest rate fluctuations in foreign countries to the extent
that we elect to borrow in the local foreign currency. In the past, this has
not
been an issue of concern as we have the capacity to elect to borrow in other
jurisdictions with more favorable interest rates. We will continue to evaluate
the need to invest in financial instruments designed to protect against interest
rate fluctuations.
Finally,
we are subject to, among others, those environmental and geopolitical risks,
and
economic, pricing, financial, and other risks described in Item 1A, “Risk
Factors”.
PATENTS
AND TRADEMARKS
We
hold
six patents through our JTECH subsidiary. In general, we believe that,
historically, our competitive position has not been materially dependent upon
patent protection. The technology used in the design and manufacture of most
of
our hardware products is largely licensed or purchased from third parties.
With
respect to our software products, we have historically relied on nondisclosure
agreements and applicable U.S. and foreign copyright and trademark laws for
protection. In the U.S. and in most other countries, we believe that applicable
law has provided and will continue to provide us with sufficient protection.
There
are
risks that third party entities, including competitors, could attempt to
misappropriate our intellectual property. Given these potential risks, we have
implemented procedures to monitor misappropriation of its intellectual property.
If a misappropriation is detected, we pursue appropriate legal action when
we
determine that such action is appropriate.
“MICROS”,
“Fidelio”, “Datavantage”, “CommercialWare”, “JTECH”, “Go2Team”, “InStorePlus”,
“Ovation”, “OPERA”, “e7”, “Store21”, “Tradewind”, “Xstore”, “XBR”, “Premise
Pager System”, “TableAlert”, “ServAlert”, “GuestAlert”, “HostAlert”, “CommPass”,
“CWDirect”, “CWCollaborate”, “CWStore”, “CWLocate”, “CWAnalytics”, “CWData”, and
“CWIntegrate”
are
trademarks or servicemarks of the Company or its subsidiaries. We also own
numerous other trademarks and servicemarks. This Annual Report on Form 10-K
also
contains trademarks, trade names and servicemarks of other companies that are
the property of their respective owners.
FLUCTUATIONS
AND CUSTOMERS
Our
quarterly operating results have varied in the past and may vary in the future
depending upon various factors, including the timing of new product
introductions, changes in our pricing and promotion policies and those of our
competitors, market acceptance of new products and enhanced versions of existing
products and the capital expenditure budgets of our customers. Political
uncertainty and international events that often are unpredictable, e.g.,
terrorist attacks, natural disasters, and the volatile and unpredictable
political climate in the Middle East, are expected to continue to adversely
impact travel and tourism and therefore our quarterly operating results.
Historically,
our business has been affected by seasonal trends. For example, the European
summer holidays tend to lower our sales volume in the European countries during
our first fiscal quarter, as compared to other quarters. We also experience
a
stronger than average sales volume for the retail products and services in
our
second fiscal quarter due to the holiday season. Additionally, with the relative
slowdown in corporate buying at the beginning of the calendar year, which is
our
third fiscal quarter, seasonal weakness for the third quarter ending March
31
has been experienced. Therefore, we believe that sequential quarter-to-quarter
historic comparisons of our results are not necessarily meaningful or indicative
of future performance.
No
single
customer accounts for 10% or more of our consolidated revenues. During the
three
fiscal years ended June 30, 2008, we have been a party, directly and indirectly,
to certain contracts with the U.S. Federal Government, which contracts contained
standard termination for convenience clauses. Our U.S. Government related
revenue was approximately 0.3%, 0.4% and 0.9% of our total consolidated revenue
for the fiscal years ended June 30, 2008, 2007, and 2006, respectively. We
do
not anticipate any material adverse financial impact if the U.S. Government
elected to exercise its rights under a termination for convenience
clause.
ENVIRONMENTAL
MATTERS
We
believe that we are in compliance in all material respects with applicable
environmental laws and do not anticipate that environmental compliance will
have
a material effect on our future capital expenditures, earnings or competitive
position with respect to any of our operations.
BACKLOG
We
generally have a backlog of approximately two months revenue, substantially
all
of which is cancelable at any time before shipment of hardware and software
or
rendering of services. As of June 30, 2008, 2007 and 2006, the backlog totaled
approximately $204.6 million, $174.6 million and $134.1 million, respectively.
Historically, only an immaterial portion of the backlog existing as of the
first
day of the fiscal year is not recognized in that fiscal year.
AVAILABLE
INFORMATION
We
file
with the U.S. Securities and Exchange Commission (“SEC”) annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy
statements, and other documents as required by applicable law and regulations.
The public may read and copy any materials that we file with the SEC at the
SEC’s Public Reference Room at 100 F Street, N. E., Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room
by
calling the SEC at 1-800-SEC-0330 (1-800-732-0330). The SEC maintains an
Internet site (http://www.sec.gov) that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. We maintain an Internet site (http://www.micros.com). We make
available free of charge on or through our Internet website our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and
amendments to these reports, as soon as reasonably practicable after
electronically filing those documents with or furnishing them to the SEC. The
information on our website is not incorporated into and is not a part of this
Annual Report.
ITEM
1A. RISK FACTORS
There
are
a number of risks to which we are subject. These risks include the
following:
1.
ENVIRONMENTAL
AND GEOPOLITICAL RISKS.
While
we
do not sell our products and services directly to consumers, changes in consumer
habits in response to environmental or geopolitical risks affect demand for
our
products and services by the hospitality and tourism industries.
·
Our
business is very sensitive to the threat of terrorism and political
uncertainty.
As the
hospitality and tourism industries we serve are highly sensitive to consumer
sentiments caused by world events, we are very vulnerable to downturns in
customer buying habits associated with the threat of terrorist attacks and
the
uncertain political climates, such as those existing in the Middle East and
parts of Asia.
·
Our
business is very sensitive to environmental and health
disasters.
Actual
or anticipated environmental disasters and epidemics, including for example,
hurricanes, tsunamis, and disease, will deter and delay purchases of our
products by customers, as concerns about potential or anticipated instances
of
environmental or health disasters tend to suppress travel and tourism.
Environmental disasters can also adversely affect our operations in the affected
areas.
·
Higher
oil and gas prices worldwide could have a material adverse impact on the travel
and tourism industries.
Reduction of discretionary spending by consumers, such as on travel and dining,
as well as on retail spending generally, when there is a material increase
in
non-discretionary expenses caused by a rise in oil and gas prices. Moreover,
the
increase in oil and gas prices also directly adversely affects our customer
base
as a direct result of higher ingredient and food costs for our restaurant
customers. While in fiscal year 2008 we did not see any material impact in
connection with spikes in oil and gas prices, these developments may adversely
affect our business in the future.
·
We
maintain offices in certain parts of the world that are subject to economic
instability, political unrest, and terrorism, such as Argentina, Brazil and
Israel.
The
performance of our offices in these areas will be adversely impacted if these
regions become subject to economic declines, political strife or episodes of
terrorism.
·
Increasing
tensions between Russia and the United States could adversely affect our
business in Eastern Europe and Central Asia.
Recent
events in Georgia could signal increased difficulties in the U.S.-Russia
relationship, which could adversely affect our customers and our business
operations in the area, particularly in those countries that were formerly
part
of the Soviet Union.
2.
ECONOMIC, PRICING AND FINANCIAL RISKS.
·
We
are subject to the variability of world economies.
Since
a
substantial portion of our business is conducted in foreign countries, a
downturn in the economies of foreign countries could adversely affect our
financial results. While, under certain circumstances, reliance on foreign
operations can have a moderating impact (as one region’s improving conditions
can offset another region’s declining conditions), our foreign businesses
nonetheless add a degree of uncertainty to our planning and forecasting
process.
·
Our
quarterly financial results are dependent upon the timing and size of customer
orders and the shipment of products for large orders.
Large
software orders from customers may account for more than an insignificant
portion of earnings in any quarter. We expect the customers with whom we do
the
largest amount of business to vary from year to year as a result of the timing
of the rollout of each customer’s system. Further, if a customer delays or
accelerates its delivery requirements, or if a product’s completion is delayed
or accelerated, revenues that we may have expected in a given quarter could
be
deferred or accelerated into subsequent or earlier quarters, respectively.
These
events could have a meaningful effect on our quarterly results.
·
Our
ability to establish pricing is subject to rapidly changing market and
competitive conditions.
To
be
competitive and to avoid losing business on the basis of price, we must evaluate
our pricing routinely. There are instances where we may have to reduce our
pricing to obtain business. Market forces have and will continue to place
pressure on our gross margins and overall profitability.
·
Our
gross margins will vary from quarter to quarter based upon product
mix.
Product
mix can affect our operating results. For example, as we enjoy a higher gross
margin on software than on hardware, our overall gross margin will vary
depending upon the percentage of software licensed and the percentage of
hardware sold each quarter. Because actual product mix is difficult to predict
on a quarter-to-quarter basis, there is uncertainty and variability as to the
projected gross margin on a quarter to quarter basis.
·
Our
non-major account business is difficult to predict.
Our
major account customers (generally those customers who operate 50 or more
locations) have longer sales cycles and deployments; our non-major account
sales
have much shorter sales cycles and shorter deployments. As a significant portion
of our business involves non-major accounts, there is inherent difficulty in
predicting buying patterns and, accordingly, it is much harder to appropriately
staff and prepare for fluctuations in buying demand. This can result in
inefficiencies that adversely affect our operating results.
·
Some
of the advanced systems we sell are very complex and require a high level of
technical sophistication, which may result in increased costs that adversely
affect our operating results.
The
costs of the implementation and operation of an effective service structure
capable of addressing increasingly complex software systems in more remote
locations is high and may require us to engage contractors, who generally have
a
higher cost structure than that of our own employees. The additional costs
are
also driven by the complexity of open systems, which generally incorporate
third
party software products (the support and service of which may be more difficult
and costly), and difficulty in implementing, operating, maintaining and
supporting centrally hosted systems, such as central reservation systems, and
centrally-hosted property management systems and reporting
systems.
·
We
are subject to certain material cost increases that may be out of our
control.
While we
attempt to control third party costs, we have little or no control over certain
material expenses, such as health care costs (which are generally
experience-based), compliance with new legislation, and rising oil and gas
prices. Significant increases in any of these expenses could adversely affect
our operating results.
·
We
are subject to fluctuations in foreign currencies and exchange
rates.
As we
conduct significant portions of our business in foreign currencies, we
experience exchange rate fluctuations that can have a significant impact on
our
reported results. For example, as much of our European business is transacted
in
Euros, our revenue on a consolidated basis will decline if the Euro weakens
relative to the U.S. Dollar and increase if the Euro strengthens relative to
the
U.S. Dollar.
·
As
a publicly traded company, our stock price is subject to certain market trends
that are out of our control and that may not reflect our actual operating
performance.
We
can
experience short-term increases and declines in our stock price due to factors
other than those specific to our business, such as economic news or other events
generally affecting the trading markets.
·
We
have encountered risks associated with maintaining large cash
balances.
While we
have attempted to invest our cash balances in conservative investments, we
nevertheless confront credit and liquidity risks. For example, the Company
has
invested some of its cash in auction rate securities, which proved to be
illiquid when the financial resale markets contracted in February 2008.
Additionally, bank failures could result in reduced liquidity or the actual
loss
of money held in deposit accounts.
3.
TECHNOLOGY RISKS.
·
Our
customers’ requirements are increasingly sophisticated.
To
be
able to continue to offer competitive products and to meet our customers’
requirements, we must continually develop and update our products. Unexpected
costs and delays in development and implementation, and addressing our
commitments to various customers, could adversely affect our financial results.
·
The
development of software is an inherently difficult process that may result
in
software bugs that adversely impact a customer’s business.
While we
have a testing and beta program and protocol that we implement before the
general release of any product, such processes cannot guarantee that the
released software will not have any bugs. Our business could be adversely
affected if these problems are significant.
·
The
manufacturing of our hardware platform is performed primarily by GES, a company
in Singapore.
While we
believe we have a very good relationship with GES, and while we have not
experienced any material manufacturing problems with GES, we cannot assure
that
GES will not experience labor or manufacturing challenges in the future.
Additionally, GES procures many of its components from other third parties
who
could experience manufacturing or labor issues. Such difficulties could
interrupt GES’s supply of products to us, which would adversely affect our
business.
·
Large
customized deployments may be difficult and may result in cost overruns that
are
not recoverable.
We have
certain contracts under which we are required to provide systems and services
at
a fixed price. We may be contractually required to absorb costs that may not
be
recoverable if we underestimate the amount of work required or if we encounter
unanticipated technical issues. This risk can be pronounced given the complexity
of some of the systems we install and the ever-increasing size and scope of
some
of the deployments. Unanticipated costs that are not recoverable could adversely
affect our operations.
·
Our
investment in certain technologies may prove to be unsuccessful and may delay
our focus on more promising technologies.
As we
invest significantly in research and development, there is an ever-present
risk
that we will pursue technology that we ultimately determine is not marketable
or
does not achieve the desired solution. In such an event, we may be required
to
write off our investment which could have an adverse impact on our operating
income. Moreover, if we are delayed in deploying better technologies, our
business also could be adversely affected.
·
Actual
or perceived security vulnerabilities in our software products may result in
reduced sales or liabilities.
Our
software may be used in connection with processing sensitive data (e.g., credit
card numbers), and is sometimes used to store such data. It may be possible
for
the data to be compromised if our customer does not maintain appropriate
security procedures. In those instances, the customer may attempt to seek
damages from us. While we believe that all of our current software complies
with
applicable industry security requirements and that we use appropriate security
measures to reduce the possibility of breach through our support and other
systems, we cannot assure that our customers’ systems will not be breached, or
that all unauthorized access can be prevented. If a customer, or other person,
seeks redress from us as a result of a security breach, our business could
be
adversely affected.
4.
RESOURCE AND PERSONNEL RISKS.
·
We
could be adversely affected by vendor labor difficulties.
Some of
our vendors have employees who are protected by certain labor laws or who may
be
members of unions. We could experience unanticipated manufacturing or supply
shortages if any of our key vendors are subject to labor difficulties or work
slow-downs or stoppages.
·
Our
inability to hire qualified personnel, including particularly research &
development personnel, could adversely affect our ability to satisfy customer
requirements on an efficient basis.
Finding
qualified technical personnel in all the localities where our research and
development facilities are situated is an ongoing challenge. If we cannot find
appropriate personnel, we risk delays in satisfying customer demands, or may
even lose the opportunity to provide software to the customer. If we are
required to retain a consultant because we do not have available personnel,
development costs would increase. In general, our inability to recruit and
retain appropriate personnel would adversely affect our business.
5.
LEGAL AND ACCOUNTING RISKS.
·
Although
we attempt to protect our proprietary technology, these protections do not
preclude competitors from developing products with features similar to our
products.
We
cannot guarantee that we can effectively preserve the proprietary nature and
competitive advantages of our products, despite our efforts to do so through
a
combination of trade secrets, copyright, trademark law, non-disclosure
agreements, and technical measures. Others could attempt to copy what we have
developed, either through legal or illegal means. Moreover, others have been
able to develop competitive products and services that do not violate our
proprietary rights.
·
We
are subject to litigation, which may be costly.
As
a
company that does business with many customers, employees and vendors throughout
the world, we are subject to litigation, including claims made by or against
us
relating to intellectual property rights and intellectual property licenses.
For
example, we recently were subject to an adverse jury determination that we
were
liable for $7.5 million in damages in connection with the termination of dealer
relationships in 2000. While we will pursue an appeal in this matter, and while
we generally take steps to reduce the likelihood that disputes will result
in
litigation and damages, litigation is very commonplace and could have an adverse
effect on our business.
·
We
are subject to claims by others that we are infringing their intellectual
property rights.
From
time
to time we receive letters from entities that assert that we are infringing
a
patent. In those instances, we assess the validity of the claims and the
purported patent, and determine whether a license is appropriate or necessary.
If we conclude that a license is not necessary, there is a risk that we will
be
sued; we also face indirect liability as a result of infringement claims brought
against our customers. There is at least one action pending in which some of
our
customers have been sued on such a claim and some of our customers are seeking
indemnification from us. While we do not believe that any of our products and
services infringe any patents, we may become involved in patent infringement
litigation. We may incur significant legal expenses and, if we are found liable,
significant damages in connection with patent infringement
litigation.
·
Credit
card issuers have promulgated credit card security guidelines as part of their
ongoing effort to battle identity theft and credit card fraud, which may
substantially increase our expenses; breaches of our customers’ credit card
security may adversely affect us.
We
continue to work with credit card issuers to assure that our products and
services comply with the credit card associations’ security regulations and best
practices applicable to our products and services. We cannot assure, however,
that our products and services are invulnerable to unauthorized access or
hacking. Additionally, we cannot assure that our customers will implement all
of
the credit card security features that we introduce, or all of the protections
and procedures required by the credit card issuers. Our customers may not
establish and maintain appropriate levels of firewall protection and other
security measures. If there is unauthorized access to credit card data that
results in financial loss, there is a potential that parties could seek damages
from us. Additionally, changes in the security guidelines could require
significant and unanticipated development efforts.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
applicable.
ITEM
2.
PROPERTIES
Our
worldwide corporate headquarters, including our executive offices, are located
in Columbia, Maryland. We also conduct sales, marketing, customer support,
and
product development activities at this location. We lease the entire five-story
structure, consisting of 247,624 square feet, from Columbia Gateway Office
Corporation, under a lease that, as amended, terminates on February 29, 2016.
We
sublease one of the five floors, consisting of 49,524 square feet, to Motorola,
Inc. The sublease expires March 1, 2010, and Motorola has the option to
terminate the agreement after October 31, 2008.
In
addition to over 50 smaller offices, we lease the following larger
facilities:
Location
|
|
Approximate
Size
(Square Feet)
|
|
Use
|
|
Expiration Date
|
|
Additional Comments
|
|
|
|
|
|
|
|
|
|
Columbia,
Maryland
|
|
247,624
|
|
Headquarters
and other functions (see above)
|
|
February
29, 2016
|
|
See
above
|
|
|
|
|
|
|
|
|
|
Hanover,
Maryland
|
|
75,600
|
|
Warehouse,
distribution, light assembly, configuration, manufacturing,
repair
|
|
July
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Cleveland,
Ohio
|
|
69,200
|
|
Sales,
marketing, support, product development
|
|
February
28, 2014 (with an early termination right in 2010)
|
|
Cleveland
is the headquarters for the MICROS Retail group
|
|
|
|
|
|
|
|
|
|
Neuss,
Germany
|
|
42,000
|
|
Sales,
marketing, product development, and customer support
|
|
December
31, 2015
|
|
Also
serves as the regional headquarters for Europe, Africa, and the Middle
East
|
|
|
|
|
|
|
|
|
|
Westborough,
Massachusetts
|
|
27,234
|
|
Sales,
marketing, customer support, product development and product
support
|
|
November
30, 2013
|
|
MICROS
Retail maintains this office for its XBR loss prevention products,
as well
as for its CommercialWare products and services.
|
|
|
|
|
|
|
|
|
|
Boca
Raton, Florida
|
|
19,755
|
|
Sales,
marketing, product development, customer support and light
assembly
|
|
February
29, 2012
|
|
Boca
Raton is the headquarters for the JTECH subsidiary
|
|
|
|
|
|
|
|
|
|
Naples,
Florida
|
|
18,180
|
|
Software
development
|
|
December
31, 2011
|
|
Naples
is the main site for the development of the Company’s hotel
products
|
|
|
|
|
|
|
|
|
|
Galway,
Ireland
|
|
18,025
|
|
Customer
support, sales and marketing
|
|
May
31, 2022 (early termination rights in 2012, and 2017)
|
|
Support
mainly for Europe, Africa, and Middle East customers
|
|
|
|
|
|
|
|
|
|
Nanterre,
France
|
|
16,867
|
|
Sales,
marketing, support
|
|
December
31, 2013 (with an early termination right in 2010)
|
|
|
|
|
|
|
|
|
|
|
|
Buffalo,
NY
|
|
16,821
|
|
Sales,
marketing, support
|
|
September
15, 2015
|
|
We
have subleased a portion of this property to another
company.
|
|
|
|
|
|
|
|
|
|
Sydney,
Australia
|
|
13,500
|
|
Sales,
marketing, support, product development
|
|
December
14, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Scottsdale,
Arizona
|
|
12,969
|
|
Sales,
marketing, support, product development
|
|
January
31, 2016
|
|
Scottsdale
is the headquarters for the HSI division
|
|
|
|
|
|
|
|
|
|
South
Plainfield, New Jersey
|
|
12,846
|
|
Sales,
marketing, support
|
|
April
30, 2011
|
|
Principal
site for MICROS Retail - RedSky division sales, marketing and development
in the U.S.
|
|
|
|
|
|
|
|
|
|
Mexico,
DF
|
|
11,946
|
|
Sales,
marketing, customer support, operations
|
|
November
30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, Nevada
|
|
11,930
|
|
Sales,
marketing, support
|
|
July
31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
Huntington
Beach, California
|
|
10,970
|
|
Sales,
marketing, support
|
|
January
31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
Bernau,
Germany
|
|
10,000
|
|
Sales,
marketing, support, light assembly
|
|
June
30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
Slough,
England (four sites)
|
|
25,000
|
|
Sales,
marketing, support
|
|
Ranges
from September 29, 2013 to December 31, 2016 (early termination rights
ranges from 2009 - 2010)
|
|
|
|
|
|
|
|
|
|
|
|
Singapore
|
|
9,367
|
|
Sales,
marketing, support
|
|
August
31, 2008
|
|
|
To
satisfy other sales, service and support, and product development needs, we
and
our subsidiaries lease space in other U.S. cities, including Boston, Chicago,
Cincinnati, Dallas, Denver, Hartford, Houston, Nashville, New Orleans,
Pittsburgh, Portland, San Diego, San Francisco, and Seattle, and in numerous
cities overseas, including Buenos Aires, Argentina; Hounslow, England; Hamburg,
Germany; Helsinki, Finland; Madrid, Spain; Paris, France; Rome, Italy; São
Paulo, Brazil; Stockholm, Sweden; Tokyo, Japan; Toronto, Canada; Vancouver,
Canada; Vienna, Austria; and Zurich, Switzerland. In general, we believe that
additional space will be available as needed.
ITEM
3.
LEGAL
PROCEEDINGS
We
are
and have been involved in legal proceedings arising in the normal course of
business.
There
is
a case pending in the U.S. District Court for the Northern District of Georgia,
styled
Ware
v. Abercrombie & Fitch Stores, Inc. et al.
;
although we are not a party to that case, we may have some obligation to
indemnify certain of the defendants who are our customers, based on the terms
of
our contracts with those customers. The plaintiff has alleged that the
defendants are infringing a patent relating to the processing of credit card
transactions. The defendants include approximately 107 individual retailers,
13
of whom are our customers for retail point-of-sale software. We are currently
providing indemnity coverage to five of the defendants who are our customers
in
accordance with applicable provisions of the contracts between us and those
customers. The indemnity coverage estimated as of June 30, 2008 is immaterial.
Through June 30, 2008, our legal fees with respect to indemnity coverage for
this matter have not been material. Currently, the case is subject to a
court-ordered stay pending the completion of the United States Patent and
Trademark Office’s reexamination of the patent that is the subject of the
lawsuit. Should the case proceed, we will vigorously defend the action and
assert all available defenses and arguments. In any event, based on
currently available information, we do not believe that our products infringe
the patent.
Heartland
Payment Systems, Inc., has filed an action in the U.S. District Court for the
District of New Jersey naming as defendants MICROS Systems, Inc., Merchant
Link
LLC, and Chase Paymentech Solutions, LLC. In its complaint, Heartland claims
that MICROS, Merchant Link, and Paymentech have engaged in an anti-competitive
arrangement relating to credit and debit card payment processing for restaurant
point-of-sale systems, and further claims that this arrangement violates federal
antitrust law and applicable New Jersey state laws. Heartland claims it has
been
damaged by virtue of being required to deal with Merchant Link if it wishes
to
provide services to users of MICROS POS software, by being required to pay
fees
to Merchant Link that it claims are inappropriate or excessive, and by being
competitively disadvantaged relative to Chase Paymentech’s services. Heartland
seeks monetary damages in excess of $12 million, and also injunctive and other
equitable relief. In February 2008, we moved to dismiss the complaint on various
grounds, but the court has not yet ruled on the motion. Because the motion
is
still pending, our answer to the complaint is not yet due; however, we dispute
the substantive allegations in the complaint. Based on currently available
information, we do not believe that our relationships and agreements with
Merchant Link and Paymentech are anti-competitive or otherwise violate either
federal antitrust law or applicable New Jersey law. If the court does not grant
MICROS’s motion to dismiss the complaint, MICROS will vigorously contest the
action.
On
May
22, 2008, a jury returned a verdict of $7.5 million against us in the
consolidated actions of
Roth
Cash Register v. MICROS Systems, Inc., et al.
and
Shenango
Systems Solutions v. MICROS Systems, Inc., et al
.
The
cases initially were filed in 2000 in the Court of Common Pleas of Allegheny
County, Pennsylvania. The complaints both related to the non-renewal of
dealership agreements in the year 2000 between us and the respective plaintiffs.
The agreements were non-renewed as part of a restructuring of the dealer
channel. The plaintiffs alleged that we and certain of our subsidiaries and
employees entered into a plan to eliminate the plaintiffs as authorized dealers
and improperly interfere with the plaintiffs' relationships with their
respective existing and potential future clients and customers without
compensation to the plaintiffs. As a result, the plaintiffs claimed that we
were
liable for, among other things, breach of contract and tortious interference
with existing and prospective contractual relationships. We have moved for
reconsideration of the verdict by the trial court, and, if unsuccessful in
that
regard, we intend to pursue a appeal, as we believe the instructions to the
jury, certain rulings made by the trial court, and the jury verdict were
erroneous on multiple legal grounds. There are no other litigation matters
relating to the restructuring of the dealer channel in the year 2000.
Subject
to the foregoing, we are of the opinion, based upon presently available
information and the advice of counsel concerning pertinent legal matters, that
any resulting liability should not have a material adverse effect on our results
of operations, financial position or cash flows.
ITEM
4.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not
applicable.
PART
II
ITEM
5.
|
MARKET
FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY
SECURITIES
|
All
share
data has been retroactively adjusted for a two-for-one stock split effective
February 5, 2008.
PRICE
RANGE OF COMMON STOCK
The
Company’s common stock is traded on the NASDAQ Stock Market under the symbol
MCRS. As of July 29, 2008, there were 44,716 record holders of the Company’s
common stock, $.00625 par value.
The
following table shows the range of sales prices for the periods indicated,
as
reported by NASDAQ.
|
|
1
st
Quarter
|
|
2
nd
Quarter
|
|
3
rd
Quarter
|
|
4
th
Quarter
|
|
Fiscal
Year Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
33.30
|
|
$
|
37.49
|
|
$
|
37.35
|
|
$
|
36.64
|
|
Low
|
|
$
|
26.45
|
|
$
|
30.29
|
|
$
|
26.33
|
|
$
|
28.40
|
|
Fiscal
Year Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
25.63
|
|
$
|
26.79
|
|
$
|
28.85
|
|
$
|
28.38
|
|
Low
|
|
$
|
18.04
|
|
$
|
24.05
|
|
$
|
25.40
|
|
$
|
25.13
|
|
The
Company has never paid a cash dividend and has no current intention to pay
any
cash dividends. Its current policy is to retain earnings and to use those funds
for the operation and expansion of its business as well as the repurchase of
the
Company’s stock. The Company is a party to two credit agreements expiring on
July 31, 2009, which restrict the payment of dividends other than stock
dividends (
see
Item
7,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources” and
Note
8, “Line
of Credit,” in the notes to the Consolidated Financial Statements included in
this report).
PURCHASES
OF COMPANY STOCK
In
fiscal
year 2005, the Board of Directors authorized the purchase of up to four million
shares of the Company’s common stock. As of October 2007, the Company purchased
all of the remaining unpurchased shares under the fiscal year 2005
authorization. In November 2007, the Board of Directors authorized the purchase
of an additional two million shares of the Company’s common stock (the “2008
Plan”). The Company has incurred an aggregate of approximately $0.2 million in
fees related to all stock purchase plans. As of July 31, 2008, 0.1 million
additional shares may be repurchased under the 2008 Plan. During the fourth
quarter of fiscal year 2008, the Company’s stock purchases under the 2008 Plan
were as follows:
Issuer
Purchases of Equity Securities
|
|
Total Number
of Shares
Purchased
|
|
Average
Price
Paid per
Share
|
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plan or
Program
|
|
Maximum Number
of Shares that May
Yet be Purchased
Under the Plan or
Program
|
|
|
|
|
|
|
|
|
|
|
|
04/01/08
– 04/30/08
|
|
|
100,000
|
|
$
|
32.45
|
|
|
100,000
|
|
|
723,200
|
|
05/01/08
– 05/31/08
|
|
|
309,600
|
|
$
|
29.37
|
|
|
309,600
|
|
|
413,600
|
|
06/01/08
– 06/30/08
|
|
|
276,100
|
|
$
|
30.66
|
|
|
276,100
|
|
|
137,500
|
|
|
|
|
685,700
|
|
$
|
30.34
|
|
|
685,700
|
|
|
137,500
|
|
As
noted
elsewhere in this Annual Report on Form 10-K, subsequent to June 30, 2008,
our
Board of Directors approved the repurchase of up to an additional two million
shares of our common stock over the next three years, to be purchased from
time
to time in the open market as business conditions warrant.
RECENT
SALES OF UNREGISTERED SECURITIES
None.
ITEM
6.
|
SELECTED
CONSOLIDATED FINANCIAL
DATA
|
|
|
Fiscal
Year Ended June 30,
|
|
(in
thousands, except per share data)
|
|
2008
(1)
|
|
2007
(1)
|
|
2006
(1)
|
|
2005
|
|
2004
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
954,184
|
|
$
|
785,727
|
|
$
|
678,953
|
|
$
|
597,264
|
|
$
|
487,443
|
|
Income
from operations
|
|
$
|
139,303
|
|
$
|
110,588
|
|
$
|
91,277
|
|
$
|
78,875
|
|
$
|
56,834
|
|
Net
income
|
|
$
|
101,284
|
|
$
|
79,988
|
|
$
|
63,528
|
|
$
|
53,660
|
|
$
|
33,279
|
|
Net
income per share
(6)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.23
|
|
$
|
1.00
|
|
$
|
0.82
|
|
$
|
0.72
|
|
$
|
0.46
|
|
Diluted
|
|
$
|
1.21
|
|
$
|
0.97
|
|
$
|
0.78
|
|
$
|
0.67
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital
(2)
|
|
$
|
392,939
|
|
$
|
344,566
|
|
$
|
253,121
|
|
$
|
190,436
|
|
$
|
118,617
|
|
Total
assets
|
|
$
|
1,003,006
|
|
$
|
846,756
|
|
$
|
647,857
|
|
$
|
547,228
|
|
$
|
419,587
|
|
Capital
leases
(3)
|
|
$
|
713
|
|
$
|
915
|
|
$
|
513
|
|
$
|
413
|
|
$
|
305
|
|
Shareholders’
equity
(4)
|
|
$
|
673,016
|
|
$
|
551,133
|
|
$
|
417,116
|
|
$
|
345,171
|
|
$
|
262,973
|
|
Book
value per share
(4), (5),
(6)
|
|
$
|
8.32
|
|
$
|
6.80
|
|
$
|
5.35
|
|
$
|
4.47
|
|
$
|
3.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
(6)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
81,546
|
|
|
79,978
|
|
|
77,383
|
|
|
75,029
|
|
|
72,979
|
|
Diluted
|
|
|
83,346
|
|
|
82,581
|
|
|
81,248
|
|
|
79,607
|
|
|
76,905
|
|
|
(1)
|
Fiscal
years ended June 30, 2008, 2007 and 2006 include approximately $17.2
million ($13.1 million net of tax or $0.16 per diluted share), $14.0
million ($11.1 million net of tax or $0.14 per diluted share) and
$9.1
million ($7.1 million net of tax or $0.09 per diluted share),
respectively, in non-cash share-based compensation expense. See Note
3,
“Share-based Compensation” in the Notes to Consolidated Financial
Statements.
|
|
(2)
|
Current
assets less current liabilities.
|
|
(3)
|
Including
current portion. The Company does not have any long-term
debt.
|
|
(4)
|
Includes
the impact of adoption of SFAS 158. See Note 17, “Employee Benefit Plans”
in the Notes to Consolidated Financial
Statements.
|
|
(5)
|
Calculated
as shareholders’ equity divided by common stock outstanding at June
30.
|
|
(6)
|
Retroactively
adjusted to reflect February 2008 two-for-one stock
split.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
OVERVIEW
We
are a
leading worldwide designer, manufacturer, marketer, and servicer of enterprise
information solutions for the global hospitality and specialty retail
industries. As detailed elsewhere in this report on Form 10-K, our enterprise
solutions comprise three major areas: hotel information systems, restaurant
information systems, and specialty retail information systems. We also offer
a
wide range of related services. We distribute our products and services directly
and through a network of independent dealers and distributors.
The
markets in which we operate are highly competitive. We compete on various bases,
including product functionality, service capabilities, price, and geography.
We
believe that our competitive strengths include our established global
distribution and service network, our ability to offer a broad array of
hardware, software and service products to the hospitality and retail industry
and our corporate focus on providing specialized information systems solutions.
We
are
organized and operate in four operating segments: U.S., Europe, the Pacific
Rim,
and Latin America regions. As the products and services for all acquired
entities are all similar to those of ours, the acquired entities have been
incorporated into the existing four operating segments based on their respective
geographic locations, and operated and managed as a part of that operating
segment.
For
the
purposes of applying Statement of Financial Accounting Standards No. 131,
“Disclosures About Segments of an Enterprise and Related Information (“SFAS
131”), we have identified U.S. as a separate reportable segment and have
aggregated our three international operating segments into one reportable
segment, international, as the three international operating segments share
many
similar economic characteristics. Our management views the U.S. and
international segments separately in operating its business, although the
products and services are similar for each segment.
We
continue to see overall growth in the hospitality and retail industries; slower
growth in some sectors has historically tended to be offset by faster growth
in
other areas. We have seen particular growth in our quick service
restaurant business, including that generated by sales to various quick service
restaurant chains with which we have announced buying agreements.
CRITICAL
ACCOUNTING ESTIMATES
Our
discussion and analysis of our financial condition and results of operations
are
based on the consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. On an ongoing basis, we evaluate our estimates, including
those that impact revenue recognition, share-based compensation, capitalized
software, intangible assets, allowance for doubtful accounts, allowance for
obsolescence, investments (in auction rate securities), income taxes,
contingencies and litigation. We base our estimates on historical experience
and
on various other assumptions that are believed to be reasonable under the
circumstances, and which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The
following comprise the critical accounting estimates that we used in the
preparation of the consolidated financial statements.
Revenue
recognition
Revenue
is generated from software licenses, hardware and service and support. Revenue
is recognized in accordance with American Institute of Certified Public
Accountants Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,”
as modified by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition
with Respect to Certain Transactions” and the Securities and Exchange Commission
Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial
Statements.” Revenue under multiple element arrangements, which typically
include hardware, software licenses and maintenance agreements sold together,
are allocated to each element in the arrangement using the residual method
prescribed by SOP 98-9, based on vendor specific objective evidence of the
fair
value of any undelivered elements of the arrangement, i.e., recognition of
an
allocated portion of revenue equivalent to the fair value of undelivered
elements is deferred.
Revenue
from software license, hardware and service and support are generally recognized
when the four basic criteria of SOP 97-2 are met as follows:
|
·
|
Persuasive
evidence of an arrangement exists: We require a contract signed by
both
parties to the agreement or a purchase order received from the customer
as
persuasive evidence of an arrangement.
|
|
·
|
Delivery
has occurred or services have been rendered: Delivery occurs at FOB
shipping point when provided to a common carrier, if the risk of
ownership
has passed to the buyer or in the case of electronic delivery, delivery
occurs when the customer is given access to the licensed programs.
If the
risk of ownership has not passed to the buyer when provided to the
common
carrier, delivery occurs when the risk has passed to the
buyer.
|
|
·
|
Fixed
or determinable fee: We consider the license fee to be fixed or
determinable if the fee is not subject to refund or adjustment and
is
payable within twelve months of delivery with generally no more than
20%
of the contract price due at the end of the payment term. If the
arrangement fee is not fixed or determinable, we recognize the revenue
as
amounts become due and payable. We consider service fees to be fixed
or
determinable if the service fee or rates for time and material contracts
are not subject to refund or
adjustment.
|
|
·
|
Collection
is probable: We perform a credit review for significant transactions
at
the time the arrangement is executed to determine the creditworthiness
of
the customer. Collection is deemed probable if we expect that the
customer
will be able to pay amounts under the arrangement as they become
due. If
we determine from the outset of an arrangement that collection is
not
probable, revenue is recognized as collection
occurs.
|
Costs
related to shipping and handling and billable travel expenses are included
in
cost of sales. The revenue is reduced to reflect estimated customer returns
and
allowances.
Since
our
revenue deferral for undelivered elements under multiple element arrangements
is
based on vendor specific objective evidence of the fair value of any undelivered
elements of the arrangement, our financial results for current fiscal year
and
future periods could be significantly different if our estimates of the vendor
specific objective evidence of the fair values of undelivered elements change.
Additionally, significant differences in the actual customer returns and
allowances from our estimates could also significantly affect our financial
results.
Allowance
for doubtful accounts
We
maintain an allowance for doubtful accounts for estimated losses that may result
from the inability of our customers to make required payments and for limited
circumstances when the customer disputes the amounts due to us. Our methodology
for determining this allowance requires estimates and is based on the age of
the
receivable, customer payment practices and history, inquiries, credit reports
from third parties and other financial information. If the financial condition
of our customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowance may be required which could
affect our financial results in future periods. As of June 30, 2008 and 2007,
accounts receivable totaled approximately $192.4 million and $180.2 million,
net
of an allowance for doubtful accounts of approximately $28.3 million and $23.1
million, respectively. Additionally, bad debt expenses for the fiscal years
2008, 2007 and 2006 were approximately $7.1 million, $3.4 million and $5.4
million, respectively.
Inventory
Inventory
is stated at the lower of standard cost, which approximates cost, or market.
Standard cost is determined principally by the first-in, first-out pricing
method. We
maintain
a reserve for obsolescence for inventory in the amount of approximately $11.5
million and $9.9 million as of June 30, 2008 and 2007,
respectively.
Investments,
non-current and short-term
Our
investments in auction rate securities, which are debt instruments with
long-term scheduled maturities and periodic interest rate reset dates, are
classified as available-for-sale. We carry these securities at estimated fair
value with any related impairment being classified as either temporary and
reported as a separate component of stockholders' equity or as
other-than-temporary and recognize in our consolidated statements of
operations.
As
of
June 30, 2008, we held approximately $65.2 million in auction rate securities,
classified as investments, non-current in the accompanying consolidated balance
sheets compared to approximately $87.0 million classified as short-term
investments as of June 30, 2007. As of June 30, 2008, there were temporary
unrealized losses of approximately $4.2 million (approximately $2.7 million,
net
of tax) on these investments. As of June 30, 2007, there were no unrealized
gains or losses on these investments. We recognized no gains or losses related
to the sale of our investments in auction rate securities during the three
fiscal years ended June 30, 2008. See Note 2, “Investments, non-current and
short-term” in the Notes to Consolidated Financial Statements for further
detail.
Capitalized
software development costs
Costs
incurred in the research and development of new software products to be licensed
to others, primarily consisting of salaries, employee benefits and
administrative costs, are expensed as incurred and included in research and
development expenses until technological feasibility is established. The
capitalization of software development costs on a product-by-product basis
starts when a product’s technological feasibility has been established and ends
when the product is available for general release to customers, at which time
amortization begins. Technological feasibility is established when the product
reaches the working model stage. The cost of purchased software is also
capitalized.
Annual
amortization of capitalized software development costs are charged to software
cost of sales, and for each capitalized software product is the greater of
(1)
the amount computed using the ratio that of the software product’s current
fiscal year gross revenue to the total of current fiscal year and anticipated
future gross revenues for that product, or (2) the amount computed based on
straight-line method over the remaining estimated economic life of the product.
If we incorrectly estimate the remaining economic life of a product or the
anticipated future gross revenues of a product, our future financial results
could be materially affected as a result of the write off of amortized costs
or
acceleration of amortization. Amortization expense for the fiscal years 2008,
2007 and 2006 were approximately $9.4 million, $8.4 million and $7.0 million,
respectively. Additionally, during the fiscal years 2008 and 2006, we wrote
off
approximately $0.7 million and $1.6 million in capitalized software costs
related to products for which no future revenue was projected. No capitalized
software was written off in fiscal year 2007.
Long-lived
assets including finite-lived purchased intangible assets
We
evaluate long-lived assets, including finite-lived purchased intangible assets,
for impairment whenever events and changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for
the Impairment or Disposal of Long-Lived Assets.” When indicators of impairment
are present, we compare the fair value of the assets, based on the undiscounted
cash flows the assets are expected to generate (or market value, if available),
to the book value of the assets. If the fair value is less than book value,
the
asset is impaired and we recognize an impairment loss equal to the excess of
book value over fair value.
The
process of evaluating the potential impairment of long-lived assets including
finite-lived purchased intangible assets is highly subjective and requires
significant judgment at many points during the analysis. In estimating the
fair
value of the assets for the purposes of our analyses, we make estimates and
judgments about the future cash flows of these assets. The cash flow forecasts
are based on assumptions that are consistent with the plans and estimates used
to manage the Company. A change in assumptions and estimates in future periods
could cause us to determine that assets are impaired, resulting in a significant
charge in future periods.
Goodwill
and indefinite-lived purchased intangible assets
SFAS
No.
142, “Goodwill and Other Intangible Assets,” prohibits the amortization of
goodwill and indefinite-lived purchased intangible assets. We assess whether
goodwill and our only indefinite-lived purchased intangible assets, trademarks,
are impaired in accordance with SFAS 142 on an annual basis, during the first
quarter of each fiscal year. Goodwill is evaluated for impairment by
comparing the fair value of each of our reporting units (our four operating
segments consisting of U.S., Europe, the Pacific Rim and Latin America) to
its
book value. The fair value of each reporting unit is determined based on a
weighting of the income approach (i.e., discounted future income) and market
approach (i.e., comparison to the purchase and sale of similar assets in the
relevant industry) to value. If the fair value of the reporting unit exceeds
the
book value of the net assets assigned to that unit, goodwill is not impaired.
If
goodwill is impaired, we recognize an impairment loss based on the amount by
which the book value of goodwill exceeds its implied fair value. The
implied fair value of goodwill is determined by deducting the fair value of
a
reporting unit’s identifiable assets and liabilities from the fair value of the
reporting unit as a whole, as if that reporting unit had just been acquired
and
the purchase price were being initially allocated.
Trademarks
are evaluated for impairment by comparing their fair value to book value. We
estimate the fair value of trademarks using an income approach to value, and
recognize an impairment loss if the estimated fair value of a trademark is
less
than its book value.
Additional
impairment assessments may be performed on an interim basis if we encounter
events or changes in circumstances indicating that it is more likely than not
that the book value of goodwill and/or trademarks has been
impaired.
The
process of evaluating the potential impairment of goodwill and/or trademarks
is
highly subjective and requires significant judgment at many points during the
analysis. In estimating the fair value of the reporting units with recognized
goodwill for the purposes of our annual or interim analyses, we make estimates
and judgments about the future cash flows of these businesses. The cash flow
forecasts are based on assumptions that are consistent with the plans and
estimates used to manage the underlying reporting units. We also consider our
market capitalization on the date the analysis is performed. A determination
that goodwill or intangible assets are impaired (which could result from a
change in our assumptions) or a decline in our market capitalization could
result in a significant charge in future periods.
Share-based
compensation
We
account for our option awards granted under our stock option program in
accordance with SFAS No. 123(R), “Share-Based Payment”. The estimated fair value
of option awards is measured as of the date of grant, and non-cash share-based
compensation expense adjusted for expected pre-vesting forfeitures are
recognized ratably over the requisite service (i.e. vesting) period of options
in the consolidated statement of operations. In addition, non-cash share-based
compensation expense adjusted for expected pre-vesting forfeitures is recognized
for the non-vested portion of awards that were granted before the effective
date
of SFAS No. 123(R) as those options become incrementally vested.
As
we
value stock options using the Black-Scholes option pricing model, which was
developed for use in estimating the fair value of traded options that are fully
transferable and have no vesting restrictions, we are required to input highly
subjective assumptions about volatility rates, expected term of options,
dividend yields and applicable interest rates in the option pricing model.
Expected volatility is based on historical stock prices. The expected term
of
options granted is based on historical option activities, adjusted for the
remaining option life cycle by assuming ratable exercise of any unexercised
vested options over the remaining term. For this purpose, we separate groups
of
employees that have historically exhibited similar behavior with regard to
option exercises and post-vesting cancellations. The risk-free interest rate
is
based on the U.S. Treasury yield curve in effect at the time of grant. Total
expense recorded from period to period can be significantly different depending
on several variables, including any changes to these assumptions such as
pre-vesting cancellations and the estimated fair value of those vested
awards.
Income
taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the expected future tax consequences
attributable to the differences between the financial statement carrying amounts
and the tax basis of assets and liabilities. Deferred tax assets and liabilities
are measured using the enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. The effect on
the
deferred tax assets and liabilities of a change in tax rate is recognized in
income in the period that includes the enactment date. Valuation allowances
are
established when necessary to reduce deferred tax assets to the amounts more
likely than not to be realized. If we determine that we will not be able to
realize all or part of our net deferred tax asset in the future, an adjustment
to the deferred tax asset would be charged to income in the period in which
the
determination is made.
Effective
July 1, 2007, we adopted the provisions of FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109” (“FIN 48”).
RESULTS
OF OPERATIONS
During
the three fiscal years ending June 30, 2008, we acquired several companies
and
accordingly,
our results include activities from these acquisitions since their respective
acquisition dates.
See Note
4, “Acquisitions” in the Notes to Consolidated Financial Statements for further
detail on acquisitions.
All
references to share data have been retroactively adjusted to reflect the
two-for-one stock split effective February 5, 2008.
Comparison
of Fiscal Year 2008 to Fiscal Year 2007
Revenue
An
analysis of the sales mix by reportable segments is as follows (amounts are
net
of intersegment eliminations, based on location of the selling entity, and
include export sales):
|
|
Fiscal
Year Ended June 30,
|
|
|
|
U.S.
|
|
International
|
|
Total
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Hardware
|
|
$
|
131,712
|
|
$
|
126,596
|
|
$
|
134,253
|
|
$
|
107,242
|
|
$
|
265,965
|
|
$
|
233,838
|
|
Software
|
|
|
60,012
|
|
|
50,745
|
|
|
98,687
|
|
|
82,075
|
|
|
158,699
|
|
|
132,820
|
|
Service
|
|
|
224,734
|
|
|
186,798
|
|
|
304,786
|
|
|
232,271
|
|
|
529,520
|
|
|
419,069
|
|
Total
Revenue
|
|
$
|
416,458
|
|
$
|
364,139
|
|
$
|
537,726
|
|
$
|
421,588
|
|
$
|
954,184
|
|
$
|
785,727
|
|
An
analysis of the total sales mix as a percent of total revenue is as
follows:
|
|
Fiscal
Year Ended June 30,
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
Hardware
|
|
|
27.9
|
%
|
|
29.8
|
%
|
Software
|
|
|
16.6
|
%
|
|
16.9
|
%
|
Service
|
|
|
55.5
|
%
|
|
53.3
|
%
|
Total
|
|
|
100.0
|
%
|
|
100.0
|
%
|
For
fiscal year 2008, total revenue was approximately $954.2 million, an increase
of
approximately $168.5 million, or 21.4% compared to the fiscal year 2007, of
which approximately $44.6 million was a result of favorable foreign currency
exchange rate fluctuation, mainly between the Euro and the U.S. dollar. The
increase in total revenue was a result of the following:
|
·
|
An
approximately $110.5 million or 26.4% increase in our service revenue
primarily resulted from expansion of our customer base and increase
in the
volume of our support services that reflects increased recurring
support
revenue from existing customers. The increase in our recurring support
revenue contributed 52.3% and the increase in our installation revenue
relating to the expansion of our customer base contributed 27.1%
of the
service revenue increase. Additionally, approximately $25.3 million
of the
increase in our service revenue was due to favorable foreign currency
exchange rate fluctuation;
|
|
·
|
An
approximately $32.1 million or 13.7% increase in our hardware revenue
primarily resulted from an overall sales volume increase, including
an
increase in combined sales of our Workstation 4 and Workstation 5.
Workstation 5 was released in October 2007. Additionally, approximately
$11.1 million of the increase in our hardware revenue was due to
favorable
foreign currency exchange rate fluctuation;
and,
|
|
·
|
An
approximately $25.9 million or 19.5% increase in our software revenue
primarily resulted from an overall sales volume increase, including
a $7.5
million increase in sales of our Opera suite of products. Additionally,
approximately $8.2 million of the increase in our software revenue
was due
to favorable foreign currency exchange rate
fluctuation.
|
The
international segment revenue for fiscal year 2008 increased approximately
$116.1 million, reflecting the following:
|
·
|
An
approximately $72.5 million or 31.2% increase in our service revenue,
of
which approximately $25.3 million was due to favorable foreign currency
exchange rate fluctuation;
|
|
·
|
An
approximately $27.0 million or 25.2% increase in our hardware revenue,
of
which approximately $11.1 million was due to favorable foreign currency
exchange rate fluctuation; and,
|
|
·
|
An
approximately $16.6 million or 20.2% increase in our software revenue,
of
which approximately $8.2 million was due to favorable foreign currency
exchange rate fluctuation.
|
The
U.S.
segment revenue increased approximately $52.3 million for fiscal year 2008,
primarily due to additional service revenue reflecting the continued expansion
of our customer base coupled with increased recurring support revenue from
existing customers (primarily through purchase of additional services).
Cost
of Sales
An
analysis of the cost of sales is as follows:
|
|
Fiscal
Year Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
(in
thousands)
|
|
Cost
of
Sales
|
|
% of Related
Revenue
|
|
Cost
of Sales
|
|
% of Related
Revenue
|
|
Hardware
|
|
$
|
171,779
|
|
|
64.6
|
%
|
$
|
149,085
|
|
|
63.8
|
%
|
Software
|
|
|
33,252
|
|
|
21.0
|
%
|
|
29,531
|
|
|
22.2
|
%
|
Service
|
|
|
247,954
|
|
|
46.8
|
%
|
|
195,600
|
|
|
46.7
|
%
|
Total
Cost of Sales
|
|
$
|
452,985
|
|
|
47.5
|
%
|
$
|
374,216
|
|
|
47.6
|
%
|
For
fiscal year 2008, cost of sales as a percent of revenue decreased 0.1% to 47.5%
compared to fiscal year 2007. Hardware cost of sales as a percent of related
revenue increased primarily as a result of less favorable sales mix (i.e.,
the
sales generated from products with lower margin represented higher percentage
of
total hardware sales) and an increase in our freight costs compared to fiscal
year 2007. Software cost of sales as a percent of related revenue decreased
primarily due to a favorable sales mix, combined with lower cost of sales on
the
our sale of third party software sale compared to fiscal year 2007. For fiscal
year 2008, we also were able to increase leverage of our software amortization
expense (included in software cost of sales) as a result of an increase in
total
software revenue compared to fiscal year 2007.
Service
cost of sales as a percent of related revenue increased compared to fiscal
year
2007 primarily due to an increase in our travel costs.
The
foreign currency fluctuation increased our cost of sales for the fiscal year
2008 by approximately $22.6 million.
Selling,
General and Administrative (“SG&A”) Expenses
SG&A
expenses, as a percent of revenue, decreased 0.3% to 32.1% compared to 32.4%
in
fiscal year 2007 primarily due to our ability to leverage our costs, mainly
our
compensation related expenses, against increased total revenue, despite
increases in our bad debt expenses and travel expenses. The foreign currency
fluctuation increased our SG&A expenses for the fiscal year 2008 by
approximately $12.2 million. Additionally, SG&A expenses include non-cash
share-based compensation expense of approximately $16.2 million for fiscal
year
2008 compared to approximately $13.2 million for fiscal year 2007. The fiscal
year 2008 non-cash share-based compensation expense allocated to SG&A
includes a grant of options to our Chairman, President, and Chief Executive
Officer, A.L. Giannopoulos, during fiscal year 2008. See “Share-Based
Compensation Expenses” below for further information.
Research
and Development (“R&D”)
R&D
incurred consists primarily of labor costs less capitalized software development
costs. An analysis of R&D activities is as follows:
|
|
Fiscal
Year Ended June 30,
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
Total
R&D incurred
|
|
$
|
42,048
|
|
$
|
35,859
|
|
Capitalized
software development costs
|
|
|
(1,919
|
)
|
|
(1,974
|
)
|
Total
R&D expenses
|
|
$
|
40,129
|
|
$
|
33,885
|
|
%
of Revenue
|
|
|
4.2
|
%
|
|
4.3
|
%
|
The
increases in total R&D incurred and total R&D expenses of approximately
$6.2 million are primarily due to increased spending on our retail software
products. Total R&D incurred for fiscal years 2008 and 2007 includes
approximately $1.0 million and approximately $0.8 million, respectively, for
the
non-cash share-based compensation expenses allocated to R&D. For fiscal
years 2008 and 2007, non-cash share-based compensation expenses allocated to
R&D were not capitalized because stock options were not granted to employees
whose labor costs were capitalized as software development costs. The foreign
currency fluctuation increased our R&D expenses for the fiscal year 2008 by
approximately $1.1 million.
Depreciation
and Amortization Expenses
Depreciation
and amortization expenses for fiscal year 2008 increased approximately $2.4
million to approximately $15.1 million compared to fiscal year 2007. The
increase is primarily due to additional depreciation expenses on capital
expenditures since June 30, 2007 and recent acquisitions. Additionally, foreign
currency fluctuation increased depreciation and amortization expenses for the
fiscal year 2008 by approximately $0.6 million.
Share-Based
Compensation Expenses
We
account for our option awards granted under the stock option program in
accordance with SFAS 123(R). The estimated fair value of awards granted under
the stock option program are measured as of the date of grant, and non-cash
share-based compensation expenses adjusted for expected pre-vesting forfeitures
are recognized ratably over the requisite service (i.e. vesting) period of
options in the consolidated statements of operations. In addition, non-cash
share-based compensation expense adjusted for expected pre-vesting forfeitures
is recognized for the non-vested portion of awards that were granted before
the
effective date of SFAS 123(R) as those options become incrementally
vested.
For
fiscal year 2008, we recognized non-cash share-based compensation expenses
adjusted for expected pre-vesting forfeitures of approximately $17.2 million
based on the estimated fair values of the vested portions of (1) approximately
1.5 million shares of underlying options granted during the fiscal year 2008;
(2) approximately 0.7 million shares of underlying options granted during the
fiscal year 2007, and (3) approximately 0.9 million shares granted during fiscal
year 2006. For fiscal year 2007, we recognized non-cash share-based compensation
expenses adjusted for expected pre-vesting forfeitures of approximately $14.0
million based on the estimated fair values of the vested portions of (1)
approximately 0.7 million shares of underlying options granted during the fiscal
year 2007; (2) approximately 0.9 million shares granted during fiscal year
2006;
and, (3) approximately 0.7 million shares of underlying options granted before
the effective date of SFAS 123(R) that were unvested as of the effective date.
The cost of sales, SG&A expenses and R&D expenses discussed above
include the following allocations of non-cash share-based compensation
expense:
|
|
Fiscal
Year Ended June 30,
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
Cost
of sales
|
|
$
|
—
|
|
$
|
—
|
|
SG&A
|
|
|
16,213
|
|
|
13,243
|
|
R&D
|
|
|
1,016
|
|
|
753
|
|
Total
non-cash share-based compensation expense
|
|
|
17,229
|
|
|
13,996
|
|
Income
tax benefit
|
|
|
(4,083
|
)
|
|
(2,884
|
)
|
Total
non-cash share-based compensation expense, net of tax
benefit
|
|
$
|
13,146
|
|
$
|
11,112
|
|
|
|
|
|
|
|
|
|
Impact
on diluted net income per share
|
|
$
|
0.16
|
|
$
|
0.14
|
|
The
non-cash share-based compensation expense allocated to SG&A for fiscal year
2008 includes approximately $3.2 million related to grant of options to our
Chairman, President, and Chief Executive Officer, A.L. Giannopoulos, during
fiscal year 2008. In accordance with the terms of our option plan, any options
that he holds that have not yet vested at the time of his retirement will vest
immediately upon his retirement, as he is over the retirement age of 62.
Although Mr. Giannopoulos has not retired, we expensed 100% of the share-based
compensation expense related to his option grant because he was over the age
of
62 at the time he received the options. The non-cash share-based compensation
expenses allocated to SG&A for fiscal year ended June 30, 2007 include a
one-time charge of approximately $0.7 million resulting from an accelerated
vesting of unvested options due to the death of an officer of the Company.
Under
our stock option plan, options immediately vest upon death.
As
of
June 30, 2008, there was approximately $22.7 million in non-cash share-based
compensation cost related to non-vested awards not yet recognized in our
consolidated statements of operations. This cost is expected to be recognized
over a weighted-average period of 1.85 years.
Income
from Operations
Income
from operations for fiscal year 2008
increased
approximately $28.7 million, or 26.0%, to approximately $139.3 million, compared
to fiscal year 2007. The increase is mainly due to an overall increase in sales
volume coupled with the improvement in our margins, partially offset by
approximately $3.2 million increase in non-cash share-based compensation
expense, described above
.
The
foreign currency fluctuation increased our income from operations for the fiscal
year 2008 by approximately $8.1 million.
Non-operating
Income (Expense)
Net
non-operating income for fiscal year 2008 was approximately $15.0 million
compared to approximately $11.1 million for fiscal year 2007. The increase
of
approximately $4.0 million reflects:
|
·
|
An
increase in interest income of approximately $4.4 million due to
overall
higher cash and cash equivalents and investment (non-current and
short-term) balances;
|
|
·
|
Approximately
$1.7 million for a grant payment received related to the number of
jobs we
created in Ireland. Specifically, the Irish Development Authority
agreed
to pay MICROS a fee for having engaged and retained employees in
the
MICROS help desk and support center in Ireland. MICROS earned and
received
this fee in the fourth quarter of fiscal year 2008.
|
|
·
|
Approximately
$1.3 million in one-time income due to a death benefit received on
corporate owned life insurance policy following the death of a covered
officer of the Company; and,
|
|
·
|
A
partially offsetting increase in the foreign exchange transaction
loss of
approximately $1.0 million to a loss of approximately $1.4 million
for
fiscal year 2008 compared to a loss of approximately $0.4 million
for
fiscal year 2007.
|
Income
Tax Expense
The
effective tax rates for fiscal years 2008 and 2007 were 33.8% and 33.5%,
respectively. The effective tax rates for the fiscal years 2008 and 2007 were
less than the 35.0% U.S. statutory federal income tax rate, mainly due to the
increased proportion of earnings from jurisdictions that have a lower statutory
tax rate than the U.S. and from the phase-in of the deduction for domestic
production activities. These benefits were partially offset by the
non-deductible nature of certain non-cash share-based compensation items, other
non-deductible compensation items, foreign withholding taxes and the inclusion
of foreign income in our U.S. tax base
.
Effective
July 1, 2007, we adopted the provisions of FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109” (“FIN 48”). FIN 48 clarifies the accounting for income taxes by
prescribing a minimum recognition threshold that a tax position is required
to
meet before being recognized in the financial statements. FIN 48 also
provides guidance on derecognition, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and transition.
The
cumulative effect of adopting FIN 48 of approximately $2.6 million, including
interest and penalties of
$0.3
million
,
was
recorded as a reduction to retained earnings and an increase in net income
taxes
payable.
As
a
result of the adoption of FIN 48, we recorded net unrecognized income tax
benefits of approximately $17.4 million and $10.9 million, including interest
and penalties of approximately $2.3 million and $1.6 million at June 30, 2008
and July 1, 2007, respectively. We have recognized approximately $0.7 million
of
interest expense for the fiscal year 2008. The non-current portion of the net
unrecognized income tax benefits represents benefits with respect to which
we do
not anticipate making a payment within 12 months of the balance sheet date.
If
recognized, all of the net unrecognized income tax benefit would be recognized
as a reduction of income tax expense, impacting the effective income tax rate.
We
have
reviewed our uncertain income tax positions in accordance with FIN 48, and
currently are not able to reasonably estimate material changes in the
unrecognized income tax benefits and the impact it would have on our
consolidated financial position, results of operations and cash flows in the
next twelve months.
We
historically classified interest and penalties related to unrecognized income
tax benefits as a component of income tax expense. We are maintaining this
practice following our adoption of FIN 48.
In
the
ordinary course of our business, transactions occur for which the ultimate
tax
outcome may be uncertain. In addition, tax authorities periodically audit our
income tax returns. These audits include examination of our significant tax
filing positions, including the timing and amounts of deductions and the
allocation of income and expenses among tax jurisdictions. We are currently
under audits in certain of our major taxing jurisdictions, with open tax years
beginning in fiscal year 1999. Currently, we are not able to reasonably estimate
the completion date of these ongoing audits. Our major taxing jurisdictions
include Australia, Ireland, Germany, Singapore, the United Kingdom and the
United States.
Net
Income and Diluted Net Income per Common Share
Net
income for fiscal year 2008
increased
approximately $21.3 million, or 26.6%, to approximately $101.3 million, compared
to fiscal year 2007. The increase is mainly due to an overall increase in sales
volume coupled with an improvement in our margins, and partially offset by
the
approximately $3.2 million (approximately $2.0 million net of tax) increase
in
non-cash share-based compensation expense
all
of
which are explained above in more detail.
The
foreign currency fluctuation increased our net income for the fiscal year 2008
by approximately $6.2 million.
Diluted
net income per share for fiscal year
2008
increased
$0.24 per share, or 24.7%, to $1.21 per share, compared to fiscal year 2007.
Diluted net income for fiscal year 2008 was negatively impacted by $0.16 per
diluted share for non-cash share-based compensation expense compared to $0.14
per diluted share for fiscal year 2007.
Comparison
of Fiscal Year 2007 to Fiscal Year 2006
Revenue
An
analysis of the sales mix by reportable segments is as follows (amounts are
net
of intersegment eliminations, based on location of the selling entity, and
include export sales):
|
|
Fiscal
Year Ended June 30,
|
|
|
|
U.S.
|
|
International
|
|
Total
|
|
(in
thousands)
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Hardware
|
|
$
|
126,596
|
|
$
|
127,485
|
|
$
|
107,242
|
|
$
|
88,076
|
|
$
|
233,838
|
|
$
|
215,561
|
|
Software
|
|
|
50,745
|
|
|
54,355
|
|
|
82,075
|
|
|
65,738
|
|
|
132,820
|
|
|
120,093
|
|
Service
|
|
|
186,798
|
|
|
173,315
|
|
|
232,271
|
|
|
169,984
|
|
|
419,069
|
|
|
343,299
|
|
Total
Revenue
|
|
$
|
364,139
|
|
$
|
355,155
|
|
$
|
421,588
|
|
$
|
323,798
|
|
$
|
785,727
|
|
$
|
678,953
|
|
An
analysis of the total sales mix as a percent of total revenue is as
follows:
|
|
Fiscal
Year Ended June 30,
|
|
(in
thousands)
|
|
2007
|
|
2006
|
|
Hardware
|
|
|
29.8
|
%
|
|
31.7
|
%
|
Software
|
|
|
16.9
|
%
|
|
17.7
|
%
|
Service
|
|
|
53.3
|
%
|
|
50.6
|
%
|
Total
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Revenue
increased approximately $106.8 million, or 15.7% to approximately $785.7 million
for fiscal year 2007 compared to fiscal year 2006
primarily
due to the following:
|
·
|
An
approximately $75.8 million or 22.1% increase in service revenue
is
primarily due to additional revenue generated as a result of various
acquisitions and the continued expansion of our customer base coupled
with
increased support revenue from existing customers (primarily through
additional services). We acquired the RedSky IT Hospitality, Travel,
and
Retail subsidiaries of RedSky IT in January 2007 and we acquired
various
MICROS distributors during fiscal year 2007. Additionally, we acquired
CommercialWare, Inc. in February
2006;
|
|
·
|
An
approximately $18.3 million or 8.5% increase in hardware revenue
is
primarily due to the foreign currency translation mainly between
the Euro
and U.S. dollar and additional revenue generated as a result of the
acquisitions, as discussed above;
and,
|
|
·
|
An
approximately $12.7 million or 10.6% increase in software revenue
is
primarily due to additional revenue generated as a result of the
acquisitions and foreign currency translation, both as discussed
above. In
total, the recurring support revenue contributed approximately 54.4%
and
the installation revenue contributed approximately 22.5% of the service
revenue increase in fiscal year 2007 compared to fiscal year
2006.
|
The
international segment revenue for fiscal year 2007 increased approximately
$97.8
million as a result of the following:
|
·
|
An
approximately $62.3 million or 36.6% increase in service revenue
is due to
the continued expansion of our customer base coupled with increased
recurring support revenue from existing customers (primarily through
purchase of additional services), additional revenue generated through
the
acquisitions and foreign currency translation, as discussed
above;
|
|
·
|
An
approximately $19.2 million or 21.8% increase in hardware revenue
is
primarily due to increased sales volume and the foreign currency
translation, as discussed above;
and,
|
|
·
|
An
approximately $16.3 million or 24.9% increase in software revenue
is due
to foreign currency translation, increased sales volume and additional
revenue generated from the acquisitions, as discussed
above.
|
The
U.S.
segment revenue increased approximately $9.0 million for fiscal year 2007
primarily resulting from additional revenue generated through the acquisitions,
as discussed above, and an increase in services revenue due to the continued
expansion of our customer base coupled with increased recurring support revenue
from existing customers (primarily through additional services).
Cost
of Sales
An
analysis of the cost of sales is as follows:
|
|
Fiscal
Year Ended June 30,
|
|
|
|
2007
|
|
2006
|
|
(in
thousands)
|
|
Cost
of Sales
|
|
% of Related
Revenue
|
|
Cost
of Sales
|
|
% of Related
Revenue
|
|
Hardware
|
|
$
|
149,085
|
|
|
63.8
|
%
|
$
|
144,061
|
|
|
66.8
|
%
|
Software
|
|
|
29,531
|
|
|
22.2
|
%
|
|
23,488
|
|
|
19.6
|
%
|
Service
|
|
|
195,600
|
|
|
46.7
|
%
|
|
165,721
|
|
|
48.3
|
%
|
Total
Cost of Sales
|
|
$
|
374,216
|
|
|
47.6
|
%
|
$
|
333,270
|
|
|
49.1
|
%
|
For
fiscal year 2007, cost of sales as a percent of revenue decreased 1.5% to 47.6%
compared to fiscal year 2006. Hardware cost of sales as a percent of related
revenue decreased primarily as a result of an improvement in Workstation 4
margin percentage, coupled with an increase in Workstation 4 revenue compared
to
fiscal year 2006. Workstation 4 generates higher margin than other hardware
products. Software cost of sales as a percent of related revenue increased
primarily due to a decrease in the third party software margin percentage
compared to fiscal year 2006. Additionally, the revenue from the OPERA suite
of
products was comparable to fiscal year 2006 revenue, but represented a lower
percentage of total software revenue. Because the OPERA suite of products
generates much higher margins than our third party software, this product mix
change had the impact of increasing the overall software cost of sales as a
percent of related revenue.
Service
cost of sales as a percent of related revenue decreased primarily due to a
decrease in travel expenses and maintenance service part costs. The decreases
in
travel expenses and parts costs were partially offset by an increase in overall
service labor costs mainly associated with some of our newly acquired
subsidiaries.
Selling,
General and Administrative (“SG&A”) Expenses
SG&A
expenses, as a percent of revenue, increased 0.5% to 32.4% compared to 31.9%
in
fiscal year 2006. This increase reflects:
|
·
|
Higher
SG&A expenses as a percent of related revenue for the newly acquired
subsidiaries described under Revenue;
and,
|
|
·
|
Increase
in non-cash share-based compensation expense of approximately $4.4
million
recorded as a component of SG&A expenses for the fiscal year 2007
compared to the fiscal year 2006. The non-cash share-based compensation
expenses for fiscal year 2007 include a one-time charge of approximately
$0.7 million resulting from accelerated vesting of unvested options
due to
the death of an officer of the Company. See “Share-Based Compensation
Expense” below for further
discussion.
|
|
·
|
A
partial offsetting decrease in remaining SG&A expenses as a percent of
total revenue, primarily due to our ability to leverage our costs
against
the increase in total revenue.
|
Research
and Development (“R&D”)
R&D
expenses consisted primarily of labor costs less capitalized software
development costs.
An
analysis of R&D activities is as follows:
|
|
Fiscal
Year Ended June 30,
|
|
(in
thousands)
|
|
2007
|
|
2006
|
|
Total
R&D incurred
|
|
$
|
35,859
|
|
$
|
30,643
|
|
Capitalized
software development costs
|
|
|
(1,974
|
)
|
|
(3,523
|
)
|
Total
R&D expenses
|
|
$
|
33,885
|
|
$
|
27,120
|
|
%
of Revenue
|
|
|
4.3
|
%
|
|
4.0
|
%
|
The
increases in total R&D incurred of approximately $5.2 million and total
R&D expenses of approximately $6.8 million are primarily due to additional
expenses incurred by some of our newly acquired subsidiaries, an increase in
R&D labor costs due to an increase in the number of R&D employees and an
approximately $0.5 million increase in non-cash share-based compensation
expenses allocated to R&D. The decrease in total capitalized software
development costs is primarily due to the release of our capitalized retail
software product in December of 2005.
For
fiscal year 2007, non-cash share-based compensation expenses allocated to
R&D were not capitalized because stock options were not granted to employees
whose labor costs were capitalized as software development costs. For fiscal
year 2006, less than $0.1 million in non-cash share-based compensation expenses
allocated to R&D had been capitalized because stock options were granted to
employees whose labor is capitalized.
Depreciation
and Amortization Expenses
Depreciation
and amortization expenses for fiscal year 2007 increased approximately $2.3
million to approximately $12.7 million compared to fiscal year 2006. The
increase is primarily due to additional expense incurred as a result of the
newly acquired subsidiaries as discussed above. Additionally, foreign currency
fluctuation increased depreciation and amortization expenses for the fiscal
year
2007 by approximately $0.5 million.
Share-Based
Compensation Expenses
For
fiscal year 2007, we recognized non-cash share-based compensation expenses
adjusted for expected pre-vesting forfeitures of approximately $14.0 million
based on the estimated fair values of the vested portions of (1) approximately
0.7 million shares of underlying options granted during the fiscal year 2007;
(2) approximately 0.9 million shares granted during fiscal year 2006; and,
(3)
approximately 0.7 million shares of underlying options granted before the
effective date of SFAS 123(R) that were unvested as of the effective date.
For
fiscal year 2006, the non-cash share-based compensation expenses of
approximately $9.1 million was based on the estimated fair values of the vested
portions of (1) approximately 0.9 million shares of underlying options granted
during fiscal year 2006 and (2) approximately 1.5 million shares of underlying
options granted before the effective date of SFAS 123(R) that were unvested
as
of the effective date. The cost of sales, SG&A expenses and R&D expenses
discussed above include the following allocations of non-cash share-based
compensation expense:
|
|
Fiscal
Year Ended June 30,
|
|
(in
thousands)
|
|
2007
|
|
2006
|
|
Cost
of sales
|
|
$
|
—
|
|
$
|
35
|
|
SG&A
|
|
|
13,243
|
|
|
8,851
|
|
R&D
|
|
|
753
|
|
|
249
|
|
Total
non-cash share-based compensation expense
|
|
|
13,996
|
|
|
9,135
|
|
Income
tax benefit
|
|
|
(2,884
|
)
|
|
(2,026
|
)
|
Total
non-cash share-based compensation expense, net of tax
benefit
|
|
$
|
11,112
|
|
$
|
7,109
|
|
|
|
|
|
|
|
|
|
Impact
on diluted net income per share
|
|
$
|
0.14
|
|
$
|
0.09
|
|
Income
from Operations
Income
from operations for fiscal year 2007
increased
approximately $19.3 million, or 21.2%, to approximately $110.6 million, compared
to fiscal year 2006. The increase is mainly due to an overall increase in sales
volume coupled with lower cost of sales as a percent of revenue. This increase
was partially offset by an increase in expenses as a percent of revenue and
approximately $4.9 million increase in non-cash share-based compensation expense
all
of
which are explained above in more detail.
Non-operating
Income (Expense)
Net
non-operating income for fiscal year 2007 was approximately $11.1 million
compared to approximately $4.4 million for fiscal year 2006. The increase of
approximately $6.7 million is primarily due to:
|
·
|
An
increase in interest income of approximately $5.3 million due to
overall
higher cash and cash equivalents and short-term investment balances
and
overall higher interest rates earned on these
balances;
|
|
·
|
Approximately
$1.3 million in one-time income due to a death benefit received on
corporate owned life insurance policy following the death of a covered
officer of the Company; and,
|
|
·
|
A
decrease in the foreign exchange transaction losses of approximately
$0.5
million to a loss of approximately $0.4 million for fiscal year 2007
compared to a loss of approximately $0.9 million for fiscal year
2006.
|
Income
Tax Expense
The
effective tax rates for fiscal year 2007 and 2006 were 33.5% and 32.9%,
respectively. The increase in tax rate was primarily attributable to the
negative impact of the changes in legislation related to extraterritorial income
exclusions as well as the non-deductible nature of certain non-cash share-based
compensation items and other non-deductible compensation items. These negative
factors were partially offset by the benefit recognized from certain activities
where the mix of earnings were subject to a lower statutory tax rate than that
recognized in the U.S., renewal of research and development tax credit and
the
phase-in of the deduction for domestic production activities.
Net
Income and Diluted Net Income per Common Share
Net
income for fiscal year 2007
increased
approximately $16.5 million, or 25.9%, to approximately $80.0 million, compared
to fiscal year 2006. The increase is mainly due to an overall increase in sales
volume coupled with lower cost of sales as a percent of revenue and an increase
in interest income of approximately $5.3 million. These increases were partially
offset by an increase in operating expenses as a percent of revenue and
approximately $4.9 million increase in non-cash share-based compensation
expense,
all
of
which are explained above in more detail.
Diluted
net income per share for fiscal year
2007
increased
$0.19 per share, or 24.4%, to $0.97 per share, compared to fiscal year 2006.
Diluted net income for fiscal year 2007 was negatively impacted by $0.14 per
diluted share for non-cash share-based compensation expense compared to $0.09
per diluted share for fiscal year 2006.
RECENT
ACCOUNTING STANDARDS
FSP
142-3
In
April
2008, the FASB issued FASB Staff Position (“FSP”)
FAS
142-3,
“Determination of the Useful Life of Intangible Assets”, which amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The intent of
this FSP is to improve the consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used
to
measure the fair value of the asset under SFAS No. 141(R), “Business
Combinations”, and other GAAP. This FSP is effective for fiscal years beginning
after December 15, 2008 (our fiscal year 2010), and interim periods within
those fiscal years.
We
are
currently reviewing the impact of the adoption of FSP FAS 142-3 on our
consolidated financial position, results of operations and cash
flows.
SFAS
161
In
March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(“SFAS 161”), which requires additional disclosures about the objectives of the
derivative instruments and hedging activities, the method of accounting for
such
instruments under SFAS 133 and its related interpretations, and a tabular
disclosure of the effects of such instruments and related hedged items on our
financial position, results of operations, and cash flows. SFAS 161 is effective
for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008 (our fiscal year 2010). Historically we have not had
material hedging transactions, thus we believe the impact of the adoption of
SFAS 161 on our consolidated financial position, results of operations and
cash
flows will not be material. The ultimate impact of the adoption of SFAS 161
is
undeterminable at this time as it will depend on our ultimate hedging
transactions at the time of the adoption.
SFAS
No. 141(R)
In
December 2007, the FASB issued SFAS No. 141 (Revised), “Business
Combinations” (“SFAS 141(R)”), which establishes principles and requirements for
how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquired business. SFAS 141(R) also provides
guidance for recognizing and measuring the goodwill acquired in the business
combination and disclosing information to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. SFAS 141(R) is effective for business combinations for which the
acquisition dates are on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008 (our fiscal year 2010). We
are currently reviewing the impact of the adoption of SFAS 141(R) on our
consolidated financial position, results of operations and cash flows.
SFAS
No. 160
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — an Amendment of ARB 51”, (“SFAS 160”).
This statement amends Accounting Research Bulletin No. 51 to establish
accounting and reporting standards for the noncontrolling interest (minority
interest) in a subsidiary and for the deconsolidation of a subsidiary. SFAS
160
establishes accounting and reporting standards requiring that noncontrolling
interests be reported as a component of equity, changes in a parent’s ownership
interest while the parent retains its controlling interest be accounted for
as
equity transactions, and any retained noncontrolling equity investment upon
the
deconsolidation of a subsidiary initially be measured at fair value. SFAS 160
is
effective for business combinations for which the acquisition dates are on
or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008 (our fiscal year 2010). We are currently reviewing the
impact of the adoption of SFAS 160 on our consolidated financial position,
results of operations and cash flows.
SFAS
No. 159
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”), which allows entities
to choose to measure eligible financial instruments at fair value as of
specified dates. Such election, which may be applied on an instrument by
instrument basis, is typically irrevocable once elected. SFAS 159 is effective
for fiscal years beginning after November 15, 2007 (our fiscal year 2009).
We do
not believe the adoption of SFAS 159 will have a material impact on our
consolidated financial position, results of operations and cash
flows.
SFAS
No. 157
In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”
(“SFAS 157”) to establish a framework for measuring fair value under generally
accepted accounting principles and to expand disclosures on fair value
measurements. The statement applies to previously established valuation
pronouncements, but is to be applied prospectively, so that it does not require
the changing of any fair value measurements. SFAS 157 may cause some valuation
procedures that we use to change after its adoption. Under SFAS 157, fair value
is established by the price that would be received to sell the item or the
amount to be paid to transfer the liability or the asset (an exit price), as
opposed to the price to be paid for the asset or received to assume the
liability (an entry price). SFAS 157 is effective for all assets valued in
financial statements for fiscal years beginning after November 15, 2007
(our fiscal year 2009). In February 2008, the FASB issued FSP 157-2, “Effective
Date of FASB Statement No. 157” which permits a one-year deferral for the
implementation of the provisions of SFAS 157 with regard to non-financial assets
and liabilities that are not carried at fair value on a recurring basis in
financial statements. We do not believe the adoption of the SFAS 157 will have
a
material impact on our consolidated financial position, results of operations
and cash flows.
LIQUIDITY
AND CAPITAL RESOURCES
Sources
and Uses of Cash
The
Company’s consolidated statement of cash flows summary for fiscal years is as
follows:
|
|
Fiscal
Year Ended June 30,
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Net
cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
163,648
|
|
$
|
114,766
|
|
$
|
121,681
|
|
Investing
activities
|
|
|
(13,271
|
)
|
|
(141,184
|
)
|
|
(29,320
|
)
|
Financing
activities
|
|
|
(37,463
|
)
|
|
31,146
|
|
|
(9,029
|
)
|
Operating
activities:
Net
cash
provided by operating activities for fiscal year 2008 increased approximately
$48.9 million compared to fiscal year 2007 primarily due to increases in cash
provided by a decrease in accounts receivable of approximately $24.9 million
and
increases net income of approximately $21.3 million, deferred revenue of
approximately $18.1 million and income taxes payable of approximately $12.5
million. One source of deferred revenue is prepaid maintenance and support
fees;
many of our customers are invoiced annually in advance for maintenance and
support. These increases were partially reduced by a decrease of approximately
$29.7 million in accrued expenses and other liabilities.
Net
cash
provided by operating activities for fiscal year 2007 decreased approximately
$6.9 million compared to fiscal year 2006 primarily due to approximately $39.1
million increase in accounts receivable and prepaid and other current assets,
substantially reduced by an approximately $16.5 million increase in cash
provided by net income and approximately $13.8 million in increased accrued
expenses and other current liabilities.
Investing
activities:
In
fiscal
years 2008 and 2007, we invested in auction rate securities which are classified
as investments, non-current as of June 30, 2008 and as short-term investments
as
of June 30, 2007 on the accompanying consolidated balance sheets. As a result,
net cash flows from investing activities for fiscal year 2008, which includes
approximately $17.5 million in net proceeds from the sale of auction rate
securities, and fiscal year 2007, which includes approximately $87.0 million
in
net investments in auction rate securities, are not comparable to fiscal year
2006 as we did not invest in auction rate securities.
Net
cash
used by investing activities for fiscal year 2008 was approximately $13.3
million reflecting approximately $16.1 million used related to various
acquisitions, primarily the acquisition of Check-in Data for which we used
approximately $11.5 million. Additionally, approximately $14.9 million was
used
to purchase property, plant and equipment and to internally develop software
to
be licensed to others. Sales of auction rate securities provided cash of
approximately $17.5 million, as discussed above. Subsequent to June 30, 2008,
we
acquired another company, Fry, Inc. The total purchase consideration was
approximately $31.3 million. This purchase is not reflected in the Consolidated
Statement of Cash Flows.
Net
cash
used by investing activities for fiscal year 2007 was approximately $141.1
million, primarily as a result of our net investment in auction rate securities
of approximately $87.0 million, as discussed above. We also used approximately
$40.5 million related to various acquisitions, the most significant of which
was
the acquisition of RedSky for which we used approximately $29.8 million.
Additionally, approximately $13.3 million was used to purchase property, plant
and equipment and to internally develop software to be licensed to
others.
Net
cash
used by investing activities for fiscal year 2006 was approximately $29.3
million, including approximately $14.3 million used to purchase property, plant
and equipment and to internally develop software to be licensed to others and
approximately $14.1 million used for the acquisition of
CommercialWare.
Financing
activities:
Net
cash
used in financing activities for fiscal year 2008 was approximately $37.5
million, reflecting approximately $74.3 million used to repurchase our stock,
partially offset by proceeds from stock option exercises of approximately $27.9
million and realized tax benefits from stock option exercises of approximately
$11.0 million.
Net
cash
provided by financing activities for fiscal year 2007 was approximately $31.1
million, reflecting proceeds from stock option exercises of approximately $35.0
million and realized tax benefits from stock option exercises of approximately
$16.8 million, partially offset by approximately $17.9 million used to
repurchase our stock.
Net
cash
used by financing activities for fiscal year 2006 was approximately $9.0
million, reflecting approximately $40.2 million used to repurchase our stock,
partially offset by approximately $18.5 million in proceeds from stock option
exercises and approximately $13.3 million in realized tax benefits from stock
option exercises.
All
cash
and cash equivalents are being retained for the operation and expansion of
the
business and the repurchase of our stock.
Purchases
of Common Stock
In
fiscal
year 2002, the Board of Directors authorized the purchase of up to four million
shares of the Company’s common stock. In fiscal year 2005, the Board of
Directors authorized the purchase of an additional four million shares of our
common stock. In November 2007, the Board of Directors authorized the purchase
of an additional two million shares of our common stock. Since the inception
of
the repurchase programs, we have incurred approximately $0.2 million in fees
related to the programs. A summary of the cumulative number of shares purchased
under the Board authorizations, which have all been retired, is as
follows:
|
|
Number of
Shares
|
|
Average Purchase
Price Per Share
|
|
Total Purchase
Value
(in
thousands)
|
|
Fiscal
year:
|
|
|
|
|
|
|
|
|
|
|
2002 –
2005
|
|
|
4,993,324
|
|
$
|
10.65
|
|
$
|
53,180
|
|
2006
|
|
|
1,842,674
|
|
$
|
21.83
|
|
|
40,234
|
|
2007
|
|
|
697,200
|
|
$
|
25.63
|
|
|
17,870
|
|
2008
|
|
|
2,329,302
|
|
$
|
31.90
|
|
|
74,303
|
|
Total
as of June 30, 2008
|
|
|
9,862,500
|
|
$
|
18.82
|
|
$
|
185,587
|
|
As
noted
elsewhere in this Annual Report on Form 10-K, subsequent to June 30, 2008,
our
Board of Directors approved the repurchase of up to an additional two million
shares of our common stock over the next three years, to be purchased from
time
to time in the open market depending on market conditions and other corporate
considerations as determined by management.
Capital
Resources
We
have
two credit agreements (the “Credit Agreements”) that in the aggregate, provide a
$65.0 million multi-currency committed line of credit which expires on July
31,
2009. The lenders under the Credit Agreements are Bank of America, N.A.,
Wachovia Bank, N.A., and US Bank (the “Lenders”). The international
facility is secured by 65% of the capital stock of our main operating Ireland
subsidiary and 100% of all of the remaining major foreign
subsidiaries
.
The
U.S.
facility is secured by 100% of the capital stock of our major
U.S. subsidiaries as well as certain inventory and receivables located in
the U.S.
For
borrowings in U.S. currency, the interest rate under the Credit Agreements
is
equal to the higher of the federal funds rate plus 50 basis points or the
prime
rate. For borrowings in foreign currencies, the interest rate is determined
by a
LIBOR-based formula, plus an additional margin of 125 to 200 basis points,
depending upon our consolidated earnings before interest, taxes, depreciation
and amortization (“EBITDA”) for the immediately preceding four
calendar
quarters. Under the terms of the Credit Agreements, we are required to pay
to
the Lenders insignificant commitment fees on the unused portion of the line
of
credit. The Credit Agreements also contain certain financial covenants and
restrictions on our ability to assume additional debt, repurchase stock, sell
subsidiaries or acquire companies.
In case
of an event of default, as defined in the Credit Agreements, including those
not
cured within the applicable cure period, the Lenders’ remedies include their
ability to declare all outstanding loans, plus interest and other related
amounts owed, to be immediately due and payable in full, and to pursue all
rights and remedies available to them under the Credit Agreements or under
applicable law.
As
of
June 30, 2008, we had approximately $1.0 million outstanding on the lines of
credit mentioned above and had approximately $64.0 million available for future
borrowings. The total outstanding balance consisted of 105.0 million JPY
(Japanese Yen), or approximately $1.0 million at the June 30, 2008 exchange
rate.
We
also
have a credit relationship with a European bank in the amount of EUR 1.0 million
(approximately $1.6 million at the June 30, 2008 exchange rate). Under the
terms
of this facility, we may borrow in the form of either a line of credit or term
debt. As of June 30, 2008, there were no balances outstanding on this credit
facility, but approximately EUR 0.1 million (approximately $0.2 million at
the
June 30, 2008 exchange rate) of the credit facility had been used for
guarantees. As we have significant international operations, we do not believe
that our Euro-denominated borrowings represent a significant foreign exchange
risk. On an overall basis, we monitor our cash and debt positions in each
currency in an effort to reduce our foreign exchange risk.
As
of
June 30, 2008, we had approximately $65.4 million borrowing capacity under
all
of the credit facilities described above. The weighted-average interest rate
on
the outstanding balances under the lines of credit as of June 30, 2008 was
2.2%.
As of July 31, 2008, the total outstanding balance on the lines of credit was
approximately $1.0 million and we had approximately $65.4 million borrowing
capacity under all of the credit facilities at that time.
We
do not
currently invest in financial instruments designed to protect against interest
rate fluctuations, although we will continue to evaluate the need to do so
in
the future.
We
believe that our cash and cash equivalents, cash generated from operations
and
our available lines of credit are sufficient to provide our working capital
needs for the foreseeable future. Nevertheless, if we need to raise additional
funds, we believe we will be able to raise the necessary amounts either by
entering into additional financing agreements or through the issuance of our
common stock. We currently anticipate that our property, plant and equipment
expenditures for fiscal year 2009 will be approximately $16
million.
Financial
indicators of our liquidity and capital resources as of June 30 were as
follows:
(in
thousands, except ratios)
|
|
2008
|
|
2007
|
|
Cash,
cash equivalents and marketable securities
(1)
|
|
$
|
381,964
|
|
$
|
329,652
|
|
Available
credit facilities
|
|
$
|
66,574
|
|
$
|
66,353
|
|
Outstanding
credit facilities
|
|
|
(989
|
)
|
|
(2,308
|
)
|
Outstanding
guarantees
|
|
|
(201
|
)
|
|
(248
|
)
|
Unused
credit facilities
|
|
$
|
65,384
|
|
$
|
63,797
|
|
Working
capital
(2)
|
|
$
|
392,939
|
|
$
|
344,566
|
|
Capital
lease obligations
(3)
:
|
|
|
|
|
|
|
|
Current
|
|
$
|
403
|
|
$
|
655
|
|
Non-current
|
|
|
310
|
|
|
260
|
|
Total
|
|
$
|
713
|
|
$
|
915
|
|
Shareholders’
equity
|
|
$
|
673,016
|
|
$
|
551,133
|
|
Current
ratio
(3)
|
|
|
2.33
|
|
|
2.34
|
|
(1) For
June 30, 2008 does not include approximately $65.2 million invested in auction
rate securities, classified as Investments, long-term in the accompanying
consolidated balance sheet. Cash, cash equivalents, and marketable securities
at
June 30, 2007 includes approximately $87.0 million invested in auction rate
securities, classified as Short-term investments in the accompanying
consolidated balance sheets.
(2) Current
assets less current liabilities.
(3) Current
assets divided by current liabilities. The Company does not have any long-term
debt.
Inflation
We
have
not experienced any significant impact as a result of inflation.
Contractual
Obligations
The
following table summarizes our contractual arrangements at June 30,
2008:
|
|
Payments
due by period
|
|
(in
thousands)
|
|
Total
|
|
Less than
1
year
|
|
1-3
years
|
|
3-5
years
|
|
More
than
5
years
|
|
Net
operating lease obligations
|
|
$
|
105,444
|
|
$
|
26,113
|
|
$
|
35,493
|
|
$
|
21,409
|
|
$
|
22,429
|
|
Capital
lease obligations
|
|
|
713
|
|
|
403
|
|
|
292
|
|
|
18
|
|
|
—
|
|
Total
|
|
$
|
106,157
|
|
$
|
26,516
|
|
$
|
35,785
|
|
$
|
21,427
|
|
$
|
22,429
|
|
Due
to
the uncertainty with respect to the timing of future cash flows associated
with
the Company’s unrecognized income tax benefits at June 30, 2008, we are unable
to reasonably estimate settlements with taxing authorities. The above
Contractual Obligations table does not reflect unrecognized income tax benefits
of approximately $17.4 million. See Note 14 of the Consolidated Financial
Statements for further discussion on income taxes.
FORWARD-LOOKING
STATEMENTS
The
preceding management’s discussion and analysis of financial condition and
results of operations should be read in conjunction with the consolidated
financial statements and the related notes and other financial information
included elsewhere in this Annual Report on Form 10-K. Certain statements
contained in this Annual Report on Form 10-K that are not historical facts
are
forward looking statements
within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”),
that
involve risks and uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements.
E
xamples
of such forward-looking statements in this Annual Report on Form 10-K include
the following:
|
·
|
Item
1, “Business,” statements regarding the future direction of PMS technology
and the growth of the OPERA suite of products, the Company’s strategy for
product growth in restaurant software, trends in retail software,
trends
in retailers’ use of Linux-based systems, our plan to transition from our
own data center to third party centers, our global distribution network,
acquisition of rights in third party products and designs, the
appropriateness of reliance on statutory and common law protections
for
our intellectual property, the risks associated with third party
misappropriation of our intellectual property, competition, labor
relations, quarterly results, our belief that a loss of component
sources
would not materially adversely affect our business, the anticipated
impact
of fluctuations in interest rates and in currency exchange rates,
the
evaluation of the need to use financial instruments to hedge against
currency risk, the anticipated effect of the US Government exercising
a
termination for convenience under one or more contracts that we have
with
the US Government, and our belief that compliance with environmental
laws
and regulations will not have a material effect on expenditures,
earnings,
or our competitive position;
|
|
·
|
Item
1A, “Risk Factors,” regarding the anticipated or potential impact on our
business, financial results, or competitive position of the various
risks
described in that section;
|
|
·
|
Item
2, “Properties,” regarding the anticipated availability of additional
space;
|
|
·
|
Item
3, “Legal Proceedings,” regarding the likely effect of litigation on our
results of operations or financial position;
and
|
|
·
|
Item
7A, “Quantitative and Qualitative Disclosures about Market
Risk.”
|
Additional
forward-looking statements will be found in the preceding Management’s
Discussion and Analysis of Financial Condition and Results of Operations and
elsewhere in this report, including:
|
(i)
|
our
statements about the growth and direction of the hospitality and
retail
industries generally, and our analysis of the growth and direction
of
various sectors within those
industries;
|
|
(ii)
|
our
expectation that product and service margins may decline in response
to
the competitive nature of our
market;
|
|
(iii)
|
our
statements regarding the effects of currency fluctuations (in particular,
Euro fluctuations) on our financial
performance;
|
|
(iv)
|
our
expectations that the customers with whom we do the largest amount
of
business will fluctuate from year to year, and our statements about
the
effects of large customer orders on our quarterly earnings, revenues,
and
total revenues;
|
|
(v)
|
our
statements regarding the impact on financial results in future periods
if
we determine that the financial condition of customers has
deteriorated;
|
|
(vi)
|
our
statements regarding the impact on financial results in future periods
if
we misjudge the remaining economic life of a
product;
|
|
(vii)
|
our
statements concerning the fluctuations in the market price of our
common
stock, whether as a result of variations in our quarterly operating
results or other factors;
|
|
(viii)
|
our
belief that any existing legal claims or proceedings will not have
a
material adverse effect on our results of operations or financial
position;
|
|
(ix)
|
our
beliefs about our competitive
strengths;
|
|
(x)
|
our
expectations regarding effective tax rates in future periods;
|
|
(xi)
|
our
expectations regarding the impact or lack of impact on our financial
position and results of operations of the application of recent accounting
standards;
|
|
(xii)
|
our
expectations about the adequacy of our cash flows and our available
lines
of credit to meet our working capital needs, and our ability to raise
additional funds if and when needed;
|
|
(xiii)
|
our
expectations about the increases in our capital expenditures for
future
periods;
|
|
(xiv)
|
our
expectations that our exposure to interest rate risk will not materially
change in the future;
|
|
(xv)
|
our
expectation that we will evaluate our need to invest in instruments
to
protect against interest rate fluctuations and our exposure to such
interest rate risk;
|
|
(xvi)
|
our
statements about the effects on our revenue recognition as a result
of
changes to a customers’ delivery requirements or a products’ completion;
|
|
(xvii)
|
our
statements regarding our ability to increase sales of our higher
margin
products;
|
|
(xviii)
|
our
expected costs associated with modifying our products to comply with
applicable legal rules, regulations, and guidelines, including the
credit
card associations’ security and data protection rules,
and
|
|
(xix)
|
our
expectations regarding valuation and liquidity of auction rate securities
in which we have invested.
|
There
are
other important factors that could cause actual results to differ materially
from those in the forward looking statements. These may include: changes in
applicable laws and regulations, other activities of governments, governmental
agencies, or other regulatory bodies that affect our products, services, or
business operations, changes in accounting and auditing rules (and changes
in
the interpretations of those rules), as well as those matters described in
Item
1A “Risk Factors.”
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
The
Company is exposed to interest rate risk and to foreign currency exchange rate
risk.
See
Part
I, Item I, Foreign Sales and Foreign Market Risks, and Part II, Item 7 for
information regarding foreign currency exchange risks. The Company’s
committed lines of credit bear interest at a floating rate, which exposes the
Company to interest rate risks. The Company manages its exposure to this risk
by
minimizing, to the extent feasible, overall borrowing and monitoring available
financing alternatives. At June 30, 2008, the Company had total borrowings
of
approximately $1.0 million, and had not entered into any instruments to hedge
the resulting exposure to interest-rate risk. Management believes that the
fair
value of the debt equals its carrying value at June 30, 2008 and June 30, 2007.
The Company’s exposure to fluctuations in interest rates will increase or
decrease in the future with increases or decreases in the outstanding amount
under the line of credit. As the Company’s total borrowing as of June 30, 2008
was approximately $1.0 million, a 1% change in interest rate would have resulted
in an immaterial impact on the Company’s consolidated financial position,
results of operations and cash flows.
To
minimize the Company’s exposure to credit risk associated with financial
instruments, the Company places its temporary cash investments with
high-credit-quality institutions, generally with bond rating of “A” and
above.
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA
|
See
Part
IV, Item 15(a)(1).
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None
ITEM
9A.
|
CONTROLS
AND PROCEDURES
|
See
Part
IV, Item 15(a)(1).
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures as of the end of the period covered
by this report are functioning effectively to provide reasonable assurance
that
the information required to be disclosed by us in reports filed under the
Securities Exchange Act of 1934 is
(i)
recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms
and
(ii) accumulated and communicated to our management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding disclosure.
A
controls system cannot provide absolute assurance, however, that the objectives
of the controls system are met, and no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within a company have been detected.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our
management’s report on internal control over financial reporting is set forth in
Item 15 of this annual report on Form 10-K and is incorporated by reference
herein.
CHANGE
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
No
change
in our internal control over financial reporting occurred during the Company’s
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.
ITEM
9B.
|
OTHER
INFORMATION
|
None
PART
III
ITEM
10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE
REGISTRANT
|
The
Company has adopted a Code of Ethics and Business Practices, which applies
to
all directors, officers, and U.S.-based employees of the Company (there are
certain variations with respect to certain international locations so as
to
comply with local law). It is posted on the Company’s website at
www.micros.com
,
and is
available in print free of charge to anyone who requests a copy. Requests
must
be in writing and mailed to the Company’s Corporate Secretary.
See
Part
I, Item 1 for information regarding the Company’s Executive Officers. Other
information required by this Item 10 will be set forth in the Company’s Proxy
Statement under the captions “Information as to Nominees”, “Section 16(a)
Beneficial Ownership Reporting Compliance”, and “Audit Committee” and that
information is incorporated herein by reference.
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The
information required by Item 11 will be set forth in the Company’s Proxy
Statement under the caption “Executive Compensation,” and that information is
incorporated herein by reference.
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Except
for the information set forth below, the information required by Item 12
will be
set forth in the Company’s Proxy Statement under the caption “Security Ownership
of Certain Beneficial Owners and Management,” and that information is
incorporated herein by reference.
EQUITY
COMPENSATION PLAN INFORMATION
|
|
As of June 30, 2008
|
|
Plan category
|
|
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
|
|
Weighted-Average
exercise price of
outstanding
options, warrants
and rights
|
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
6,246,928
|
|
$
|
22.46
|
|
|
3,068,537
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Total
|
|
|
6,246,928
|
|
$
|
22.46
|
|
|
3,068,537
|
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
|
Effective
June 30, 1995, the Company and Louis M. Brown, Jr., Vice-Chairman of the
Board,
entered into a Consulting Agreement that, as amended, expired on June 30,
2008
in accordance with its terms. Under the Consulting Agreement, Mr. Brown was
to
provide during each fiscal year on the average 20 hours per week of consulting
services to the Company in exchange for a base consulting fee of approximately
$0.3 million. Additionally for fiscal year 2007 and 2006, Mr. Brown’s total
compensation also included annual target bonuses of approximately $0.2 million
that were accrued during the fiscal year that they were earned and paid in
the
following fiscal year.
Notwithstanding
the expiration of his Consulting Agreement, Mr. Brown continues to serve
the
Company as Vice-Chairman of the Board of Directors.
ITEM
14.
|
PRINCIPAL
ACCOUNTING FEES AND
SERVICES
|
The
information required by Item 14 will be set forth in the Company’s Proxy
Statement under the section heading “Independent Registered Public Accounting
Firm,” and that information is incorporated herein by reference.
PART
IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
|
(a)
The following documents are filed as a part of this
report:
|
|
|
|
(1)
Management
’
s
Annual
Report On Internal Control Over Financial Reporting
|
41
|
|
|
(2)
Financial Statements:
|
|
Report
of Independent Registered Public Accounting Firm
|
42
|
Consolidated
balance sheets as of June 30, 2008 and 2007
|
43
|
Consolidated
statements of operations for the fiscal years ended June 30, 2008,
2007
and 2006
|
44
|
Consolidated
statements of cash flows for the fiscal years ended June 30, 2008,
2007
and 2006
|
45
|
Consolidated
statements of shareholders’ equity and comprehensive income for the fiscal
years ended June 30, 2008, 2007 and 2006
|
46
|
Notes
to consolidated financial statements
|
47 - 70
|
|
|
(3)
Financial Statement Schedules:
|
|
Schedule
II – Valuation and qualifying accounts and reserves
|
71
|
All
other
schedules are omitted because they are not applicable, not required, or the
required information is included in the financial statements or notes
thereto.
(4)
Exhibits:
3(i)
|
Articles
of Incorporation, as amended, are incorporated herein by reference
to
Exhibit 3(i) to the Form 8-K filed on November 16,
2007.
|
3(ii)
|
By-laws
of the Company, as amended, are incorporated herein by reference
to
Exhibit 3(ii) to the Form 8-K filed on October 17,
2007.
|
10(a)(1)*
|
Amendment
and Restatement of MICROS Systems, Inc. Stock Option Plan is
incorporated
herein by reference to Exhibit 4.1 to the Registration Statement
on Form
S-8 of the Company filed on February 16, 1990.
|
10(a)(2)*
|
First
Amendment to the Amendment and Restatement of MICROS Systems,
Inc. Stock
Option Plan is incorporated herein by reference to Exhibit 4.2
to the
Registration Statement on Form S-8 of the Company filed on February
16,
1990.
|
10(a)(3)*
|
MICROS
Systems, Inc. 1991 Stock Option Plan as amended, is incorporated
herein by
reference to Exhibit A to the Proxy Statement of the Company
for the 2006
Annual Meeting of Shareholders
|
10(b)*
|
Employment
Agreement dated June 1, 1995 between MICROS Systems, Inc. and
A. L.
Giannopoulos is incorporated herein by reference to Exhibit 10e
to the
Annual Report on Form 10-K of the Company for the Fiscal Year
ended June
30, 1995.
|
10(b)(1)*
|
First
Amendment to Employment Agreement dated February 6, 1997 between
MICROS
Systems, Inc. and A. L. Giannopoulos is incorporated herein by
reference
to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 1996.
|
10(b)(2)*
|
Second
Amendment to Employment Agreement dated February 1, 1998 between
MICROS
Systems, Inc. and A. L. Giannopoulos is incorporated herein by
reference
to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 1997.
|
10(b)(3)*
|
Third
Amendment to Employment Agreement dated September 8, 1999 between
MICROS
Systems, Inc. and A. L. Giannopoulos is incorporated herein by
reference
to Exhibit 10g to the Annual Report on Form 10-K of the Company
for the
Fiscal Year ended June 30, 1999.
|
10(b)(4)*
|
Fourth
Amendment to Employment Agreement dated November 19, 2001 between
MICROS
Systems, Inc. and A. L. Giannopoulos is incorporated herein by
reference
to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 2001.
|
10(b)(5)*
|
Fifth
Amendment to Employment Agreement dated November 15, 2002 between
MICROS
Systems, Inc. and A. L. Giannopoulos is incorporated herein by
reference
to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 2002.
|
10(b)(6)*
|
Sixth
Amendment to Employment Agreement dated January 28, 2004 between
MICROS
Systems, Inc. and A. L. Giannopoulos is incorporated herein by
reference
to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 2003.
|
10(b)(7)*
|
Seventh
Amendment to Employment Agreement dated August 9, 2005 between
MICROS
Systems, Inc. and A. L. Giannopoulos is incorporated herein by
reference
to Exhibit 10 to the Current Report on Form 8-K filed on August
11,
2005.
|
10(b)(8)*
|
Eighth
Amendment to Employment Agreement dated June 6, 2006, between
MICROS
Systems, Inc. and A.L. Giannopoulos is incorporated herein by
reference to
Exhibit 10 to the Current Report on Form 8-K filed on June 8,
2006.
|
10(b)(9)*
|
Ninth
Amendment to Employment Agreement dated June 6, 2006, between
MICROS
Systems, Inc. and A.L. Giannopoulos is incorporated herein by
reference to
Exhibit 10 to the Current Report on Form 8-K filed on November
17,
2006.
|
10(b)(10)*
|
Tenth
Amendment to Employment Agreement dated June 12, 2008, between
MICROS
Systems, Inc. and A.L. Giannopoulos is incorporated herein by
reference to
Exhibit 10 to the Current Report on Form 8-K filed on June 13,
2008.
|
10(c)*
|
Consulting
Agreement dated June 30, 1995 between MICROS Systems, Inc. and
Louis M.
Brown, Jr. is incorporated herein by reference to Exhibit 10
to the Annual
Report on Form 10-K of the Company for the Fiscal Year ended
June 30,
1995.
|
10(c)(1)*
|
First
Amendment to Consulting Agreement dated February 1, 1999 between
MICROS
Systems, Inc. and Louis M. Brown, Jr. is incorporated herein
by reference
to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 1998.
|
10(c)(2)*
|
Second
Amendment to Consulting Agreement dated April 26, 2001 between
MICROS
Systems, Inc. and Louis M. Brown, Jr. is incorporated herein
by reference
to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended March 31, 2001.
|
10(c)(3)*
|
Third
Amendment to Consulting Agreement dated September 4, 2003 between
MICROS
Systems, Inc. and Louis M. Brown, Jr. is incorporated herein
by reference
to Exhibit 10 to the Annual Report on Form 10-K of the Company
for the
Fiscal Year ended June 30, 2003.
|
10(c)(4)*
|
Fourth
Amendment to Consulting Agreement dated June 12, 2007 between
MICROS
Systems, Inc. and Louis M. Brown, Jr. is incorporated herein
by reference
to Exhibit 10 to the Current Report on Form 8-K filed on June
12,
2007.
|
10(d)*
|
Employment
Agreement dated May 28, 1997 between MICROS Systems, Inc. and
Gary C.
Kaufman is incorporated herein by reference to Exhibit 10 to
the Annual
Report on Form 10-K of the Company for the Fiscal Year ended
June 30,
1997.
|
10(d)(1)*
|
First
Amendment to Employment Agreement dated October 1, 1998 between
MICROS
Systems, Inc. and Gary C. Kaufman is incorporated herein by reference
to
Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 1998.
|
10(d)(2)*
|
Second
Amendment to Employment Agreement dated October 1, 1998 between
MICROS
Systems, Inc. and Gary C. Kaufman is incorporated herein by reference
to
Exhibit 10 to the Current Report on Form 8-K filed on November
17,
2006.
|
10(e)*
|
Employment
Agreement dated May 28, 1997 between MICROS Systems, Inc. and
Thomas L.
Patz is incorporated herein by reference to Exhibit 10 to the
Annual
Report on Form 10-K of the Company for the Fiscal Year ended
June 30,
1997.
|
10(e)(1)*
|
First
Amendment to Employment Agreement dated October 1, 1998 between
MICROS
Systems, Inc. and Thomas L. Patz is incorporated herein by reference
to
Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 1998 (see 10(d)(1) above, as Mr. Patz’ amendment
is an amendment identical (except for the identity of the executive
and
the economic terms) to that entered into by the Company with
Mr.
Kaufman).
|
10(e)(2)*
|
Second
Amendment to Employment Agreement dated October 1, 1998 between
MICROS
Systems, Inc. and Thomas L. Patz is incorporated herein by reference
to
Exhibit 10 to the Current Report on Form 8-K filed on November
17, 2006
(see 10(d)(2) above, as Mr. Patz’ amendment is an amendment identical
(except for the identity of the executive and the economic terms)
to that
entered into by the Company with Mr. Kaufman).
|
10(f)*
|
Restated
Supplemental Executive Retirement Plan, as approved by the Board
of
Directors on
|
|
April
27, 2005, is incorporated herein by reference to Exhibit 10 to
the Annual
Report on Form 10-K for the fiscal year ended June 30,
2006.
|
10(g)
|
Amended
and Restated Credit Agreement, effective as of July 29, 2005,
among MICROS
Systems, Inc., DV Technology Holdings Corporation, Datavantage
Corporation, MICROS Fidelio Nevada, LLC, MSI Delaware, LLC, MICROS-Fidelio
Worldwide, Inc., and JTECH Communications, Inc. as Borrower,
Bank of
America, N.A., as administrative agent, swing line lender and
L/C issuer,
and Wachovia Bank, N.A., and US Bank, N.A., and Banc of America
Securities
LLC, as sole lead arranger and book manager, is incorporated
herein by
reference to Exhibit 10 to the Annual Report on Form 10-K for
the fiscal
year ended June 30, 2005.
|
10(g)(1)
|
Amended
and Restated Credit Agreement, effective as of July 29, 2005,
among
MICROS-Fidelio (Ireland) Ltd., MICROS-Fidelio Systems (UK) Ltd.,
MICROS-Fidelio España S.L., MICROS Fidelio (Canada), Ltd., MICROS-Fidelio
Brazil, Ltda., MICROS-Fidelio France S.A.S., Hospitality Technologies,
S.A., MICROS-Fidelio Mexico S.A. de C.V., MICROS Systems Holding
GmbH,
MICROS-Fidelio GmbH, MICROS-Fidelio Software Portugal Unipessoal
Lda,
MICROS-Fidelio (Thailand) Co., Ltd., MICROS-Fidelio Singapore
Pte Ltd.,
MICROS-Fidelio Software (Philippines), Inc., MICROS-Fidelio Japan
Ltd.,
MICROS-Fidelio Australia Pty. Ltd., MICROS-Fidelio Hong Kong,
Ltd.,
Fidelio Nordic Norway A/S, Fidelio Nordic Oy, Fidelio Nordic
Sverige,
A.B., Hotelbk, A.B., as Borrower, Bank Of America, N.A., as Administrative
Agent, swing line lender, and L/C issuer, and Wachovia Bank N.A.
and US
Bank N.A., and Banc of America Securities LLC, as sole lead arranger
and
book manager is incorporated herein by reference to Exhibit 10
to the
Annual Report on Form 10-K for the fiscal year ended June 30,
2005.
|
14
|
Code
of Ethics and Business Practices is incorporated herein by reference
to
Exhibit 14 to the Annual Report on Form 10-K of the Company for
the fiscal
year ended June 30, 2004.
|
21
|
Subsidiaries
of the Company (filed herewith)
|
23
|
Consent
of Independent Registered Public Accounting Firm (filed
herewith)
|
31(a)
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a) under
the
Securities Exchange Act of 1934 (filed herewith)
|
31(b)
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a) under
the
Securities Exchange Act of 1934 (filed herewith)
|
32(a)
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(b) under
the
Securities Exchange Act of 1934 and 18 U.S.C. 1350 (furnished
herewith)
|
32(b)
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(b) under
the
Securities Exchange Act of 1934 and 18 U.S.C. 1350 (furnished
herewith)
|
*
|
Management
contract or compensatory plan or
arrangement.
|
MANAGEMENT’S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
M
anagement
of MICROS Systems, Inc. (the “Company”) is responsible for establishing and
maintaining adequate internal control over financial reporting. Internal
control
over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; provide reasonable
assurance that transactions are recorded as necessary to permit preparation
of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the
company; and provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
evaluated the Company’s internal control over financial reporting as of June 30,
2008. In making this assessment, management used the framework established
in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). As a result of this
assessment and based on the criteria in the COSO framework, management has
concluded that, as of June 30, 2008, the Company’s internal control over
financial reporting was effective.
The
Company’s independent auditors, PricewaterhouseCoopers LLP, have audited the
Company’s internal control over financial reporting. Their opinion on the
effectiveness of the Company’s internal control over financial reporting and on
the Company’s financial statements is included in this Annual Report on Form
10
-K.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of MICROS Systems,
Inc:
In
our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of MICROS Systems, Inc. and its subsidiaries at June 30, 2008 and
June
30, 2007, and the results of their operations and their cash flows for each
of
the three years in the period ended June 30, 2008 in conformity with accounting
principles generally accepted in the United States of America. In addition,
in
our opinion, the financial statement schedule listed in the accompanying
index
present fairly, in all material respects, the information set forth therein
when
read in conjunction with the related consolidated financial statements. Also
in
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of June 30, 2008, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). The Company's
management is responsible for these financial statements and financial statement
schedule, for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the Management's Annual Report on Internal Control
over
Financial Reporting under Item 8. Our responsibility is to express opinions
on
these financial statements, on the financial statement schedule, and on the
Company's internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that
we plan and perform the audits to obtain reasonable assurance about whether
the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a
test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining
an
understanding of internal control over financial reporting, assessing the
risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis
for
our opinions.
As
discussed in Note 1 to the consolidated financial statements, the Company
changed the manner in which it accounts for defined benefit pension and other
post retirement plans effective June 30, 2007.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use,
or
disposition of the company’s assets
that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
[PricewaterhouseCoopers
LLP (signed)]
Baltimore,
Maryland
August
29, 2008
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
June 30,
|
|
(in
thousands, except par value data)
|
|
2008
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
381,964
|
|
$
|
242,702
|
|
Short-term
investments
|
|
|
—
|
|
|
86,950
|
|
Accounts
receivable, net of allowance for doubtful accounts of
|
|
|
|
|
|
|
|
$28,348
at June 30, 2008 and $23,110 at June 30, 2007
|
|
|
192,445
|
|
|
180,203
|
|
Inventory,
net
|
|
|
64,575
|
|
|
47,790
|
|
Deferred
income taxes
|
|
|
18,724
|
|
|
16,683
|
|
Prepaid
expenses and other current assets
|
|
|
29,737
|
|
|
27,650
|
|
Total
current assets
|
|
|
687,445
|
|
|
601,978
|
|
|
|
|
|
|
|
|
|
Investments,
non-current
|
|
|
65,216
|
|
|
—
|
|
Property,
plant and equipment, net
|
|
|
29,165
|
|
|
27,955
|
|
Deferred
income taxes, non-current
|
|
|
7,108
|
|
|
23,145
|
|
Goodwill
|
|
|
159,722
|
|
|
138,332
|
|
Intangible
assets, net
|
|
|
16,168
|
|
|
14,509
|
|
Purchased
and internally developed software costs, net of
accumulated
|
|
|
|
|
|
|
|
amortization
of $61,691 at June 30, 2008 and $54,708 at June 30, 2007
|
|
|
30,846
|
|
|
36,296
|
|
Other
assets
|
|
|
7,336
|
|
|
4,541
|
|
Total
assets
|
|
$
|
1,003,006
|
|
$
|
846,756
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Bank
lines of credit
|
|
$
|
989
|
|
$
|
2,308
|
|
Accounts
payable
|
|
|
46,843
|
|
|
43,126
|
|
Accrued
expenses and other current liabilities
|
|
|
124,913
|
|
|
117,142
|
|
Income
taxes payable
|
|
|
6,363
|
|
|
8,094
|
|
Deferred
revenue
|
|
|
115,398
|
|
|
86,742
|
|
Total
current liabilities
|
|
|
294,506
|
|
|
257,412
|
|
|
|
|
|
|
|
|
|
Income
taxes payable, non-current
|
|
|
18,302
|
|
|
—
|
|
Deferred
income taxes, non-current
|
|
|
2,181
|
|
|
15,934
|
|
Other
non-current liabilities
|
|
|
8,103
|
|
|
17,554
|
|
Total
liabilities
|
|
|
323,092
|
|
|
290,900
|
|
|
|
|
|
|
|
|
|
Minority
interests and minority ownership put arrangement
|
|
|
6,898
|
|
|
4,723
|
|
Commitments
and contingencies (Note 12)
|
|
|
|
|
|
|
|
Shareholders'
Equity:
|
|
|
|
|
|
|
|
Common
stock, $0.00625 par value; authorized 120,000 shares; issued
and
|
|
|
|
|
|
|
|
outstanding
80,898 at June 30, 2008 and 81,096 at June 30, 2007
|
|
|
506
|
|
|
507
|
|
Capital
in excess of par
|
|
|
131,517
|
|
|
149,089
|
|
Retained
earnings
|
|
|
480,777
|
|
|
382,785
|
|
Accumulated
other comprehensive income
|
|
|
60,216
|
|
|
18,752
|
|
Total
shareholders' equity
|
|
|
673,016
|
|
|
551,133
|
|
Total
liabilities and shareholders' equity
|
|
$
|
1,003,006
|
|
$
|
846,756
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Fiscal Year Ended June 30,
|
|
(in
thousands, except per share data)
|
|
2008
|
|
2007
|
|
2006
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Hardware
|
|
$
|
265,965
|
|
$
|
233,838
|
|
$
|
215,561
|
|
Software
|
|
|
158,699
|
|
|
132,820
|
|
|
120,093
|
|
Service
|
|
|
529,520
|
|
|
419,069
|
|
|
343,299
|
|
Total
revenue
|
|
|
954,184
|
|
|
785,727
|
|
|
678,953
|
|
Cost
of sales:
|
|
|
|
|
|
|
|
|
|
|
Hardware
|
|
|
171,779
|
|
|
149,085
|
|
|
144,061
|
|
Software
|
|
|
33,252
|
|
|
29,531
|
|
|
23,488
|
|
Service
|
|
|
247,954
|
|
|
195,600
|
|
|
165,721
|
|
Total
cost of sales
|
|
|
452,985
|
|
|
374,216
|
|
|
333,270
|
|
Gross
margin
|
|
|
501,199
|
|
|
411,511
|
|
|
345,683
|
|
Selling,
general and administrative expenses
|
|
|
306,624
|
|
|
254,317
|
|
|
216,827
|
|
Research
and development expenses
|
|
|
40,129
|
|
|
33,885
|
|
|
27,120
|
|
Depreciation
and amortization
|
|
|
15,143
|
|
|
12,721
|
|
|
10,459
|
|
Total
operating expenses
|
|
|
361,896
|
|
|
300,923
|
|
|
254,406
|
|
Income
from operations
|
|
|
139,303
|
|
|
110,588
|
|
|
91,277
|
|
Non-operating
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
14,725
|
|
|
10,319
|
|
|
5,066
|
|
Interest
expense
|
|
|
(286
|
)
|
|
(371
|
)
|
|
(210
|
)
|
Other
income (expense), net
|
|
|
597
|
|
|
1,118
|
|
|
(468
|
)
|
Total
non-operating income, net
|
|
|
15,036
|
|
|
11,066
|
|
|
4,388
|
|
Income
before taxes, minority interests and equity in net earnings of
affiliates
|
|
|
154,339
|
|
|
121,654
|
|
|
95,665
|
|
Income
tax provision
|
|
|
52,167
|
|
|
40,754
|
|
|
31,455
|
|
Income
before minority interests and equity in net earnings of
affiliates
|
|
|
102,172
|
|
|
80,900
|
|
|
64,210
|
|
Minority
interests and equity in net earnings of affiliates
|
|
|
(888
|
)
|
|
(912
|
)
|
|
(682
|
)
|
Net
income
(1)
|
|
$
|
101,284
|
|
$
|
79,988
|
|
$
|
63,528
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share
(1) (2)
:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.23
|
|
$
|
1.00
|
|
$
|
0.82
|
|
Diluted
|
|
$
|
1.21
|
|
$
|
0.97
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares outstanding
(2)
:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
81,546
|
|
|
79,978
|
|
|
77,383
|
|
Diluted
|
|
|
83,346
|
|
|
82,581
|
|
|
81,248
|
|
(1)
See
Note
3, "Share-based Compensation" in Notes to Consolidated Financial
Statements.
(2)
All
share
data has been retroactively adjusted for a two-for-one stock split effective
February 5, 2008.
The
accompanying notes are an integral part of the consolidated financial
statements.
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Fiscal Year Ended June 30,
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
101,284
|
|
$
|
79,988
|
|
$
|
63,528
|
|
Adjustments
to reconcile net income to net cash provided by
|
|
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
15,143
|
|
|
12,721
|
|
|
10,459
|
|
Amortization
of capitalized software
|
|
|
9,385
|
|
|
8,392
|
|
|
6,978
|
|
Amortization
of prior service cost
|
|
|
648
|
|
|
—
|
|
|
—
|
|
Provision
for losses on accounts receivable excluding recoveries
|
|
|
7,135
|
|
|
3,356
|
|
|
5,454
|
|
Provision
for inventory obsolescence
|
|
|
2,753
|
|
|
3,157
|
|
|
3,530
|
|
Undistributed
earnings from equity investment and minority interest
|
|
|
888
|
|
|
912
|
|
|
682
|
|
Provision
for deferred income taxes (benefit)
|
|
|
(1,118
|
)
|
|
(2,087
|
)
|
|
(1,950
|
)
|
Net
(gain) loss on disposal of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
and
capitalized software
|
|
|
87
|
|
|
(237
|
)
|
|
1,492
|
|
Share-based
compensation
|
|
|
17,229
|
|
|
13,996
|
|
|
9,135
|
|
Changes
in assets and liabilities (net of impact of acquisitions):
|
|
|
|
|
|
|
|
|
|
|
Increase
in accounts receivable
|
|
|
(4,389
|
)
|
|
(29,278
|
)
|
|
(12,306
|
)
|
Increase
in inventory
|
|
|
(15,566
|
)
|
|
(1,140
|
)
|
|
(7,182
|
)
|
(Increase)
decrease in prepaid expenses and other assets
|
|
|
423
|
|
|
(9,142
|
)
|
|
12,975
|
|
Increase
(decrease) in accounts payable
|
|
|
(168
|
)
|
|
5,055
|
|
|
(2,944
|
)
|
Increase
in accrued expenses and other current liabilities
|
|
|
(1,632
|
)
|
|
28,104
|
|
|
14,282
|
|
Increase
(decrease) in income taxes payable
|
|
|
11,811
|
|
|
(694
|
)
|
|
10,193
|
|
Increase
in deferred revenue
|
|
|
19,735
|
|
|
1,663
|
|
|
7,355
|
|
Net
cash flows provided by operating activities
|
|
|
163,648
|
|
|
114,766
|
|
|
121,681
|
|
Cash
flows from investing activities:
|
Net
cash paid for acquisitions
|
|
|
(16,135
|
)
|
|
(40,541
|
)
|
|
(14,094
|
)
|
Purchases
of property, plant and equipment
|
|
|
(12,944
|
)
|
|
(11,279
|
)
|
|
(10,740
|
)
|
Internally
developed software
|
|
|
(1,919
|
)
|
|
(1,974
|
)
|
|
(3,523
|
)
|
Purchases
of other intangible assets
|
|
|
—
|
|
|
—
|
|
|
(575
|
)
|
Disposal
of property, plant and equipment
|
|
|
227
|
|
|
398
|
|
|
112
|
|
Purchases
of short-term investments
|
|
|
(610,650
|
)
|
|
(122,400
|
)
|
|
—
|
|
Proceeds
from sales of short-term investments
|
|
|
628,150
|
|
|
35,450
|
|
|
—
|
|
Purchases
of other investments
|
|
|
—
|
|
|
(838
|
)
|
|
(500
|
)
|
Net
cash flows used in investing activities
|
|
|
(13,271
|
)
|
|
(141,184
|
)
|
|
(29,320
|
)
|
Cash
flows from financing activities:
|
Repurchases
of common stock
|
|
|
(74,303
|
)
|
|
(17,870
|
)
|
|
(40,234
|
)
|
Proceeds
from stock option exercises
|
|
|
27,884
|
|
|
34,966
|
|
|
18,532
|
|
Realized
tax benefits from stock option exercises
|
|
|
11,018
|
|
|
16,781
|
|
|
13,305
|
|
Principal
payments on line of credit
|
|
|
(1,640
|
)
|
|
(3,717
|
)
|
|
(628
|
)
|
Proceeds
from lines of credit
|
|
|
—
|
|
|
1,650
|
|
|
318
|
|
Other
|
|
|
(422
|
)
|
|
(664
|
)
|
|
(322
|
)
|
Net
cash flows (used in) provided by financing activities
|
|
|
(37,463
|
)
|
|
31,146
|
|
|
(9,029
|
)
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
26,348
|
|
|
752
|
|
|
369
|
|
Net
increase in cash and cash equivalents
|
|
|
139,262
|
|
|
5,480
|
|
|
83,701
|
|
Cash
and cash equivalents at beginning of year
|
|
|
242,702
|
|
|
237,222
|
|
|
153,521
|
|
Cash
and cash equivalents at end of year
|
|
$
|
381,964
|
|
$
|
242,702
|
|
$
|
237,222
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid (received) during the fiscal year for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
137
|
|
$
|
89
|
|
$
|
213
|
|
Income
taxes (net refund)
|
|
$
|
28,752
|
|
$
|
24,561
|
|
$
|
(971
|
)
|
The
accompanying notes are an integral part of the consolidated financial
statements.
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE
INCOME
|
|
Common Stock
|
|
Capital
in
Excess
|
|
Retained
|
|
Accumulated
Other
Comprehensive
|
|
|
|
(in thousands)
|
|
Shares
(1)
|
|
Amount
|
|
of Par
|
|
Earnings
|
|
Income
|
|
Total
|
|
Balance,
June 30, 2005
|
|
|
77,290
|
|
$
|
482
|
|
$
|
99,990
|
|
$
|
239,320
|
|
$
|
5,379
|
|
$
|
345,171
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
63,528
|
|
|
—
|
|
|
63,528
|
|
Foreign
currency translation adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,679
|
|
|
7,679
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,207
|
|
Share-based
compensation
|
|
|
—
|
|
|
—
|
|
|
9,135
|
|
|
—
|
|
|
—
|
|
|
9,135
|
|
Stock
issued upon exercise of options
|
|
|
2,512
|
|
|
16
|
|
|
18,516
|
|
|
—
|
|
|
—
|
|
|
18,532
|
|
Repurchases
of stock
|
|
|
(1,842
|
)
|
|
(11
|
)
|
|
(40,223
|
)
|
|
—
|
|
|
—
|
|
|
(40,234
|
)
|
Income
tax benefit from options exercised
|
|
|
—
|
|
|
—
|
|
|
13,305
|
|
|
—
|
|
|
—
|
|
|
13,305
|
|
Balance,
June 30, 2006
|
|
|
77,960
|
|
|
487
|
|
|
100,723
|
|
|
302,848
|
|
|
13,058
|
|
|
417,116
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
79,988
|
|
|
—
|
|
|
79,988
|
|
Foreign
currency translation adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,623
|
|
|
11,623
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,611
|
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,929
|
)
|
|
(5,929
|
)
|
Minority
interest put arrangement
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(51
|
)
|
|
—
|
|
|
(51
|
)
|
Share-based
compensation
|
|
|
—
|
|
|
—
|
|
|
13,996
|
|
|
—
|
|
|
—
|
|
|
13,996
|
|
Stock
issued upon exercise of options
|
|
|
3,834
|
|
|
24
|
|
|
34,942
|
|
|
—
|
|
|
—
|
|
|
34,966
|
|
Repurchases
of stock
|
|
|
(698
|
)
|
|
(4
|
)
|
|
(17,866
|
)
|
|
—
|
|
|
—
|
|
|
(17,870
|
)
|
Income
tax benefit from options exercised
|
|
|
—
|
|
|
—
|
|
|
17,294
|
|
|
—
|
|
|
—
|
|
|
17,294
|
|
Balance,
June 30, 2007, as previously reported
|
|
|
81,096
|
|
|
507
|
|
|
149,089
|
|
|
382,785
|
|
|
18,752
|
|
|
551,133
|
|
Cumulative
impact of the adoption of
FIN
48
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,647
|
)
|
|
—
|
|
|
(2,647
|
)
|
Balance,
June 30, 2007, adjusted
|
|
|
81,096
|
|
|
507
|
|
|
149,089
|
|
|
380,138
|
|
|
18,752
|
|
|
548,486
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
101,284
|
|
|
—
|
|
|
101,284
|
|
Foreign
currency translation adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38,186
|
|
|
38,186
|
|
Unrealized
loss on non-current investments, net of tax
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,651
|
)
|
|
(2,651
|
)
|
Amortization
of prior year pension costs, net of tax
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
648
|
|
|
648
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,467
|
|
SERP
amendment, net of tax
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,281
|
|
|
5,281
|
|
Minority
interest put arrangement
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(645
|
)
|
|
—
|
|
|
(645
|
)
|
Share-based
compensation
|
|
|
—
|
|
|
—
|
|
|
17,229
|
|
|
—
|
|
|
—
|
|
|
17,229
|
|
Stock
issued upon exercise of options
|
|
|
2,131
|
|
|
13
|
|
|
27,871
|
|
|
—
|
|
|
—
|
|
|
27,884
|
|
Repurchases
of stock
|
|
|
(2,329
|
)
|
|
(14
|
)
|
|
(74,289
|
)
|
|
—
|
|
|
—
|
|
|
(74,303
|
)
|
Income
tax benefit from options exercised
|
|
|
—
|
|
|
—
|
|
|
11,617
|
|
|
—
|
|
|
—
|
|
|
11,617
|
|
Balance,
June 30, 2008
|
|
|
80,898
|
|
$
|
506
|
|
$
|
131,517
|
|
$
|
480,777
|
|
$
|
60,216
|
|
$
|
673,016
|
|
(1)
All
share
data has been retroactively adjusted for a two-for-one stock split effective
February 5, 2008.
The
accompanying notes are an integral part of the consolidated financial
statements.
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
|
DESCRIPTION
OF BUSINESS
MICROS
Systems, Inc.
is
a
leading worldwide designer, manufacturer, marketer and servicer of enterprise
information solutions for the global hospitality and specialty retail
industries. The information solutions consist of application specific software
and hardware systems, supplemented by a wide range of services. The hospitality
industry includes numerous defined markets such as lodging (including individual
hotel sites, hotel central reservation systems and customer information
systems), table service restaurants, quick service restaurants, entertainment
venues such as stadiums and arenas, business foodservice operations, casinos,
transportation foodservice, government operations, and cruise ships. The
specialty retail industry consists of retail operations selling to consumers
both general and specific products, such as clothing, shoes, food, hardware,
jewelry, and other specialty items.
(References to “MICROS” or the “Company” herein include the operations of MICROS
Systems, Inc. and its subsidiaries on a consolidated basis.)
BASIS
OF PREPARATION AND USE OF ESTIMATES
The
preparation of consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported
in
the Company’s consolidated financial statements and accompanying notes. Although
these estimates are based on assumptions that management believes are reasonable
and management’s knowledge of current events and actions that the Company may
undertake in the future, actual results may differ from these
estimates.
PRINCIPLES
OF CONSOLIDATION
The
consolidated financial statements include the accounts of the Company and
its
majority-owned subsidiaries. The net income of the Company’s subsidiaries is
recorded net of minority interests. Investments in 20% through 50% owned
affiliated companies and any investments in other companies in which the
Company
exercises significant influence over operating and financial affairs, are
accounted for under the equity method. Otherwise, investments are recorded
at
cost. All significant intercompany accounts and transactions have been
eliminated.
STOCK
SPLIT
On
February 5, 2008, the Company effected a two-for-one stock split of the
Company’s common stock, in the form of a stock dividend. All references to share
data in the accompanying consolidated financial statements and throughout
these
notes have been retroactively adjusted to reflect the two-for-one stock
split.
FOREIGN
CURRENCY TRANSLATION
The
financial statements of the Company’s non-U.S. operations are translated into
U.S. dollars for financial reporting purposes. The assets and liabilities
of
non-U.S. operations whose functional currencies are not in U.S. dollars are
translated at the fiscal year-end exchange rates, while revenues and expenses
are translated at month end exchange rates during the fiscal year which
approximate weighted average exchange rates. Specifically, the applicable
exchange rates used in the financial statements are based on the exchange
rate(s) in effect on the last business day of each month as reported in the
Wall
Street Journal. The cumulative translation effects are reflected as a component
of the Company’s accumulated other comprehensive income within shareholders’
equity. Gains and losses on monetary transactions denominated in other than
the
functional currency of an operation are reflected in other income (expense).
REVENUE
RECOGNITION
Revenue
is generated from software licenses, hardware and service and support. Revenue
is recognized in accordance with American Institute of Certified Public
Accountants Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,”
as modified by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition
with Respect to Certain Transactions” and the Securities and Exchange Commission
Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements
(“SAB NO. 104”).” Revenue under multiple-element arrangements, which typically
include hardware, software licenses, and maintenance agreements sold together,
are allocated to each element in the arrangement using the residual method
prescribed by SOP 98-9, based on vendor specific objective evidence of the
fair
value of any undelivered elements of the arrangement, i.e., recognition of
an
allocated portion of revenue, equivalent to the fair value of undelivered
elements, is deferred.
Revenue
from software license, hardware and service and support are generally recognized
when the four basic criteria of SOP 97-2 are met as follows:
·
|
Persuasive
evidence of an arrangement exists: The Company requires a contract
signed
by both parties to the agreement or a purchase order received from
the
customer as persuasive evidence of an arrangement.
|
·
|
Delivery
has occurred or services have been rendered: Delivery occurs at
FOB
shipping point when provided to a common carrier, if the risk of
ownership
has passed to the buyer or in the case of electronic delivery,
delivery
occurs when the customer is given access to the licensed programs.
If the
risk of ownership has not passed to the buyer when provided to
the common
carrier, delivery occurs when the risk has passed to the
buyer.
|
·
|
Fixed
or determinable fee: The Company considers the license fee to
be fixed or
determinable if the fee is not subject to refund or adjustment
and is
payable within twelve months of delivery with generally no more
than 20%
of the contract price due at the end of the payment term. If
the
arrangement fee is not fixed or determinable, the Company recognizes
the
revenue as amounts become due and payable. The Company considers
service
fees to be fixed or determinable if the services fee or rates
for time and
material contracts are not subject to refund or
adjustment.
|
·
|
Collection
is probable: The Company performs credit review for significant
transactions at the time the arrangement is executed to determine
the
creditworthiness of the customer. Collection is deemed probable
if the
Company expects that the customer will be able to pay amounts
under the
arrangement as they become due. If the Company determines from
the outset
of an arrangement that collection is not probable, revenue is
recognized
as collection occurs.
|
Costs
related to shipping and handling and billable travel expenses are included
in
cost of sales. The Company reduces revenue to reflect estimated customer
returns
and allowances.
Hardware
The
Company’s main proprietary hardware is point-of-sale terminals. The Company also
sells other hardware devices, such as printers, cash drawers, handheld order
entry terminals and pole displays. The Company also resells various hardware
products, including personal computers, servers, printers, network cards
and
other related computer equipment.
Hardware
revenue is recognized, in accordance with SAB No. 104. Hardware revenue is
recognized at FOB shipping point when the hardware is provided to a common
carrier if at the time of shipment, the Company has an arrangement, the risk
of
ownership has passed to the buyer, there is a fixed and determinable price
and
collectability is reasonably assured. If at the time of shipment, the Company
has not met these four criteria, recognition of the hardware revenue is deferred
until all four criteria are determined to have been met.
Hardware
revenue is outside the scope of SOP 97-2 because any system software embedded
in
the hardware is used solely in connection with the operation of the hardware
and
is incidental to the hardware product as a whole; once installed, the embedded
system software is not updated for new versions that are subsequently
developed.
Software
The
Company’s proprietary software consists of hotel software systems, restaurant
software systems and retail software systems. The Company also resells various
third party software products. All software products are sold on a stand
alone
basis and can be used with third party hardware products and do not require
the
Company’s hardware products.
Revenue
related to all software products, whether sold stand alone or with the Company’s
hardware products, is recognized in accordance with SOP 97-2. If the software
license agreement contains customer acceptance criteria or a cancellation
right,
recognition of the software revenue is deferred until the earlier of customer
acceptance or the expiration of the acceptance period or cancellation right.
If
a third party can install the software, revenue is recognized when shipped,
with
an appropriate deferral for any undelivered software contract elements. For
OPERA software, the Company is the principal party that has the proprietary
knowledge to install the software. The Company deems OPERA software to be
delivered when ready to go live, thus software and related installation services
revenue is recognized upon installation and when ready to go live, with an
appropriate deferral for any undelivered software contract elements. Fees
are
allocated to the various elements of software license agreements using the
residual method prescribed by SOP 98-9, based on vendor specific objective
evidence (“VSOE”) of the fair value of any undelivered elements of the
arrangement. VSOE of fair value for the Company’s services, including
maintenance agreements, are based upon separate sales of those arrangements,
which are consistently applied. Under the residual method, the Company defers
revenue for the fair value of its undelivered elements based on VSOE of fair
value, and the remaining portion of the arrangement fee is allocated to the
delivered elements and recognized as revenue when the basic criteria in SOP
97-2
are met.
Typically,
payments for software licenses are due within twelve months of the agreement
date. When software license agreements call for escalating payment terms,
or
payment terms of twelve months or more from the delivery date, software revenue
is recognized as payments become due and only if all other conditions for
revenue recognition have been satisfied.
Service
The
Company provides maintenance support, installation, customer specific
development and, more recently, software-hosting services. Maintenance support
and software-hosting services are initially recorded as deferred revenue
and are
recognized ratably over the contract term. Revenue related to installation
services, which include project management, systems planning, design and
implementation, customer configurations, training and assistance activating
the
Company’s products are recognized as the service is rendered.
The
Company’s software is ready for use by the customer upon receipt. While many of
the customers may choose to tailor the software to fit their specific needs
or
request the Company’s assistance activating the programs, the Company’s
implementation services do not typically involve significant customization
to or
development of the underlying source code.
When
the
Company provides services deemed to be essential to the functionality of
the
software products licensed, or when a customer requires significant production,
modification, or customization to the licensed software, the Company recognizes
software and services revenue under the completed contract method in accordance
with SOP 81-1, “Accounting for Performance of Construction Type and Certain
Production Type Contracts.” Once acceptance occurs, revenue is recognized for
all delivered elements based on vendor specific objective evidence, and
maintenance service revenue is deferred and recognized ratably over the contract
term. The completed contract method of accounting is followed rather than
the
percentage of completion method as the production cycles are usually not
long
term (less than one year).
CASH
EQUIVALENTS
The
Company considers all highly liquid investments with original maturities
of
three months or less to be cash equivalents.
The
Company's cash equivalents are recorded at cost, which approximates fair
value,
and consist primarily of high-grade commercial paper, money market funds,
U.S.
government agency securities and tax-exempt notes and bonds.
ALLOWANCE
FOR DOUBTFUL ACCOUNTS
The
Company maintains allowances for doubtful accounts for estimated losses that
may
result from the inability of the Company’s customers to make required payments
and for limited circumstances when the customer disputes the amounts due
to the
Company. The Company’s methodology for determining this allowance requires
estimates and is based on the age of the receivable, customer’s payment
practices and history, inquiries, credit reports from third parties and other
financial information. If the financial condition of the Company’s customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. As of June 30, 2008 and
2007,
accounts receivable totaled approximately $192.4 million and $180.2 million,
net
of an allowance for doubtful accounts of approximately $28.3 million and
$23.1
million, respectively. Additionally, bad debt expenses, net of recoveries,
for
the fiscal years 2008, 2007 and 2006 were approximately $7.1 million, $3.4
million and $5.4 million, respectively.
INVENTORY
Inventory
is stated at the lower of standard cost which approximates cost, or market.
Standard cost is determined principally by the first-in, first-out basis,
or
market. The Company maintains a reserve for obsolescence for inventory in
the
amount of approximately $11.5 million and $9.9 million as of June 30, 2008
and
June 30, 2007.
INVESTMENTS,
NON-CURRENT AND SHORT-TERM
The
Company’s investments in auction rate securities, which are debt instruments
with long-term scheduled maturities and periodic interest rate reset dates,
are
classified as available-for-sale. The Company carries these securities at
estimated fair value with any related impairment being classified as either
temporary and reported as a separate component of stockholders' equity or
as
other-than-temporary and recognized in its consolidated statements of
operations.
As
of
June 30, 2008, the Company held approximately $65.2 million in auction rate
securities, classified as investment, non-current available for sale in the
accompanying consolidated balance sheets compared to approximately $87.0
million, classified as short-term investments available for sale as of June
30,
2007. As of June 30, 2008, there were temporary unrealized losses of
approximately $4.2 million (approximately $2.7 million, net of tax). As of
June
30, 2007, there were no unrealized gains or losses on these investments.
The
Company recognized no gains or losses related to the sale of its investments
in
auction rate securities during the three fiscal years ended June 30, 2008.
See
Note 2, “Investments, non-current and short-term” for further
detail.
PROPERTY,
PLANT AND EQUIPMENT
Property,
plant and equipment are stated at cost and depreciated using the straight-line
method over their estimated useful lives, ranging from three to ten years.
Leasehold improvements are amortized over the life of the lease or estimated
useful lives, whichever is shorter. Maintenance and repairs are charged to
expense as incurred, and the costs of additions and improvements are
capitalized. Any gain or loss from the retirement or sale of an asset is
credited or charged to operations in the current period.
SOFTWARE
FOR INTERNAL USE
Internally
used computer software is capitalized according to SOP 98-1, “Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use.” Capitalized
costs are amortized on a straight-line basis over the estimated life of the
software ranging up to seven years.
CAPITALIZED
SOFTWARE DEVELOPMENT COSTS
Costs
incurred in the research and development of new software products to be licensed
to others, costs primarily consisting of salaries, employee benefits and
administrative costs, are expensed as incurred and included in research and
development expenses until technological feasibility is established. The
capitalization of software development costs on a product-by-product basis
starts when a product’s technological feasibility has been established and ends
when the product is available for general release to customers, at which
time
amortization begins. Technological feasibility is reached when the product
reaches the working model stage. The cost of purchased software is also
capitalized.
Annual
amortization of capitalized software development costs are charged to software
cost of sales and for each capitalized software product is the greater of:
(i)
the amount computed using the ratio that of the software product’s current
fiscal year gross revenue to the total current fiscal year and anticipated
future gross revenues for that product or (ii) the amount computed based
on
straight-line method over the remaining estimated economic life of the product.
Amortization expenses for the fiscal years 2008, 2007 and 2006 were
approximately $9.4 million, $8.4 million and $7.0 million, respectively.
Additionally, during the fiscal years 2008 and 2006, the Company wrote off
approximately $0.7 million and approximately $1.6 million in capitalized
software costs related to products for which no future revenue was projected.
No
capitalized software was written off in fiscal year 2007.
LONG-LIVED
ASSETS INCLUDING FINITE-LIVED PURCHASED INTANGIBLE ASSETS
The
Company evaluates long-lived assets, including finite-lived purchased intangible
assets, for impairment whenever events and changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable in accordance
with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets.” The Company compares the
fair value of the assets based on the undiscounted cash flows the assets
are
expected to generate (or market value, if available) to the book value of
the
assets. If the fair value is less than book value, the asset is impaired
and an
impairment loss would be recognized by the Company equal to the excess of
book
value over fair value.
During
the last three fiscal years ended June 30, 2008, the Company did not recognize
any impairment losses on long-lived assets, including finite-lived purchased
intangible assets.
GOODWILL
AND INDEFINITE-LIVED PURCHASED INTANGIBLE ASSETS
SFAS
No.
142, “Goodwill and Other Intangible Assets” prohibits the amortization of
goodwill and indefinite-lived purchased intangible assets. The Company assesses
whether goodwill and the Company’s only indefinite-lived purchased intangible
assets, trademarks, are impaired on an annual basis in accordance with SFAS
142
during the first quarter of its fiscal year. Goodwill is evaluated for
impairment by comparing the fair value of each of the Company’s reporting units
(the Company’s four operating segments consisting of U.S., Europe, the Pacific
Rim and Latin America) to its book value. The fair value of each reporting
unit
is determined based on a weighting of the income approach (i.e., discounted
future income associated with the item) and market approach (i.e., market
value
of similar assets purchased or sold in the same industry) to value. If the
fair
value of the reporting unit exceeds the book value of the net assets assigned
to
that unit, goodwill is not impaired. If goodwill is impaired, the Company
recognizes an impairment loss based on the amount by which the book value
of
goodwill exceeds its implied fair value. The implied fair value of
goodwill is determined by deducting the fair value of a reporting unit’s
identifiable assets and liabilities from the fair value of the reporting
unit as
a whole, as if that reporting unit had just been acquired and the purchase
price
were being initially allocated.
Trademarks
are evaluated for impairment by comparing their fair value to book value.
The
Company estimates the fair value of trademarks using an income approach to
value, and recognizes an impairment loss if the estimated fair value of a
trademark is less than its book value.
Additional
impairment assessments may be performed on an interim basis if the Company
encounters events or changes in circumstances indicating that it is more
likely
than not that the book value of goodwill and/or trademarks has been impaired.
The
process of evaluating the potential impairment of goodwill and/or trademarks
is
highly subjective and requires significant judgment at many points during
the
analysis. In estimating the fair value of the reporting units with recognized
goodwill for the purposes of its annual or interim analyses, the Company
makes
estimates and judgments about the future cash flows of these businesses.
The
cash flow forecasts are based on assumptions that are consistent with the
plans
and estimates used to manage the underlying reporting units. The Company
also
considers its market capitalization on the date the analysis is
performed.
ADVERTISING
COSTS
Advertising
costs are charged to expense as incurred. Advertising expenses for the fiscal
years 2008, 2007 and 2006
were
approximately $7.5 million, $6.6 million and $4.9 million,
respectively.
RESEARCH
AND DEVELOPMENT COSTS
Research
and development costs, primarily consisting of salaries, employee benefits
and
administrative costs, not capitalized as Capitalized Software Development
Costs
are charged to operations as incurred. Research and development costs for
the
fiscal years 30, 2008, 2007 and 2006 were approximately $40.1 million, $33.9
million and $27.1 million, respectively.
SHARE-BASED
COMPENSATION
The
Company accounts for its option awards granted under its stock option program
in
accordance with SFAS No. 123(R), “Share-Based Payment.” The estimated fair value
of option awards is measured as of the date of grant, and non-cash share-based
compensation expense adjusted for expected pre-vesting forfeitures are
recognized ratably over the requisite service (i.e. vesting) period of options
in the consolidated statement of operations. In addition, non-cash share-based
compensation expense adjusted for expected pre-vesting forfeitures is recognized
for the non-vested portion of awards that were granted before the effective
date
of SFAS 123(R) as those options become incrementally vested.
As
the
Company values stock options using the Black-Scholes option pricing model,
which
was developed for use in estimating the fair value of traded options that
are
fully transferable and have no vesting restrictions, the Company is required
to
input highly subjective assumptions about volatility rates, expected term
of
options, dividend yields and applicable interest rates in the option pricing
model. Expected volatility is based on historical stock prices. The expected
term of options granted is based on historical option activities, adjusted
for
the remaining option life cycle by assuming ratable exercise of any unexercised
vested options over the remaining term. The risk-free interest rate is based
on
the U.S. Treasury yield curve in effect at the time of grant. See Note 3,
“Share-Based Compensation” below for further detail.
WARRANTIES
The
Company’s products are under warranty for defects in material and workmanship
for a period ranging from 12 to 36 months. The Company establishes an accrual
for estimated warranty costs at the time of sale and historically, the Company’s
warranty expense has not been material.
INCOME
TAXES
Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the expected future tax consequences
attributable to the differences between the financial statement carrying
amounts
and the tax basis of assets and liabilities. Deferred tax assets and liabilities
are measured using the enacted tax rates in effect for the year in which
those
temporary differences are expected to be recovered or settled. The effect
on the
deferred tax assets and liabilities of a change in tax rate is recognized
in
the
results of operations in the period that includes the enactment date. Valuation
allowances are established when necessary to reduce deferred tax assets to
the
amounts more likely than not to be realized. If the Company determines that
it
will not be able to realize all or part of its net deferred tax asset in
the
future, an adjustment to the deferred tax asset would be charged to the deferred
income tax provision in the period such determination is made.
Effective
July 1, 2007, the Company adopted the provisions of FASB Interpretation No.
48,
“Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109” (“FIN 48”). FIN 48 clarifies the accounting for income taxes by
prescribing a minimum recognition threshold that a tax position is required
to
meet before being recognized in the financial statements. FIN 48 also
provides guidance on derecognition, measurement, classification, interest
and
penalties, accounting in interim periods, disclosure and transition.
See Note
14, “Income Taxes” below for further detail.
NET
INCOME PER SHARE
Basic
net
income per common share is computed by dividing net income available to common
shareholders by the weighted-average number of shares outstanding. Diluted
net
income per share includes the dilutive effect of stock options. A reconciliation
of the net income available to common shareholders and the weighted-average
number of common shares outstanding assuming dilution is as
follows:
|
|
Fiscal Year Ended June 30,
|
|
(in
thousands, except per share data)
|
|
2008
|
|
2007
|
|
2006
|
|
Net
income
|
|
$
|
101,284
|
|
$
|
79,988
|
|
$
|
63,528
|
|
Effect
of minority put arrangement
|
|
|
(645
|
)
|
|
(51
|
)
|
|
—
|
|
Net
income available to common shareholders
|
|
$
|
100,639
|
|
$
|
79,937
|
|
$
|
63,528
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding
|
|
|
81,546
|
|
|
79,978
|
|
|
77,383
|
|
Dilutive
effect of outstanding stock options
|
|
|
1,800
|
|
|
2,603
|
|
|
3,865
|
|
Average
common shares outstanding assuming dilution
|
|
|
83,346
|
|
|
82,581
|
|
|
81,248
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
1.23
|
|
$
|
1.00
|
|
$
|
0.82
|
|
Diluted
net income per share
|
|
$
|
1.21
|
|
$
|
0.97
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive
weighted shares excluded from reconciliation
|
|
|
1,239
|
|
|
2,528
|
|
|
1,092
|
|
Fiscal
years 2008, 2007 and 2006 include approximately $17.2 million ($13.1 million,
net of tax), $14.0 million ($11.1 million, net of tax) and $9.1 million ($7.1
million, net of tax), in non-cash share-based compensation expense,
respectively. These non-cash share-based compensation expenses reduced diluted
net income per share by $0.16, $0.14 and $0.09 for fiscal years 2008, 2007
and
2006, respectively. See Note 3, “Share-based Compensation” below for further
detail.
In
connection with one of the Company’s acquisitions during fiscal year 2007, the
minority shareholders of the acquired company had the option to require the
Company to purchase their shares in accordance with a pre-defined formula
based
on specified financial results of the acquired company. This arrangement
reduced
the net income available to common shareholders in the earnings per share
calculation by less than $0.01 per diluted share for fiscal years 2008 and
2007.
See Note 4, “Acquisitions” below for further detail.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
The
carrying amounts of the Company’s financial instruments reflected in the
consolidated balance sheets approximate their fair values.
DEFINED
BENEFIT PLAN
The
Company’s Supplemental Executive Retirement Plan (the “SERP Plan”) provides
designated officers and executives of the Company with benefits upon retirement
or immediate vesting of benefits upon a participant’s pre-retirement death. The
SERP Plan is accounted for in accordance with SFAS No. 87, “Employers Accounting
for Pensions.”
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements
87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires the Company to recognize
the funded status (the difference between the fair value of plan assets and
the
projected benefit obligations) of the SERP Plan in the Company’s statement of
financial position, with a corresponding adjustment to accumulated other
comprehensive income, net of tax, to measure the fair value of plan benefit
obligations as of its fiscal year ending June 30, 2007 and to provide additional
disclosures. The Company adopted the recognition and disclosure provisions
of
SFAS 158 on June 30, 2007, and included the effect of adoption in the
accompanying consolidated financial statements. This plan is described more
fully in Note 17, “Employee Benefit Plans.”
RECENT
ACCOUNTING STANDARDS
FSP
142-3
In
April
2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “Determination of
the Useful Life of Intangible Assets”, which amends the factors that should be
considered in developing renewal or extension assumptions used to determine
the
useful life of a recognized intangible asset under SFAS No. 142, “Goodwill
and Other Intangible Assets” (“SFAS 142”). The intent of this FSP is to improve
the consistency between the useful life of a recognized intangible asset
under
SFAS 142 and the period of expected cash flows used to measure the fair value
of
the asset under SFAS No. 141(R), “Business Combinations”, and other GAAP.
This FSP is effective for fiscal years beginning after December 15, 2008
(the Company’s fiscal year 2010), and interim periods within those fiscal years.
The Company is
currently reviewing the impact of the adoption of FSP FAS 142-3 on its
consolidated financial position, results of operations and cash
flows.
SFAS
161
In
March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133,” which requires additional disclosures about the objectives of the
derivative instruments and hedging activities, the method of accounting for
such
instruments under SFAS 133 and its related interpretations, and a tabular
disclosure of the effects of such instruments and related hedged items on
our
financial position, financial performance, and cash flows. SFAS 161 is effective
for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008 (the Company’s fiscal year 2010). Historically the
Company has not had material hedging transactions, thus the Company believes
the
impact of the adoption of SFAS 161 on its consolidated financial position,
results of operations and cash flows will not be material. The ultimate impact
of the adoption of SFAS 161 is undeterminable at this time as it will depend
on
the Company’s hedging transactions, if any, in effect at the time of the
adoption.
SFAS
141(R)
In
December 2007, the FASB issued SFAS
No. 141 (Revised), “Business Combinations” (“SFAS
141(R)”)
,
which
establishes
principles and requirements for how the acquirer of a business recognizes
and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquired business.
SFAS
141(R)
also provides guidance for recognizing and measuring the goodwill acquired
in
the business combination and disclosing information to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. SFAS 141(R) is effective for business combinations
for
which the acquisition dates are on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008 (the Company’s
fiscal year 2010). The Company is currently reviewing the impact of the adoption
of SFAS
141(R)
on the Company’s consolidated financial position, results of operations and cash
flows.
SFAS
160
In
December 2007, the FASB issued SFAS
No. 160,
“Noncontrolling Interests in Consolidated Financial Statements — an
Amendment of ARB 51”, (“SFAS
160”).
This statement amends Accounting Research Bulletin No. 51 to establish
accounting and reporting standards for the noncontrolling interest (minority
interest) in a subsidiary and for the deconsolidation of a subsidiary.
SFAS
160
establishes accounting and reporting standards that require noncontrolling
interests to be reported as a component of equity, changes in a parent’s
ownership interest while the parent retains its controlling interest be
accounted for as equity transactions, and any retained noncontrolling equity
investment upon the deconsolidation of a subsidiary initially be measured
at
fair value. SFAS
160 is
effective for business combinations for which the acquisition dates are on
or
after the beginning of the first annual reporting period beginning on or
after
December 15, 2008 (the Company’s fiscal year 2010). The Company is
currently reviewing the impact of the adoption of SFAS
160 on
the Company’s consolidated financial position, results of operations and cash
flows.
SFAS
No. 159
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”), which allows entities
to choose to measure eligible financial instruments at fair value as of
specified dates. The election, which may be applied on an instrument by
instrument basis, is typically irrevocable once elected. SFAS 159 is effective
for fiscal years beginning after November 15, 2007 (the Company’s fiscal year
2009). The Company does not believe the adoption of SFAS 159 will have a
material impact on the Company’s consolidated financial position, results of
operations and cash flows.
SFAS
No. 157
In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”
(“SFAS 157”) to establish a framework for measuring fair value under generally
accepted accounting principles and to expand disclosures on fair value
measurements. The statement applies to previously established valuation
pronouncements, but is to be applied prospectively, so that it does not require
the changing of any previous fair value measurements. Under SFAS 157, fair
value
is established by the price that would be received to sell the item or the
amount to be paid to transfer the liability or the asset (an exit price),
as
opposed to the price to be paid for the asset or received to assume the
liability (an entry price). SFAS 157 is effective for all assets valued in
financial statements for fiscal years beginning after November 15, 2007
(the Company’s fiscal year 2009). In February 2008, the FASB issued FASB Staff
Position FAS 157-2, “Effective Date of FASB Statement No. 157” which permits a
one-year deferral for the implementation of the provisions of SFAS 157 with
regard to non-financial assets and liabilities that are not carried at fair
value on a recurring basis in financial statements. SFAS 157 may cause some
valuation procedures used by the Company to change after its adoption. However,
the Company does not believe the adoption of the SFAS 157 will have a material
impact on the Company’s consolidated financial position, results of operations
and cash flows.
2.
|
INVESTMENTS,
NON-CURRENT AND SHORT-TERM
|
The
Company’s investments in auction rate securities are carried at estimated fair
value. Auction rate securities are long-term debt instruments with variable
interest rates that periodically reset to prevailing market rates every 7
to 35
days through the auction process (“auction rate securities”). The auction rate
securities held by the Company are supported by student loans for which
repayment is guaranteed either by the Federal Family Education Loan Program
or
insured by AMBAC Financial Group. Due to the liquidity previously provided
by
the interest rate reset mechanism and the short-term nature of the Company’s
investment, the auction rate securities previously were classified as short-term
investments available-for-sale in the accompanying consolidated balance sheets.
Beginning in February 2008, auctions for these securities failed to obtain
sufficient bids to establish a clearing rate and the securities were not
saleable in the auction, thereby no longer providing short-term liquidity.
As a
result, the auction rate securities have been classified as non-current
investments available-for-sale as of June 30, 2008 instead of being classified
as short-term investments, as was the case as of June 30, 2007.
In
the
absence of a liquid market or a negotiated sales transaction, the Company
engaged an independent valuation firm to provide a valuation for its auction
rate securities as of June 30, 2008. The valuation firm used a mark to model
approach to arrive at this valuation, which was reviewed and agreed to by
the
Company. The assumptions used in preparing the valuation analysis include
estimates for interest rates, timing and amount of cash flows, credit and
liquidity premiums, and expected holding periods of the auction rate securities.
These assumptions are subject to change as the underlying market conditions
change. The assumptions used represent the Company’s estimates based on
available data as of June 30, 2008.
The
valuation of the auction rate securities as of June 30, 2008 indicated a
fair
value of approximately $65.2 million for which the Company has recorded a
temporary unrealized impairment loss of approximately $4.2 million
(approximately $2.7 million, net of tax). The Company reviews impairments
in
accordance with Emerging Issues Task Force 03-1 and FSP FAS 115-1 and FAS
124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments” to determine the classification of the impairment as
temporary or other-than-temporary. A temporary impairment charge results
in an
unrealized loss being recorded in the other comprehensive income component
of
stockholders' equity. Such an unrealized loss does not reduce net income
for the
applicable accounting period because the loss is viewed as temporary. Unrealized
losses are recognized in the statement of operations when a decline in fair
value is determined to be other-than-temporary. Determination of whether
the
impairment is temporary or other-than-temporary requires significant judgment.
The primary factors that are considered in classifying the impairment include
the extent and time the fair value of each investment has been below cost,
the
expected holding or recovery period for each investment, and the Company’s
intent and ability to hold each investment until recovery.
The
Company has recorded a temporary unrealized loss of approximately $4.2 million
(approximately $2.7 million, net of tax) on these investments in the other
comprehensive income component of stockholders’ equity during the fiscal year
2008. As of June 30, 2007, there were no unrealized gains or losses on these
investments. The Company recognized no gains or losses related to the sale
of
its investments in auction rate securities during the three fiscal years
ended
June 30, 2008. The Company reviews its investments on an ongoing basis for
indications of possible impairment and proper classification of any impairment
once identified and will continue to monitor the liquidity and creditworthiness
of its auction rate securities holdings.
3.
|
SHARE-BASED
COMPENSATION:
|
The
Company has granted incentive and non-qualified stock options to directors,
officers, and other employees pursuant to authorization by the Board of
Directors. With respect to directors, the Company’s policy and practice during
fiscal year 2008 was that only those directors who are also either employees
of
or consultants to the Company were eligible to receive options. The exercise
price per share of each option equals the market value of a share of the
Company’s common stock on the date of the grant. Substantially all of the
options granted are exercisable pursuant to a three-year vesting schedule
whereby one-third of the options vest upon the first anniversary of the grant,
the second third of the options vest upon the second anniversary of the grant,
and the final third of the options vest upon the third anniversary of the
grant.
All outstanding options expire ten years from the date of grant. Since its
inception in 1991, the Company has authorized approximately 34.0 million
shares
for issuance upon exercise of options, of which approximately 3.1 million
shares
were available for future grants as of June 30, 2008. Options to purchase
approximately 6.2 million shares were outstanding as of June 30, 2008, including
currently exercisable options to purchase approximately 3.7 million
shares.
The
non-cash share-based compensation expenses included in the consolidated
statements of operations are as follows:
|
|
Fiscal Year Ended June 30,
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Cost
of sales
|
|
$
|
—
|
|
$
|
—
|
|
$
|
35
|
|
Selling,
general and administrative
|
|
|
16,213
|
|
|
13,243
|
|
|
8,851
|
|
Research
and development
|
|
|
1,016
|
|
|
753
|
|
|
249
|
|
Total
non-cash share-based compensation expense
|
|
|
17,229
|
|
|
13,996
|
|
|
9,135
|
|
Income
tax benefit
|
|
|
(4,083
|
)
|
|
(2,884
|
)
|
|
(2,026
|
)
|
Total
non-cash share-based compensation expense, net of tax
benefit
|
|
$
|
13,146
|
|
$
|
11,112
|
|
$
|
7,109
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
on diluted net income per share
|
|
$
|
0.16
|
|
$
|
0.14
|
|
$
|
0.09
|
|
The
non-cash share-based compensation expense for the fiscal year 2008 includes
approximately $3.2 million related to a grant of options to the Company’s
Chairman, President, and Chief Executive Officer, A.L. Giannopoulos during
fiscal year 2008. In accordance with the terms of the Company’s option plan, any
options that he holds that have not yet vested will vest immediately upon
his
retirement, as he is over the retirement age of 62. Although Mr. Giannopoulos
has not retired, the Company expensed 100% of the share-based compensation
expense related to his option grant because he was over the age of 62 at
the
time he received the options. The non-cash share-based compensation expense
for
the fiscal year 2007 also included a one-time charge of approximately $0.7
million resulting from the accelerated vesting of unvested options due to
the
death of an officer of the Company. Under the Company’s stock option plan,
options vest immediately upon death of an option holder.
No
non-cash share-based compensation expense has been capitalized for fiscal
years
2008 and 2007, as stock options were not granted to employees whose labor
was
capitalized as software development costs or inventory. For fiscal year 2006,
less than $0.1 million in non-cash share-based compensation expense had been
capitalized as a result of stock options granted to employees whose labor
was
capitalized as software development costs.
The
estimated fair values of options granted during the three fiscal years ended
June 30, 2008 were estimated on the date of grant using the following
assumptions:
|
|
Fiscal Year Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Weighted-average
expected volatility
|
|
|
35
|
%
|
|
37
|
%
|
|
41
|
%
|
Expected
volatility
|
|
|
33% - 36
|
%
|
|
36% - 38
|
%
|
|
33% - 46
|
%
|
Expected
term
|
|
|
4.8 – 5.3 years
|
|
|
4.6 – 5.7 years
|
|
|
4.0 – 5.7 years
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Risk-free
interest rate
|
|
|
2.6% - 3.7
|
%
|
|
4.5% - 4.9
|
%
|
|
3.9% - 5.0
|
%
|
The
following is a summary of option activity:
(in thousands, except per share data and number of years)
|
|
Number
of
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
(in
years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at June 30, 2007
|
|
|
7,120
|
|
$
|
17.17
|
|
|
6.7
|
|
$
|
71,432
|
|
Granted
|
|
|
1,491
|
|
$
|
34.73
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,132
|
)
|
$
|
13.07
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(232
|
)
|
$
|
25.14
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2008
|
|
|
6,247
|
|
$
|
22.46
|
|
|
7.2
|
|
$
|
50,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at June 30, 2007
|
|
|
4,236
|
|
$
|
12.78
|
|
|
5.4
|
|
$
|
61,075
|
|
Exercisable
at June 30, 2008
|
|
|
3,655
|
|
$
|
17.41
|
|
|
6.1
|
|
$
|
47,802
|
|
The
weighted-average grant-date estimated fair value per share of options granted
during the fiscal years 2008, 2007 and 2006 were $12.87, $21.66 and $20.02,
respectively. The total intrinsic value, the difference between the exercise
price and the market price on the date of exercise, of options exercised
during
the fiscal years 2008, 2007 and 2006 were approximately $38.9 million, $62.2
million and $37.5 million, respectively.
As
of
June 30, 2008, there was approximately $19.7 million (net of estimated
forfeiture) in non-cash share-based compensation costs related to non-vested
awards, expected to be recognized in the Company’s consolidated statements of
operations. This cost is expected to be recognized over a weighted-average
period of 1.85 years.
Cash
received from options exercised during the fiscal years 2008, 2007 and 2006
were
approximately $27.9 million, $35.0 million and $18.5 million,
respectively.
FY
2008:
CHECK-IN-DATA
AG
During
the first quarter of fiscal year 2008, the Company acquired Check-in Data
AG
(“Check in Data”) for an aggregate cash purchase price of approximately $13.5
million, net of $3.6 million in cash acquired, in a step acquisition in which
the Company acquired an 80% interest in July 2007 and the remaining 20% interest
in September 2007. Approximately $2.0 million of the total purchase price
was
held back to satisfy certain claims the Company may have against Check in
Data.
Any amounts remaining after satisfaction of any claims will be paid in two
installments, at 12 months and 18 months after the July 2007 closing. Subsequent
to June 30, 2008, the first installment, net of working capital adjustment,
of
approximately $0.8 million was paid in July 2008. Headquartered in Switzerland,
Check in Data was a distributor of MICROS products and services and also
provided complementary products and services. Goodwill of approximately $11.9
million and intangible assets and capitalized software of approximately $3.3
million were recorded in connection with the acquisition. The purchase price
allocation is not finalized and is subject to the final working capital
adjustments, which are currently not expected to be material. The acquisition
of
Check in Data has been included in the results of the Company since the
acquisition date.
OTHER:
During
fiscal year 2008, the Company also acquired another distributor of MICROS
products and services. The aggregate cash purchase price for this acquisition
was approximately $4.3 million, net of cash acquired, which excluded certain
amounts that were held back to be released on either an agreed upon date
or upon
the resolution of contractual indemnity obligations of the sellers.
The
pro
forma effect of these acquisitions was not material to the consolidated
financial position and results of operations presented herein.
FY
2007:
REDSKY
On
January 29, 2007, the Company acquired the RedSky IT Hospitality, Travel,
and
Retail subsidiaries (together “RedSky”) of RedSky IT for a total cash purchase
price of approximately $30.8 million, net of cash acquired. A portion of
the
purchase price previously held in escrow to provide payment if the Company
made
and prevailed with respect to certain claims against RedSky IT have been
released to the former shareholders of RedSky IT. Headquartered in the United
Kingdom, the acquired companies provide hotel property management software
solutions targeted toward the limited-service, independent and economy hotel
markets, and software solutions for the grocery and travel industry. Goodwill
of
approximately $33.2 million, intangible assets of approximately $5.2 million
and
capitalized software costs of approximately $2.7 million were recorded in
connection with the acquisition.
OTHERS:
During
fiscal year 2007, the Company also acquired various distributors of MICROS
products and services and other companies with complementary products and
services. The aggregate cash purchase price for these acquisitions was
approximately $12.6 million, net of $3.2 million in cash acquired, which
excluded certain amounts that were held back to be released on either an
agreed
upon date or, if applicable, upon the resolution of contractual indemnity
obligations of the sellers, all of which have been released to the
sellers.
Additionally,
in connection with one of the acquisitions, the minority interest holders
were
provided a Put Option based on a formula related to certain financial results
of
the acquired company. The Company had accounted for this arrangement under
Emerging Issues Task Force (“EITF”) Abstract Topic No. D-98 (“D-98”), as
redemption is outside of the control of the Company. Under EITF D-98, the
carrying value of minority interest reflected on the accompanying consolidated
balance sheets (“Initial Minority Interest”) was increased by an amount equal to
the excess of the value of the Put Option over the Initial Minority Interest,
with an offset to retained earnings and a similar reduction to the net income
available to common shareholders in the earnings per share calculation. As
permitted in EITF D-98, the Company adopted an accretion method which allowed
the Company to accrete the Put Option value over the period from the date
of
acquisition to the Put Option’s earliest possible redemption date. As a result,
as of June 30, 2008 and 2007, the Company reflected only a pro-rata portion
of
the Put Option’s value and increase in the Initial Minority Interest, with
corresponding reductions to retained earnings and made similar reductions
to the
net income available to common shareholders in the earnings per share
calculation. This arrangement negatively impacted diluted earnings per share
by
less than $0.01 for fiscal years 2008 and 2007. The Put Option value is revalued
on a quarterly basis based on most recent financial results of the acquired
company and the Put Option value accretion adjusted accordingly, with the
floor
in all cases being the Initial Minority Interest.
During
fiscal year
2007,
the aggregate total assets acquired in all of the acquisitions as discussed
above, included total goodwill of approximately $47.0 million, total intangible
assets of approximately $7.6 million and total capitalized software costs
of
approximately $2.9 million. The pro forma effect of these acquisitions was
not
material to the consolidated financial position and results of operations
presented herein.
FY
2006:
COMMERCIALWARE,
INC.
On
February 1, 2006, the Company acquired CommercialWare, Inc. (“CommercialWare”),
a privately held provider of cross-channel retail solutions, by acquiring
all of
the issued and outstanding stock of CommercialWare. The acquisition, for
a total
cash purchase of approximately $14.2 million, net of cash acquired, did not
include a subsidiary of CommercialWare, which developed and supported a limited
version of certain CommercialWare products targeted toward particular retail
sectors. During fiscal year 2008, all of the portion of the purchase price
remaining in escrow was released to the former shareholders of CommercialWare,
with approximately $0.3 million remaining in escrow pending resolution of
outstanding issues. Headquartered in Westborough, Massachusetts, CommercialWare
is operating as a subsidiary of Datavantage Corporation (“Datavantage”), a
wholly-owned subsidiary of the Company.
In
aggregate, goodwill of
approximately
$8.3 million and intangible assets of approximately $2.8 million were recorded
in connection with the acquisition. The pro forma effect of this acquisition
was
not material to the consolidated financial position and results of operations
presented herein.
During
fiscal years 2008 and 2007, the Company adjusted its realization of operating
loss carryforwards related to CommercialWare acquisition which resulted in
adjustments in non-current deferred tax assets and goodwill associated with
the
acquisitions.
The
components of inventory at June 30 are as follows:
(in
thousands)
|
|
2008
|
|
2007
|
|
Raw
materials
|
|
$
|
5,521
|
|
$
|
5,687
|
|
Work-in-process
|
|
|
21
|
|
|
38
|
|
Finished
goods
|
|
|
59,033
|
|
|
42,065
|
|
|
|
$
|
64,575
|
|
$
|
47,790
|
|
The
Company maintains a reserve for obsolescence for inventory in the amount
of
approximately $11.5 million as of June 30, 2008 and approximately $9.9 million
as of June 30, 2007. The Company reserved approximately $2.8 million, $3.2
million and $3.5 million during the three fiscal years 2008, 2007 and 2006,
respectively, all related to potentially obsolete and slow moving products.
The
foreign currency translation adjustment on inventory balance was approximately
$3.2 million as of June 30, 2008.
6.
|
PROPERTY,
PLANT AND EQUIPMENT:
|
The
components of property, plant and equipment at June 30 are as
follows:
(in
thousands)
|
|
2008
|
|
2007
|
|
Useful Life
|
|
Leasehold
improvements
|
|
$
|
10,435
|
|
$
|
8,953
|
|
|
Shorter of useful life or lease term
|
|
Machinery and equipment
|
|
|
11,942
|
|
|
11,505
|
|
|
5-10
years
|
|
Furniture
and fixtures
|
|
|
18,181
|
|
|
18,657
|
|
|
7-10
years
|
|
Computer
hardware and software
|
|
|
67,112
|
|
|
65,192
|
|
|
3-7
years
|
|
Total
property, plant and equipment
|
|
|
107,670
|
|
|
104,307
|
|
|
|
|
Accumulated
depreciation and amortization
|
|
|
(78,505
|
)
|
|
(76,352
|
)
|
|
|
|
Net
property, plant and equipment
|
|
$
|
29,165
|
|
$
|
27,955
|
|
Depreciation
expense for the fiscal years 2008, 2007 and 2006 was approximately $12.6
million, $10.9 million and $9.4 million, respectively.
7.
|
ACCUMULATED
OTHER COMPREHENSIVE
INCOME:
|
The
components of comprehensive income, net of tax, for the fiscal years ended
June
30, were as follows:
(in
thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Net
income
|
|
$
|
101,284
|
|
$
|
79,988
|
|
$
|
63,528
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
38,186
|
|
|
11,623
|
|
|
7,679
|
|
Unrealized
loss on non-current investments
|
|
|
(2,651
|
)
|
|
—
|
|
|
—
|
|
Amortization
of prior year pension costs
|
|
|
648
|
|
|
—
|
|
|
—
|
|
Total
comprehensive income
|
|
$
|
137,467
|
|
$
|
91,611
|
|
$
|
71,207
|
|
Net
income for fiscal years 2008, 2007 and 2006 includes approximately $17.2
million
($13.1 million, net of tax or $0.16 per diluted share), $14.0 million ($11.1
million, net of tax or $0.14 per diluted share) and $9.1 million ($7.1 million,
net of tax or $0.09 per diluted share), respectively in non-cash share-based
compensation expense. See Note 3, “Share-based Compensation.” See Note 2,
“Investments, short-term and non-current” for further detail on unrealized loss
on non-current investments.
The
Company has two credit agreements (the “Credit Agreements”) that in the
aggregate, provide a $65.0 million multi-currency committed line of credit
which
expires on July 31, 2009. The lenders under the Credit Agreements are Bank
of America, N.A., Wachovia Bank, N.A., and US Bank (“Lenders”). The
international facility is secured by 65% of the capital stock of the Company’s
main operating Ireland subsidiary and 100% of all of the capital stock of
all of
the remaining major foreign subsidiaries. The U.S. facility is secured
by 100% of the capital stock of our major U.S. subsidiaries as
well as certain inventory and receivables located in the U.S.
For
borrowings in U.S. currency, the interest rate under the Credit Agreements
is
equal to the higher of the federal funds rate plus 50 basis points or the
prime
rate. For borrowings in foreign currencies, the interest rate is determined
by a
LIBOR-based formula, plus an additional margin of 125 to 200 basis points,
depending upon the Company’s consolidated earnings before interest, taxes,
depreciation and amortization (“EBITDA”) for the immediately preceding four
calendar quarters. Under the terms of the Credit Agreements, the Company
is
required to pay to the Lenders insignificant commitment fees on the unused
portion of the line of credit. The Credit Agreements also contain certain
financial covenants and restrictions on the Company’s ability to assume
additional debt, repurchase stock, sell subsidiaries or acquire companies.
In
case of an event of default, as defined in the Credit Agreements including
those
not cured within the specified cure period, if applicable, the Lenders’ remedies
include their ability to declare all outstanding loans, plus interest and
other
related amounts owed, to be immediately due and payable in full, and to pursue
all rights and remedies available to them under the Credit Agreements or
under
applicable law.
As
of
June 30, 2008, the Company had approximately $1.0 million outstanding under
the
Credit Agreements and had approximately $64.0 million available for future
borrowings. The total outstanding balance consisted of 105.0 million JPY
(Japanese Yen), or approximately $1.0 million at the June 30, 2008 exchange
rate.
The
Company also has a credit relationship with a European bank in the amount
of EUR
1.0 million (approximately $1.6 million at the June 30, 2008 exchange rate).
Under the terms of this facility, the Company may borrow in the form of either
a
line of credit or term debt. As of June 30, 2008, there were no balances
outstanding on this credit facility, but approximately EUR 0.1 million
(approximately $0.2 million at the June 30, 2008 exchange rate) of the credit
facility has been used for guarantees.
As
of
June 30, 2008, the Company had approximately $65.4 million borrowing capacity
under all of the credit facilities described above. The weighted-average
interest rate on the outstanding balances under the Credit Agreements as
of June
30, 2008 was 2.2%.
9.
|
ACCRUED
EXPENSES AND OTHER CURRENT
LIABILITIES:
|
The
components of accrued expenses and other current liabilities at June 30 are
as
follows:
(in
thousands)
|
|
2008
|
|
2007
|
|
Compensation,
benefits and related taxes
|
|
$
|
48,299
|
|
$
|
43,307
|
|
Deposits
received from customers
|
|
|
36,977
|
|
|
35,422
|
|
VAT
and sales taxes
|
|
|
9,970
|
|
|
10,644
|
|
Professional
services
|
|
|
7,068
|
|
|
4,453
|
|
Product
related
|
|
|
4,276
|
|
|
7,487
|
|
Other
|
|
|
18,323
|
|
|
15,829
|
|
|
|
$
|
124,913
|
|
$
|
117,142
|
|
Goodwill
allocated to the Company’s reportable segments as of June 30, 2008 and 2007 and
changes in the carrying amount of goodwill are as follows:
(in
thousands)
|
|
United States
|
|
International
|
|
Total
|
|
Balance
at June 30, 2006
|
|
$
|
87,223
|
|
$
|
11,358
|
|
$
|
98,581
|
|
Goodwill
adjustment for prior years’ acquisitions
|
|
|
(3,788
|
)
|
|
(2,732
|
)
|
|
(6,520
|
)
|
Goodwill
acquired:
|
|
|
|
|
|
|
|
|
|
|
RedSky
|
|
|
3,371
|
|
|
28,592
|
|
|
31,963
|
|
Other
acquisitions
|
|
|
3,460
|
|
|
10,345
|
|
|
13,805
|
|
Foreign
currency translation
|
|
|
—
|
|
|
503
|
|
|
503
|
|
Balance
at June 30, 2007
|
|
|
90,266
|
|
|
48,066
|
|
|
138,332
|
|
Goodwill
adjustment for prior years’ acquisitions
|
|
|
1,587
|
|
|
369
|
|
|
1,956
|
|
Goodwill
acquired:
|
|
|
|
|
|
|
|
|
|
|
Check
in Data
|
|
|
—
|
|
|
11,932
|
|
|
11,932
|
|
Other
acquisition
|
|
|
4,035
|
|
|
—
|
|
|
4,035
|
|
Foreign
currency translation
|
|
|
—
|
|
|
3,467
|
|
|
3,467
|
|
Balance
at June 30, 2008
|
|
$
|
95,888
|
|
$
|
63,834
|
|
$
|
159,722
|
|
During
fiscal years 2008 and 2007, the Company adjusted its goodwill with an offsetting
adjustment to its net deferred tax assets related to its prior year
acquisitions, primarily due to adjustments to purchase accounting and operating
loss carryforwards.
Based
on
the results of its annual impairment tests, the Company determined that no
impairment of goodwill existed at June 30, 2008, 2007 and 2006.
Purchased
intangible assets are amortized over the estimated useful lives of the
respective asset category unless such lives are deemed indefinite. The Company
has identified trademarks as an indefinite-lived purchased intangible asset.
Intangible assets were comprised of the following:
(in
thousands except number of years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
Useful
Life
(in years)
|
|
|
|
|
|
|
|
|
|
|
|
At
June 30, 2008:
|
|
|
|
|
|
|
|
|
|
Customer
lists
|
|
$
|
21,264
|
|
$
|
(6,742
|
)
|
$
|
14,522
|
|
|
3 –
10
|
|
Non-compete
agreement
|
|
|
10
|
|
|
(4
|
)
|
|
6
|
|
|
4
|
|
Product
lines
|
|
|
326
|
|
|
(284
|
)
|
|
42
|
|
|
4
– 5
|
|
Service
revenue backlog
|
|
|
994
|
|
|
(371
|
)
|
|
623
|
|
|
3
– 5
|
|
Finite-lived
purchased intangible assets
|
|
|
22,594
|
|
|
(7,401
|
)
|
|
15,193
|
|
|
|
|
Trademarks
|
|
|
975
|
|
|
—
|
|
|
975
|
|
|
|
|
Total
|
|
$
|
23,569
|
|
$
|
(7,401
|
)
|
$
|
16,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
lists
|
|
$
|
16,953
|
|
$
|
(4,380
|
)
|
$
|
12,573
|
|
|
3
– 10
|
|
Non-compete
agreement
|
|
|
10
|
|
|
(2
|
)
|
|
8
|
|
|
4
|
|
Product
lines
|
|
|
326
|
|
|
(236
|
)
|
|
90
|
|
|
4
– 5
|
|
Service
revenue backlog
|
|
|
1,002
|
|
|
(108
|
)
|
|
894
|
|
|
4
– 5
|
|
Finite-lived
purchased intangible assets
|
|
|
18,291
|
|
|
(4,726
|
)
|
|
13,565
|
|
|
|
|
Trademarks
|
|
|
944
|
|
|
—
|
|
|
944
|
|
|
|
|
Total
|
|
$
|
19,235
|
|
$
|
(4,726
|
)
|
$
|
14,509
|
|
|
|
|
Trademarks
are deemed to have indefinite lives and therefore are not amortized.
Amortization expense related to finite-lived purchased intangible assets
was
approximately $2.5 million, $1.9 million and $1.1 million in the fiscal years
2008, 2007 and 2006, respectively. Based on the results of its annual impairment
tests, the Company determined that no impairment of trademarks existed as
of
June 30, 2008, 2007 and 2006. Additionally, during the three fiscal years
ended
June 30, 2008, the Company did not encounter any events or circumstances
indicating that the carrying amounts of its finite-lived purchased intangible
assets may not be fully recoverable and thus may have been impaired.
Accordingly, the Company did not recognize any impairment losses during the
three fiscal years ended June 30, 2008.
Estimated
amortization expense in future fiscal years ending June 30 is as follows
(in
thousands):
2009
|
|
$
|
2,463
|
|
2010
|
|
|
2,286
|
|
2011
|
|
|
2,164
|
|
2012
|
|
|
1,995
|
|
2013
|
|
|
1,848
|
|
Later
years
|
|
|
4,437
|
|
Total
|
|
$
|
15,193
|
|
12.
|
COMMITMENTS
AND CONTINGENCIES:
|
LEASES
The
Company and its subsidiaries lease office space under operating leases expiring
at various dates through 2016 and leases equipment under both operating and
capital leases. The capital leases are primarily international automobile
leases
used by sales and installation personnel. Rent expense under the operating
leases for each of the last three fiscal years ending June 30 was as
follows:
(in
thousands)
|
|
Rent
Expense
|
|
Sublease
Income
|
|
Net Rent
Expense
|
|
2008
|
|
$
|
27,405
|
|
$
|
(931
|
)
|
$
|
26,474
|
|
2007
|
|
|
23,442
|
|
|
(934
|
)
|
|
22,508
|
|
2006
|
|
|
19,189
|
|
|
(998
|
)
|
|
18,191
|
|
As
of
June 30, 2008, future minimum lease payments for those leases having an initial
or remaining non-cancelable lease term in excess of one year are as
follows:
(in
thousands)
|
|
Operating
Leases
|
|
Less
Sublease
Rentals
|
|
Net
Operating
Leases
|
|
Capital
Leases
|
|
Fiscal
year ending June 30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
27,242
|
|
$
|
(1,129
|
)
|
$
|
26,113
|
|
$
|
403
|
|
2010
|
|
|
22,132
|
|
|
(872
|
)
|
|
21,260
|
|
|
158
|
|
2011
|
|
|
14,305
|
|
|
(72
|
)
|
|
14,233
|
|
|
134
|
|
2012
|
|
|
11,419
|
|
|
(18
|
)
|
|
11,401
|
|
|
12
|
|
2013
|
|
|
10,007
|
|
|
—
|
|
|
10,008
|
|
|
6
|
|
2014
and thereafter
|
|
|
22,429
|
|
|
—
|
|
|
22,429
|
|
|
—
|
|
|
|
$
|
107,534
|
|
$
|
(2,091
|
)
|
$
|
105,444
|
|
|
713
|
|
Less:
current portion
|
|
|
|
|
|
|
|
|
|
|
|
403
|
|
Long-term
obligations under capital lease
|
|
|
|
|
|
|
|
|
|
|
$
|
310
|
|
The
Company leases its worldwide corporate headquarters located in Columbia,
Maryland, consisting of 247,624 square feet, pursuant to a lease that expires
February 29, 2016. The Company subleases one of the five floors, consisting
of
49,524 square feet, to Motorola, Inc., under a sublease that expires March
1,
2010 (which Motorola may terminate after October 31, 2008.)
The
Company leases its corporate central warehouse, distribution center in Hanover,
Maryland, consisting of 75,600 square feet, pursuant to a lease that expires
July 31, 2009.
The
Company’s Datavantage subsidiary leases approximately 69,200 square feet of
office and warehouse space in the Cleveland, Ohio area, from which it conducts
the majority of its sales, marketing, customer support, and product development
activities, and an additional approximately 27,234 square feet of office
space
in the Boston, Massachusetts area, primarily for customer support and research
and development activities. The Cleveland lease expires February 28, 2014,
(with
a termination right available to the Company in 2010) and the Boston lease
expires November 30, 2013.
LEGAL
PROCEEDINGS
The
Company is and has been involved in legal proceedings arising in the normal
course of business.
There
is
a case pending in the U.S. District Court for the Northern District of Georgia,
styled
Ware
v. Abercrombie & Fitch Stores, Inc. et al.
;
although the Company is not a party to that case, the Company may have some
obligation to indemnify certain of the defendants who are our customers,
based
on the terms of our contracts with those customers. The plaintiff has alleged
that the defendants are infringing a patent relating to the processing of
credit
card transactions. The defendants include approximately 107 individual
retailers, 13 of whom are our customers for retail point-of-sale software.
The
Company is currently providing indemnity coverage to five of the defendants
who
are our customers in accordance with applicable provisions of the contracts
between us and those customers. The indemnity coverage estimated as of June
30,
2008 is immaterial. Through June 30, 2008, the Company’s legal fees with respect
to indemnity coverage for this matter have not been material. Currently,
the
case is subject to a court-ordered stay pending the completion of the United
States Patent and Trademark Office’s reexamination of the patent that is the
subject of the lawsuit. Should the case proceed, the Company will vigorously
defend the action and assert all available defenses and arguments. In any
event, based on currently available information, we do not believe that our
products infringe the patent.
Heartland
Payment Systems, Inc., has filed an action in the U.S. District Court for
the
District of New Jersey naming as defendants MICROS Systems, Inc., Merchant
Link
LLC, and Chase Paymentech Solutions, LLC. In its complaint, Heartland claims
that MICROS, Merchant Link, and Paymentech have engaged in an anti-competitive
arrangement relating to credit and debit card payment processing for restaurant
point-of-sale systems, and further claims that this arrangement violates
federal
antitrust law and applicable New Jersey state laws. Heartland claims it has
been
damaged by virtue of being required to deal with Merchant Link if it wishes
to
provide services to users of MICROS POS software, by being required to pay
fees
to Merchant Link that it claims are inappropriate or excessive, and by being
competitively disadvantaged relative to Chase Paymentech’s services. Heartland
seeks monetary damages in excess of $12 million, and also injunctive and
other
equitable relief. In February 2008, the Company moved to dismiss the complaint
on various grounds, but the court has not yet ruled on the motion. Because
the
motion is still pending, the Company’s answer to the complaint is not yet due;
however, the Company disputes the substantive allegations in the complaint.
Based on currently available information, the Company does not believe that
its
relationships and agreements with Merchant Link and Paymentech are
anti-competitive or otherwise violate either federal antitrust law or applicable
New Jersey law. If the court does not grant the Company’s motion to dismiss the
complaint, the Company will vigorously contest the action.
On
May
22, 2008, a jury returned a verdict of $7.5 million against the Company in
the
consolidated actions of
Roth
Cash Register v. MICROS Systems, Inc., et al.
and
Shenango
Systems Solutions v. MICROS Systems, Inc., et al
.
The
cases initially were filed in 2000 in the Court of Common Pleas of Allegheny
County, Pennsylvania. The complaints both related to the non-renewal of
dealership agreements in the year 2000 between the Company and the respective
plaintiffs. The agreements were non-renewed as part of a restructuring of
the
dealer channel. The plaintiffs alleged that the Company and certain of our
subsidiaries and employees entered into a plan to eliminate the plaintiffs
as
authorized dealers and improperly interfere with the plaintiffs' relationships
with their respective existing and potential future clients and customers
without compensation to the plaintiffs. As a result, the plaintiffs claimed
that
the Company was liable for, among other things, breach of contract and tortious
interference with existing and prospective contractual relationships. The
Company has moved for reconsideration of the verdict by the trial court,
and, if
unsuccessful in that regard, the Company intends to pursue a appeal, as the
Company believes the instructions to the jury, certain rulings made by the
trial
court, and the jury verdict were erroneous on multiple legal grounds. There
are
no other litigation matters relating to the restructuring of the dealer channel
in the year 2000. The Company has established only an immaterial reserve
for any
potential liability relating to the dealer litigation, as the Company believes
that it has raised and can present strong points through post-trial motions
and,
if necessary, appeal, and therefore that an unfavorable outcome in the case
is
not probable. However, even if the verdict were not reversed or reduced as
a
result of the post-trial motions or any subsequent appeals, payment of the
resulting obligation would not have a material adverse effect on the Company’s
financial position or liquidity.
Subject
to the foregoing, the Company is of the opinion, based upon presently available
information and the advice of counsel concerning pertinent legal matters,
that
any resulting liability should not have a material adverse effect on the
Company’s results of operations, financial position or cash flows.
13.
|
SHAREHOLDERS’
EQUITY:
|
In
fiscal
year 2002, the Board of Directors authorized the purchase of up to four million
shares of the Company’s common stock, and during fiscal year 2005 the Company
purchased all of the remaining unpurchased shares under the fiscal year 2002
authorization. In fiscal year 2005, the Board of Directors authorized the
purchase of an additional four million shares of the Company’s common stock. As
of October 2007, the Company purchased all of the remaining unpurchased shares
under the fiscal year 2005 authorization. In November 2007, the Board of
Directors authorized the purchase of an additional two million shares of
the
Company’s common stock. The Company has incurred an aggregate of approximately
$0.2 million in fees related to all three of the stock purchase plans. As
of
June 30, 2008, approximately 0.1 million additional shares may be repurchased
under the November 2007 authorization.
The
following table summarizes the cumulative number of shares purchased under
the
repurchase authorizations. All repurchased shares have been
retired:
|
|
Number of
Shares
|
|
Average
Purchase Price
per Share
|
|
Total Purchase
Value
(in thousands)
|
|
|
|
|
|
|
|
|
|
Total
shares purchased as of June 30, 2005
|
|
|
4,993,324
|
|
$
|
10.65
|
|
$
|
53,180
|
|
Shares
purchased during fiscal year 2006
|
|
|
1,842,674
|
|
$
|
21.83
|
|
|
40,234
|
|
Total
shares purchased as of June 30, 2006
|
|
|
6,835,998
|
|
$
|
13.67
|
|
|
93,414
|
|
Shares
purchased during fiscal year 2007
|
|
|
697,200
|
|
$
|
25.63
|
|
|
17,870
|
|
Total
shares purchased as of June 30, 2007
|
|
|
7,533,198
|
|
$
|
14.77
|
|
|
111,284
|
|
Shares
purchased during fiscal year 2008
|
|
|
2,329,302
|
|
$
|
31.90
|
|
|
74,303
|
|
Total
shares purchased as of June 30, 2008
|
|
|
9,862,500
|
|
$
|
18.82
|
|
$
|
185,587
|
|
Effective
July 1, 2007, the Company adopted the provisions of FIN 48, “Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109.” FIN
48 clarifies the accounting for income taxes by prescribing a minimum
recognition threshold that a tax position is required to meet before being
recognized in the financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition. The cumulative effect of adopting
FIN 48 of approximately $2.6 million, including interest and penalties of
approximately $0.3 million, was recorded as a reduction to retained earnings
and
an increase in net income taxes payable.
As
a
result of the adoption of FIN 48, the Company’s net unrecognized income tax
benefits were approximately $17.4 million and $10.9 million, including interest
and penalties of approximately $2.3 million and $1.6 million, at June 30,
2008
and July 1, 2007, respectively. The Company has recognized approximately
$0.7
million of interest expense for the fiscal year 2008. The non-current components
of the unrecognized income tax benefits were recorded as non-current to the
extent that the Company does not anticipate making a payment within 12 months
of
the balance sheet date. If recognized, all of the unrecognized income tax
benefit would be recognized as a reduction of income tax expense, impacting
the
effective income tax rate.
The
following summarizes the significant components of the Company’s gross
unrecognized tax benefits:
(in
thousands)
|
|
Total Gross
Unrecognized Tax
Benefits
|
|
Balance,
June 30, 2007
|
|
$
|
7,112
|
|
Transition
adjustments
|
|
|
3,674
|
|
Balance,
July 1, 2007
|
|
|
10,786
|
|
Current
year uncertain tax positions:
|
|
|
|
|
Gross
increases
|
|
|
4,182
|
|
Gross
decreases
|
|
|
—
|
|
Prior
year uncertain tax positions:
|
|
|
|
|
Gross
increases
|
|
|
2,277
|
|
Gross
decreases
|
|
|
(55
|
)
|
Expiration
of statute of limitations
|
|
|
—
|
|
Settlements
with tax authorities
|
|
|
—
|
|
Balance,
June 30, 2008
|
|
$
|
17,190
|
|
The
Company historically classified interest and penalties related to unrecognized
income tax benefits as a component of income tax expense. The Company is
maintaining this practice following its adoption of FIN 48.
The
Company has reviewed its uncertain income tax positions in accordance with
FIN
48, and currently is not able to reasonably estimate material changes in
the
unrecognized income tax benefits and the impact it would have on its
consolidated financial position, results of operations and cash flows in
the
next twelve months. In addition, the Company reclassified certain tax
liabilities, including penalties and interest for unrecognized tax benefits
from
current liabilities to long-term liabilities. The Company’s unrecognized tax
benefits related to U.S. and various foreign jurisdictions.
In
the
ordinary course of the Company’s business, transactions occur for which the
ultimate tax outcome may be uncertain. In addition, tax authorities periodically
audit the Company’s income tax returns. These audits include examination of the
Company’s significant tax filing positions, including the timing and amounts of
deductions and the allocation of income and expenses among tax jurisdictions.
The Company is currently under audits in certain of its major taxing
jurisdictions, with open tax years beginning in fiscal year 1999. Currently,
the
Company is not able to reasonably estimate the completion date of these ongoing
audits. The Company’s major taxing jurisdictions include Australia, Ireland,
Germany, Singapore, the United Kingdom and the United States.
Income
before taxes for the fiscal years ended June 30 was taxed under the following
jurisdictions:
(in
thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
United
States
|
|
$
|
66,915
|
|
$
|
52,977
|
|
$
|
36,202
|
|
International
|
|
|
87,424
|
|
|
68,677
|
|
|
59,463
|
|
|
|
$
|
154,339
|
|
$
|
121,654
|
|
$
|
95,665
|
|
The
components of income tax expense for the fiscal years ended June 30 are as
follows:
(in
thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
29,720
|
|
$
|
23,233
|
|
$
|
19,137
|
|
State
|
|
|
2,996
|
|
|
3,020
|
|
|
3,168
|
|
Foreign
|
|
|
20,569
|
|
|
16,588
|
|
|
11,100
|
|
|
|
|
53,285
|
|
|
42,841
|
|
|
33,405
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(116
|
)
|
|
(1,667
|
)
|
|
(2,118
|
)
|
State
|
|
|
(225
|
)
|
|
(921
|
)
|
|
(524
|
)
|
Foreign
|
|
|
(777
|
)
|
|
501
|
|
|
692
|
|
|
|
|
(1,118
|
)
|
|
(2,087
|
)
|
|
(1,950
|
)
|
|
|
$
|
52,167
|
|
$
|
40,754
|
|
$
|
31,455
|
|
The
total
tax provision is different from the amount that would have been recorded
by
applying the U.S. statutory federal income tax rate to income before taxes.
The
reconciliation of these differences is as follows:
|
|
2008
|
|
2007
|
|
2006
|
|
Statutory
rate
|
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Increase
(decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
State
taxes, net of federal tax benefit
|
|
|
1.3
|
|
|
1.3
|
|
|
1.6
|
|
Effect
of tax rates in foreign jurisdictions
|
|
|
(6.3
|
)
|
|
(7.6
|
)
|
|
(8.4
|
)
|
Prior
years true up
|
|
|
0.5
|
|
|
1.0
|
|
|
3.5
|
|
Share-based
and other compensation
|
|
|
1.8
|
|
|
1.8
|
|
|
1.4
|
|
Non-deferred
foreign income
|
|
|
0.9
|
|
|
1.4
|
|
|
—
|
|
Domestic
manufacturing deduction /
|
|
|
|
|
|
|
|
|
|
|
extraterritorial
income exclusion benefit
|
|
|
(0.4
|
)
|
|
(0.4
|
)
|
|
(1.0
|
)
|
Other
differences
|
|
|
1.0
|
|
|
1.0
|
|
|
0.8
|
|
Effective
tax rate
|
|
|
33.8
|
%
|
|
33.5
|
%
|
|
32.9
|
%
|
The
Company has not provided U.S. deferred income taxes on the cumulative unremitted
earnings of its non-U.S. affiliates as the Company plans to permanently reinvest
cumulative unremitted foreign earnings outside the U.S. and it is not
practicable to determine the unrecognized deferred income taxes. These
cumulative unremitted foreign earnings of approximately $457 million and
$389
million for fiscal years 2008, 2007, respectively, relate primarily to ongoing
operations in foreign jurisdictions and are required to fund foreign operations,
capital expenditure and expansion requirements.
The
following summarizes the significant components of the Company’s deferred tax
assets and liabilities
at
June
30:
(in
thousands)
|
|
2008
|
|
2007
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
10,660
|
|
$
|
10,713
|
|
Accruals
not currently deductible for tax
|
|
|
9,662
|
|
|
8,709
|
|
Share-based
compensation (non-qualified stock options)
|
|
|
7,454
|
|
|
4,464
|
|
Bad
debt reserves
|
|
|
5,761
|
|
|
5,336
|
|
Inventory
|
|
|
2,141
|
|
|
2,552
|
|
Benefit
related accruals not currently deductible for tax
|
|
|
1,653
|
|
|
5,200
|
|
Deferred
revenues and customer deposits currently taxable
|
|
|
1,547
|
|
|
781
|
|
Tax
impact of technology transfer
|
|
|
1,452
|
|
|
3,221
|
|
Other
unrealized gains and losses
|
|
|
2,490
|
|
|
987
|
|
Tax
credit carryforwards
|
|
|
—
|
|
|
581
|
|
Total
deferred tax assets
|
|
|
42,820
|
|
|
42,544
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
Intangibles
amortization
|
|
|
(8,256
|
)
|
|
(8,137
|
)
|
Capitalized
software development costs
|
|
|
(5,138
|
)
|
|
(5,880
|
)
|
Depreciation
|
|
|
(1,282
|
)
|
|
(1,917
|
)
|
Other
|
|
|
(248
|
)
|
|
(160
|
)
|
Total
deferred tax liabilities
|
|
|
(14,924
|
)
|
|
(16,094
|
)
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
|
(5,653
|
)
|
|
(2,716
|
)
|
Net
deferred tax asset
|
|
$
|
22,243
|
|
$
|
23,734
|
|
The
tax
effected net operating loss carryforwards and related valuation allowance
components of deferred taxes for the fiscal years ended June 30 are as
follows:
(in
thousands)
|
|
2008
|
|
2007
|
|
Net
operating loss carryforwards:
|
|
|
|
|
|
U.S.
|
|
$
|
4,775
|
|
$
|
6,298
|
|
International
|
|
|
5,885
|
|
|
4,415
|
|
|
|
$
|
10,660
|
|
|
10,713
|
|
Net
operating loss carryforward valuation allowance:
|
|
|
|
|
|
|
|
U.S.
|
|
|
—
|
|
|
—
|
|
International
|
|
|
(5,653
|
)
|
|
(2,716
|
)
|
|
|
|
(5,653
|
)
|
|
(2,716
|
)
|
Net
operating loss carryforwards, net of valuation
|
|
$
|
5,007
|
|
$
|
7,997
|
|
Deferred
income taxes reflect the net tax effects of temporary differences between
the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amounts used for income tax purposes.
The
Company is profitable on a consolidated basis, however, has incurred losses
in
certain foreign jurisdictions. A valuation allowance has been provided at
June
30, 2008 and 2007 to offset the related deferred tax assets due to uncertainty
of realizing the benefit of the net operating loss carryforwards.
The
Company’s net operating loss carryforwards and tax credit carryforwards (if not
applied against taxable income) as of June 30, 2008 expire as
follows:
|
|
Expires in Fiscal Year
|
|
(in
thousand)
|
|
2009
|
|
2010
|
|
Thereafter
|
|
No
Expiration
|
|
Total
|
|
U.S.:
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
—
|
|
$
|
—
|
|
$
|
4,775
|
|
$
|
—
|
|
$
|
4,775
|
|
Valuation
allowances
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
4,775
|
|
|
—
|
|
|
4,775
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
|
213
|
|
|
—
|
|
|
1,674
|
|
|
3,998
|
|
|
5,885
|
|
Valuation
allowances
|
|
|
(213
|
)
|
|
—
|
|
|
(1,533
|
)
|
|
(3,907
|
)
|
|
(5,653
|
)
|
|
|
|
—
|
|
|
—
|
|
|
141
|
|
|
91
|
|
|
232
|
|
Net
operating loss carryforwards,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
of valuation allowances
|
|
$
|
—
|
|
$
|
—
|
|
$
|
4,916
|
|
$
|
91
|
|
$
|
5,007
|
|
15.
|
OTHER
INCOME (EXPENSE), NET:
|
Other
income (expense) for the fiscal years ended June 30 comprised of the
following:
(in
thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Grant
|
|
$
|
1,726
|
|
$
|
—
|
|
$
|
—
|
|
Foreign
exchange loss, net
|
|
|
(1,384
|
)
|
|
(403
|
)
|
|
(940
|
)
|
Life
insurance settlement
|
|
|
—
|
|
|
1,325
|
|
|
—
|
|
Other,
net
|
|
|
255
|
|
|
196
|
|
|
472
|
|
Total
other income (expense), net
|
|
$
|
597
|
|
$
|
1,118
|
|
$
|
(468
|
)
|
For
fiscal year 2008, the Company recognized approximately $1.7 million in income
due to a grant payment received related to the number of jobs we created
in
Ireland. Specifically, the Irish Development Authority agreed to pay MICROS
a
fee for having engaged and retained employees in the MICROS help desk and
support center in Ireland. MICROS earned and received this fee in the fourth
quarter of fiscal year 2008. For fiscal year 2007, the Company recognized
approximately $1.3 million in one-time income due to death benefit received
on
corporate owned life insurance policy following the death of a covered officer
of the Company.
16.
|
RELATED PARTY
TRANSACTIONS:
|
Effective
June 30, 1995, the Company and Louis M. Brown, Jr., Vice-Chairman of the
Board,
entered into a Consulting Agreement that, as amended, expired in accordance
with
its terms on June 30, 2008. Under the Consulting Agreement, Mr. Brown was
to
provide during each fiscal year on the average 20 hours per week of consulting
services to the Company in exchange for a base consulting fee of approximately
$0.3 million. Additionally for fiscal year 2007 and 2006, Mr. Brown’s total
compensation also included annual target bonuses of approximately $0.2 million
that were accrued during the fiscal year that they were earned and paid in
the
following fiscal year.
Notwithstanding
the expiration of his Consulting Agreement, Mr. Brown continues to serve
the
Company as Vice-Chairman of the Board of Directors.
17.
|
EMPLOYEE
BENEFIT PLANS:
|
DEFINED
CONTRIBUTION PLANS
The
Company sponsors employee savings plan (the “Plan”), which conforms to the
provisions of Section 401(k) of the Internal Revenue Code. The Plan covers
substantially all full-time and part-time employees in the U.S. and allows
employees to voluntarily defer up to the government maximum per year of their
income through contributions to the Plan. The Plan matches 50% of the first
5%
in compensation deferred by each participating employee.
The
Company also sponsors additional employee savings plans, which cover the
Company’s employees in certain of its subsidiaries acquired during fiscal years
2008 and 2007. Similar to the Plan, these plans also conform to the provisions
of Section 401(k) of the Internal Revenue Code, but have different terms
and
benefits. Typically, plans of acquired companies are terminated within
approximately one year of the acquisitions, and subsequently the participants
in
these plans become participants in the Plan.
During
each of the three fiscal years ended June 30, 2008, the Company’s matching
contributions to the Plan were approximately $1.9 million. The Company does
not
have any material obligations to past or present employees related to post
employment benefits.
DEFINED
BENEFIT PLAN
The
Company’s Supplemental Executive Retirement Plan (“SERP Plan”) provides
designated officers and executives of the Company or their designated
beneficiaries with benefits upon retirement or death. The Company funds the
benefits under the SERP Plan with corporate owned life insurance policies
held
by a segregated trust (known as a “Rabbi Trust”), whose assets are subject to
the claims of creditors of the Company. The SERP Plan is accounted for in
accordance with SFAS 87, “Employers Accounting for Pensions”. The Board of
Directors of the Company, in its sole discretion, selects the participants
in
the SERP Plan. The Board may remove participants, or modify benefit accrual
levels for any participant who is not vested.
Under
the
terms of the SERP Plan, participants who are vested (or their designated
beneficiaries upon death) will receive ten annual payments over nine years
commencing six months after the earlier of death or retirement on or after
age
62.
Participants
become vested after completing eight years of service with the Company and:
(i)
the participant attains age 62 (provided the person is employed by the Company
on his or her 62
nd
birthday); or (ii) there is a change in control of the Company (which is
defined
in the SERP Plan to include, generally, the acquisition of 50% or more of
the
outstanding shares of common stock or the combined voting power of the
securities of the Company entitled to vote generally in the election of
directors, or a merger or similar business combination that results in people
or
entities holding at least 50% of the outstanding stock or voting power of
the
stock who did not hold such stock or interests before the transaction); or
(iii)
the participant dies before attaining age 62. The value of benefits under
the
SERP Plan is not based on years of service, but is
determined
based on the (1) participant’s age at retirement, at a change of control of the
Company or at death, and (2) a percentage the base salary received by the
participant during the 12 months immediately preceding his or her retirement
or
death. The annual benefit rates are as follows:
Benefit
rate
|
|
|
18%
|
|
Participant’s
retirement between 62
nd
and 63
rd
birthday
|
|
|
Participant’s
death or change of control of the Company before 63
rd
birthday
|
21%
|
|
Participant’s
retirement, death or change of control of the Company after 63
rd
birthday but before 64
th
birthday
|
24%
|
|
Participant’s
retirement, death or change of control of the Company after 64
th
birthday but before 65
th
birthday
|
30%
|
|
Participant’s
retirement, death or change of control of the Company after 65
th
birthday
|
During
fiscal year 2008, there were 13 participants in the SERP Plan. As of June
30,
2008, the Board of Directors approved the removal of all participants that
were
not vested, and as a result, there were 3 participants in the SERP Plan as
of
June 30, 2008. As a result, during fiscal year 2008, the Company recorded
a gain
of approximately $1.7 million as a component of its periodic pension costs
in
the consolidated statement of operations related to the removal of all
non-vested SERP participants. During fiscal year 2007, the Company received
approximately $1.3 million in death benefits under the corporate owned life
insurance policy, which has been recorded as non-operating “Other Income” in the
consolidated statements of operations.
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans – an amendment of FASB
Statements 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires the Company
to recognize the funded status (the difference between the fair value of
plan
assets and the projected benefit obligations) of the SERP Plan in the Company’s
statement of financial position, with a corresponding adjustment to accumulated
other comprehensive income, net of tax, to measure the fair value of plan
benefit obligations as of its fiscal year ending June 30, 2007 and to provide
additional disclosures. The Company adopted the recognition and disclosure
provisions of SFAS 158 on June 30, 2007, and has included the effect of adoption
in the accompanying consolidated financial statements. SFAS 158 did not have
an
effect on the Company’s consolidated financial condition at June 30, 2006 or
operating results of fiscal year 2008, and will not affect the operating
results
of future periods. Due to the removal of non-vested participants as discussed
above, the SERP Plan was fully funded as June 30, 2008.
The
following tables provide information regarding the change in pension benefit
obligation, funded status, and accumulated benefit obligation of the SERP
Plan:
(in
thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Change
in Projected Benefit Obligation (“PBO”):
|
|
|
|
|
|
|
|
PBO
at the beginning of year
|
|
$
|
13,545
|
|
$
|
7,019
|
|
$
|
7,060
|
|
Service
cost
|
|
|
646
|
|
|
539
|
|
|
377
|
|
Interest
cost
|
|
|
869
|
|
|
673
|
|
|
369
|
|
Curtailment
gain
|
|
|
(10,435
|
)
|
|
—
|
|
|
—
|
|
Actuarial
(gain) loss
|
|
|
(151
|
)
|
|
5,314
|
|
|
(787
|
)
|
Benefit
payments
|
|
|
(81
|
)
|
|
—
|
|
|
—
|
|
PBO
at the end of year
|
|
$
|
4,393
|
|
$
|
13,545
|
|
$
|
7,019
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
Status of the Plan
|
|
|
|
|
|
|
|
|
|
|
(Unfunded)
status of PBO
|
|
$
|
(4,393
|
)
|
$
|
(13,545
|
)
|
$
|
(7,019
|
)
|
Unrecognized
prior service cost
(1)
|
|
|
N/A
|
|
|
N/A
|
|
|
4,942
|
|
Unrecognized
net actuarial (gain) losses
(1)
|
|
|
N/A
|
|
|
N/A
|
|
|
(148
|
)
|
Accrued
benefit cost
(1)
|
|
|
N/A
|
|
|
N/A
|
|
$
|
(2,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
benefit obligation
|
|
$
|
4,393
|
|
$
|
6,835
|
|
$
|
4,709
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
recognized in the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
Accrued
benefit liability
(2)
|
|
$
|
(4,393
|
)
|
$
|
(13,545
|
)
|
$
|
(4,709
|
)
|
Intangible
asset
(1)
|
|
|
N/A
|
|
|
N/A
|
|
|
2,484
|
|
Accrued
benefit cost
|
|
$
|
(4,393
|
)
|
$
|
(13,545
|
)
|
$
|
(2,225
|
)
|
Accumulated
other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
Net
unrecognized actuarial losses
|
|
|
N/A
|
|
$
|
4,985
|
|
|
N/A
|
|
Unrecognized
prior service costs
|
|
|
N/A
|
|
|
4,594
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
9,579
|
|
|
N/A
|
|
Tax
benefit
|
|
|
N/A
|
|
|
(3,650
|
)
|
|
N/A
|
|
Accumulated
other comprehensive loss, net of tax
|
|
$
|
N/A
|
|
$
|
5,929
|
|
|
N/A
|
|
(1)
As a
result of the adoption of SFAS 158 on June 30, 2007, these items are no longer
applicable.
(2)
Accrued benefit liability is included in Other Non-Current Liabilities on
the
consolidated balance sheets, except for approximately $0.1 million and less
than
$0.1 million as of June 30, 2008 and 2007, respectively, included in Accrued
Expenses and Other Current Liabilities.
The
components of amounts recognized in other comprehensive loss for fiscal years
ended June 30 were as follows:
(in
thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Prior
service cost (credit)
|
|
$
|
(4,246
|
)
|
$
|
4,594
|
|
|
N/A
|
|
Net
actuarial loss (gain)
|
|
|
(4,685
|
)
|
|
4,985
|
|
|
N/A
|
|
Amortization
of prior service cost
|
|
|
(348
|
)
|
|
N/A
|
|
|
N/A
|
|
Amortization
of net loss
|
|
|
(300
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
(9,579
|
)
|
|
9,579
|
|
|
N/A
|
|
Tax
effect
|
|
|
3,650
|
|
|
(3,650
|
)
|
|
N/A
|
|
Total
recognized in other comprehensive loss, net of tax
|
|
$
|
(5,929
|
)
|
$
|
5,929
|
|
|
N/A
|
|
Assumptions
used to measure benefit obligations at June 30 were as follows:
|
|
2008
|
|
2007
|
|
2006
|
|
Discount
rate
(1)
|
|
|
6.00
|
%
|
|
6.10
|
%
|
|
6.14
|
%
|
Expected
return on plan assets
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Rate
of compensation increase
(2)
|
|
|
N/A
|
|
|
9.00
|
%
|
|
5.00
|
%
|
(1)
The
discount rate assumption is based on the internal rate of return for a portfolio
of high-quality bonds (Moody’s Aa Corporate bonds) with maturities that are
consistent with projected future cash flows.
(2)
The
rate of compensation increase is not applicable for fiscal year 2008 as the SERP
benefits are defined and fixed as of June 30, 2008 for the remaining SERP
participants.
The
incremental effects of adopting the provisions of SFAS 158 on the Company’s
statement of financial position at June 30, 2007 were as follows:
(in
thousands)
|
|
Pre
SFAS
158
|
|
Incremental
effect of
adopting
SFAS 158
|
|
Post
SFAS 158
|
|
Intangible
assets – pension
|
|
$
|
2,869
|
|
$
|
(2,869
|
)
|
$
|
—
|
|
Accrued
benefit liability
|
|
|
(6,835
|
)
|
|
(6,710
|
)
|
|
(13,545
|
)
|
Non-current
deferred income tax asset
|
|
|
—
|
|
|
3,650
|
|
|
3,650
|
|
Accumulated
other comprehensive loss, net of tax
|
|
|
—
|
|
|
5,929
|
|
|
5,929
|
|
|
|
$
|
(3,966
|
)
|
$
|
—
|
|
$
|
(3,966
|
)
|
The
adjustments to accumulated other comprehensive income at June 30, 2007 (at
adoption) were previously netted against the plan’s funded status in the
Company’s statement of financial position pursuant to the provisions of SFAS 87.
These amounts will be subsequently recognized as net periodic pension cost.
The
actuarial gains and losses that arise in subsequent periods and are not
recognized as a net periodic pension cost in the same periods will be recognized
as a component of other comprehensive income and will be subsequently recognized
as a component of net periodic pension cost on the same basis as the amount
recognized in accumulated other comprehensive income at adoption of SFAS
158.
The
components of net periodic pension cost and the assumptions used to determine
net cost for the fiscal years ended June 30 are as follows:
(in
thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Service
cost
|
|
$
|
646
|
|
$
|
539
|
|
$
|
377
|
|
Interest
cost
|
|
|
870
|
|
|
673
|
|
|
369
|
|
Curtailment
gain
(1)
|
|
|
(1,717
|
)
|
|
—
|
|
|
—
|
|
Amortization
of prior service cost
|
|
|
648
|
|
|
529
|
|
|
429
|
|
Net
periodic pension cost
|
|
$
|
447
|
|
$
|
1,741
|
|
$
|
1,175
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.10
|
%
|
|
6.14
|
%
|
|
4.96
|
%
|
Expected
return on plan assets
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Rate
of compensation increase
|
|
|
9.00
|
%
|
|
8.0
|
%
|
|
5.0
|
%
|
(1)
Due
to the removal of unvested SERP participants as of June 30,
2008.
The
total
periodic pension costs for fiscal year 2009 consists of an interest cost
of
approximately $0.3 million.
As
of
June 30, 2008, the projected benefit payments to be paid from the SERP Plan
are
as follows for the fiscal years ending June 30 (in thousands):
2009
|
|
$
|
101
|
|
2010
|
|
|
101
|
|
2011
|
|
|
101
|
|
2012
|
|
|
701
|
|
2013
|
|
|
701
|
|
2014 –
2018
|
|
|
3,423
|
|
SFAS
No.
131, “Disclosures about Segments of an Enterprise and Related Information,”
(“SFAS 131”) establishes standards for reporting information about operating
segments. This standard requires segmentation based on the Company’s internal
organization and reporting of financial results. The Company’s financial
reporting systems present various data to enable management to run the business.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by
the
chief operating decision maker, or decision making group, in deciding how
to
allocate resources and in assessing performance. The Company’s chief operating
decision maker is the Company’s Chief Executive Officer.
The
Company is organized and operates in four operating segments: U.S., Europe,
the
Pacific Rim, and Latin America regions. As the products and services for
all new
business acquisitions are all similar to those of the Company, the new business
acquisitions have been incorporated into the existing four operating segments
based on their respective geographical locations, and operated and managed
as a
part of that operating segment.
For
the
purposes of applying SFAS 131, the Company has identified U.S. as a separate
reportable segment and has aggregated its three international operating segments
into one reportable segment, international, as the three international operating
segments share many similar economical characteristics. Management views
the
U.S. and international segments separately in operating its business, although
the products and services are similar for each segment.
A
summary
of the Company’s reportable segments is as follows:
|
|
Fiscal Years Ended June 30,
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Revenues
(1)
:
|
|
|
|
|
|
|
|
United
States
|
|
$
|
430,081
|
|
$
|
379,272
|
|
$
|
365,642
|
|
International
|
|
|
743,442
|
|
|
567,862
|
|
|
433,256
|
|
Intersegment
eliminations
(2)
|
|
|
(219,339
|
)
|
|
(161,407
|
)
|
|
(119,945
|
)
|
Total
revenues
|
|
$
|
954,184
|
|
$
|
785,727
|
|
$
|
678,953
|
|
Income
before taxes, minority interests and equity in
|
|
|
|
|
|
|
|
|
|
|
net
earnings of affiliates
(1)
:
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
51,097
|
|
$
|
43,186
|
|
$
|
26,719
|
|
International
|
|
|
281,660
|
|
|
211,284
|
|
|
165,263
|
|
Intersegment
eliminations
(2)
|
|
|
(178,418
|
)
|
|
(132,816
|
)
|
|
(96,317
|
)
|
Total
income before taxes, minority interests
|
|
|
|
|
|
|
|
|
|
|
and
equity in net earnings of affiliates
|
|
$
|
154,339
|
|
$
|
121,654
|
|
$
|
95,665
|
|
Capital
expenditures
(3)
:
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
7,419
|
|
$
|
5,481
|
|
$
|
7,256
|
|
International
|
|
|
5,525
|
|
|
5,798
|
|
|
3,484
|
|
Total
capital expenditures
|
|
$
|
12,944
|
|
$
|
11,279
|
|
$
|
10,740
|
|
Depreciation
and amortization
(3)
:
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
7,582
|
|
$
|
7,301
|
|
$
|
6,660
|
|
International
|
|
|
7,561
|
|
|
5,420
|
|
|
3,799
|
|
Total
depreciation and amortization
|
|
$
|
15,143
|
|
$
|
12,721
|
|
$
|
10,459
|
|
|
|
As
of June 30,
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
Identifiable
assets
(3)
:
|
|
|
|
|
|
|
|
United
States
|
|
$
|
466,028
|
|
$
|
443,331
|
|
International
|
|
|
536,978
|
|
|
403,425
|
|
Total
identifiable assets
|
|
$
|
1,003,006
|
|
$
|
846,756
|
|
|
|
|
|
|
|
|
|
Goodwill
(3)
:
|
|
|
|
|
|
|
|
United
States
|
|
$
|
95,888
|
|
$
|
90,266
|
|
International
|
|
|
63,834
|
|
|
48,066
|
|
Total
goodwill
|
|
$
|
159,722
|
|
$
|
138,332
|
|
(1)
|
Amounts
based on the location of the selling entity, and include export
sales.
|
(2)
|
Amounts
primarily represent elimination of intercompany business in
Ireland.
|
(3)
|
Amounts
based on the physical location of the
asset.
|
The
Company’s products are distributed in the U.S. and internationally, primarily in
Europe, the Pacific Rim, and Latin America through its subsidiaries, independent
dealers/distributors and Company-owned sales and service offices. The Company’s
principal customers are lodging, food service-related
businesses,
specialty retail, and entertainment venues. No single customer accounts for
10%
or more of the Company’s consolidated revenues.
Revenues
from unaffiliated customers by geographic location are as follows:
|
|
Fiscal
Years Ended June 30,
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
United
States
|
|
$
|
416,458
|
|
$
|
364,139
|
|
$
|
355,155
|
|
International
|
|
|
537,726
|
|
|
421,588
|
|
|
323,798
|
|
|
|
$
|
954,184
|
|
$
|
785,727
|
|
$
|
678,953
|
|
Long-lived
assets (property, plant, and equipment) organized by geographic locations as
of
June 30 of each indicated fiscal year, are as follows:
(in
thousands)
|
|
2008
|
|
2007
|
|
United
States
|
|
$
|
17,415
|
|
$
|
16,809
|
|
International
|
|
|
11,750
|
|
|
11,146
|
|
|
|
$
|
29,165
|
|
$
|
27,955
|
|
The
above
chart does not include intangible assets.
There
were no individual foreign countries in which the Company received material
revenues from unaffiliated customers or in which the Company has material
long-lived assets.
19.
|
QUARTERLY
FINANCIAL INFORMATION
(UNAUDITED):
|
Quarterly
financial information for the fiscal years ended June 30, 2008 and 2007 is
presented in the following tables (in thousands, except per share
data):
|
|
Fiscal
Year 2008
|
|
|
|
1
st
Quarter
|
|
2
nd
Quarter
|
|
3
rd
Quarter
|
|
4
th
Quarter
|
|
Revenue
|
|
$
|
216,482
|
|
$
|
243,952
|
|
$
|
237,187
|
|
$
|
256,564
|
|
Gross
margin
|
|
$
|
113,242
|
|
$
|
126,562
|
|
$
|
124,259
|
|
$
|
137,138
|
|
Income
from operations
(1), (3)
|
|
$
|
29,085
|
|
$
|
33,397
|
|
$
|
34,759
|
|
$
|
42,064
|
|
Net
income
(1)
|
|
$
|
21,304
|
|
$
|
24,089
|
|
$
|
25,146
|
|
$
|
30,746
|
|
Income
from operations per common share
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.36
|
|
$
|
0.41
|
|
$
|
0.43
|
|
$
|
0.52
|
|
Diluted
|
|
$
|
0.35
|
|
$
|
0.40
|
|
$
|
0.42
|
|
$
|
0.51
|
|
Earnings
per common share
(1), (2), (3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.26
|
|
$
|
0.29
|
|
$
|
0.31
|
|
$
|
0.38
|
|
Diluted
|
|
$
|
0.25
|
|
$
|
0.29
|
|
$
|
0.30
|
|
$
|
0.37
|
|
Stock
Prices (range of sales prices):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
33.30
|
|
$
|
37.49
|
|
$
|
37.35
|
|
$
|
36.64
|
|
Low
|
|
$
|
26.45
|
|
$
|
30.29
|
|
$
|
26.33
|
|
$
|
28.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2007
|
|
|
|
1
st
Quarter
|
|
|
2
nd
Quarter
|
|
|
3
rd
Quarter
|
|
|
4
th
Quarter
|
|
Revenue
|
|
$
|
173,701
|
|
$
|
189,875
|
|
$
|
200,556
|
|
$
|
221,594
|
|
Gross
margin
|
|
$
|
88,669
|
|
$
|
98,854
|
|
$
|
105,015
|
|
$
|
118,973
|
|
Income
from operations
(1)
|
|
$
|
20,649
|
|
$
|
25,096
|
|
$
|
27,214
|
|
$
|
37,629
|
|
Net
income
(1)
|
|
$
|
15,111
|
|
$
|
18,018
|
|
$
|
19,450
|
|
$
|
27,410
|
|
Income
from operations per common share
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.26
|
|
$
|
0.32
|
|
$
|
0.34
|
|
$
|
0.46
|
|
Diluted
|
|
$
|
0.25
|
|
$
|
0.30
|
|
$
|
0.33
|
|
$
|
0.45
|
|
Earnings
per common share
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.19
|
|
$
|
0.23
|
|
$
|
0.24
|
|
$
|
0.34
|
|
Diluted
|
|
$
|
0.19
|
|
$
|
0.22
|
|
$
|
0.23
|
|
$
|
0.33
|
|
Stock
Prices (range of sales prices):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
25.63
|
|
$
|
26.79
|
|
$
|
28.85
|
|
$
|
28.38
|
|
Low
|
|
$
|
18.04
|
|
$
|
24.05
|
|
$
|
25.40
|
|
$
|
25.13
|
|
(1)
|
Fiscal
years ended June 30, 2008 and 2007 include approximately $17.2 million
($13.1 million, net of tax, or $0.16 per share) and $14.0 million
($11.1
million, net of tax, or $0.14 per share), respectively, in non-cash
share-based compensation expenses. See Note 3, “Share-based
Compensation.”
|
(2)
|
Earnings
available for shareholders for the fiscal years 2008 and 2007 have
been
reduced by $0.6 million and less than $0.1 million, respectively,
for the
impact of minority interest put arrangement as discussed in Note
4,
“Acquisitions.”
|
(3)
|
Sum
of quarterly amounts does not equal the sum of as reported amounts
due to
rounding differences.
|
On
July
9, 2008, the Board of Directors authorized the repurchase of up to an additional
two million shares of the Company’s common stock over the next three years, to
be purchased from time to time depending on market conditions and other
corporate considerations as determined by management.
On
August
9, 2008, the Company acquired all of the issued and outstanding stock of Fry,
Inc. (“Fry”), an e-commerce design, development, and managed services provider.
Fry was headquartered in Ann Arbor, Michigan, with offices in Chicago, New
York,
and San Francisco. The total purchase consideration for the stock in Fry is
approximately $31.3 million, plus the assumption of approximately $18.4M in
debt; further, the selling Fry shareholders are eligible to earn up to an
additional $17 million in earn out payments over the 23 months following closing
on the acquisition, based upon meeting specified financial targets.
MICROS
SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in
thousands)
Description
|
|
Balance
at
beginning
of
period
|
|
Charged
To
expense
|
|
Deductions
|
|
Other
(1)
|
|
Balance
at
end
of
period
|
|
Year
ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
23,110
|
|
$
|
7,135
|
|
$
|
4,066
(2
|
)
|
$
|
(2,169
|
)
|
$
|
28,348
|
|
Reserve
for inventory obsolescence
|
|
|
9,893
|
|
|
2,753
|
|
|
2,116
(3
|
)
|
|
949
|
|
|
11,479
|
|
|
|
$
|
33,003
|
|
$
|
9,888
|
|
$
|
6,182
|
|
$
|
(1,220
|
)
|
$
|
39,827
|
|
Year
ended June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
20,335
|
|
$
|
3,356
|
|
$
|
340
(2
|
)
|
$
|
(241
|
)
|
$
|
23,110
|
|
Reserve
for inventory obsolescence
|
|
|
9,938
|
|
|
3,156
|
|
|
2,399
(3
|
)
|
|
(802
|
)
|
|
9,893
|
|
|
|
$
|
30,273
|
|
$
|
6,512
|
|
$
|
2,739
|
|
$
|
(1,043
|
)
|
$
|
33,003
|
|
Year
ended June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
16,202
|
|
$
|
5,409
|
|
$
|
375
(2
|
)
|
$
|
(901
|
)
|
$
|
20,335
|
|
Reserve
for inventory obsolescence
|
|
|
7,352
|
|
|
3,530
|
|
|
802
(3
|
)
|
|
(142
|
)
|
|
9,938
|
|
|
|
$
|
23,554
|
|
$
|
8,939
|
|
$
|
1,177
|
|
$
|
(1,043
|
)
|
$
|
30,273
|
|
(1)
|
Primarily
related to foreign currency
translation.
|
(2)
|
Charge
offs, net of recoveries.
|
(3)
|
Material
scrapped or otherwise disposed.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
|
|
MICROS
SYSTEMS, INC.
|
|
|
|
|
Date:
|
August
29, 2008
|
By:
|
/s/Gary
C. Kaufman
|
|
|
|
Gary
C. Kaufman
|
|
|
|
Executive
Vice President, Finance and
Administration/Chief
Financial Officer
|
|
|
|
|
|
|
|
|
Date:
|
August
29, 2008
|
By:
|
/s/Cynthia
A. Russo
|
|
|
|
Cynthia
A. Russo
|
|
|
|
Senior
Vice President and
Corporate
Controller
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the Registrant, and in the
capacities and on the dates indicated.
Name
|
|
Title
|
|
|
|
|
|
|
|
/s/A.
L. Giannopoulos
|
|
Chairman,
President and
|
|
August
29, 2008
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
/s/Gary
C. Kaufman
|
|
Executive
Vice President
|
|
August
29, 2008
|
|
|
Finance
and Administration
|
|
|
|
|
Chief
Financial Officer, and
|
|
|
|
|
Principal
Accounting Officer
|
|
|
|
|
|
|
|
|
|
|
|
August
29, 2008
|
|
|
Director
and
|
|
|
|
|
Vice
Chairman of the Board
|
|
|
|
|
|
|
|
/s/B.
Gary Dando
|
|
|
|
August
29, 2008
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/John
G. Puente
|
|
|
|
August
29, 2008
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/Dwight
S. Taylor
|
|
|
|
August
29, 2008
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/William
S. Watson
|
|
|
|
August
29, 2008
|
|
|
Director
|
|
|
EXHIBIT
INDEX
3(i)
|
Articles
of Incorporation, as amended, are incorporated herein by reference
to
Exhibit 3(i) to the Form 8-K filed on November 16,
2007.
|
3(ii)
|
By-laws
of the Company, as amended, are incorporated herein by reference
to
Exhibit 3(ii) to the Form 8-K filed on October 17,
2007.
|
10(a)(1)*
|
Amendment
and Restatement of MICROS Systems, Inc. Stock Option Plan is incorporated
herein by reference to Exhibit 4.1 to the Registration Statement
on Form
S-8 of the Company filed on February 16, 1990.
|
10(a)(2)*
|
First
Amendment to the Amendment and Restatement of MICROS Systems, Inc.
Stock
Option Plan is incorporated herein by reference to Exhibit 4.2
to the
Registration Statement on Form S-8 of the Company filed on February
16,
1990.
|
10(a)(3)*
|
MICROS
Systems, Inc. 1991 Stock Option Plan as amended, is incorporated
herein by
reference to Exhibit A to the Proxy Statement of the Company for
the 2006
Annual Meeting of Shareholders
|
10(b)*
|
Employment
Agreement dated June 1, 1995 between MICROS Systems, Inc. and A.
L.
Giannopoulos is incorporated herein by reference to Exhibit 10e
to the
Annual Report on Form 10-K of the Company for the Fiscal Year ended
June
30, 1995.
|
10(b)(1)*
|
First
Amendment to Employment Agreement dated February 6, 1997 between
MICROS
Systems, Inc. and A. L. Giannopoulos is incorporated herein by
reference
to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 1996.
|
10(b)(2)*
|
Second
Amendment to Employment Agreement dated February 1, 1998 between
MICROS
Systems, Inc. and A. L. Giannopoulos is incorporated herein by
reference
to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 1997.
|
10(b)(3)*
|
Third
Amendment to Employment Agreement dated September 8, 1999 between
MICROS
Systems, Inc. and A. L. Giannopoulos is incorporated herein by
reference
to Exhibit 10g to the Annual Report on Form 10-K of the Company
for the
Fiscal Year ended June 30, 1999.
|
10(b)(4)*
|
Fourth
Amendment to Employment Agreement dated November 19, 2001 between
MICROS
Systems, Inc. and A. L. Giannopoulos is incorporated herein by
reference
to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 2001.
|
10(b)(5)*
|
Fifth
Amendment to Employment Agreement dated November 15, 2002 between
MICROS
Systems, Inc. and A. L. Giannopoulos is incorporated herein by
reference
to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 2002.
|
10(b)(6)*
|
Sixth
Amendment to Employment Agreement dated January 28, 2004 between
MICROS
Systems, Inc. and A. L. Giannopoulos is incorporated herein by
reference
to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 2003.
|
10(b)(7)*
|
Seventh
Amendment to Employment Agreement dated August 9, 2005 between
MICROS
Systems, Inc. and A. L. Giannopoulos is incorporated herein by
reference
to Exhibit 10 to the Current Report on Form 8-K filed on August
11,
2005.
|
10(b)(8)*
|
Eighth
Amendment to Employment Agreement dated June 6, 2006, between MICROS
Systems, Inc. and A.L. Giannopoulos is incorporated herein by reference
to
Exhibit 10 to the Current Report on Form 8-K filed on June 8,
2006.
|
10(b)(9)*
|
Ninth
Amendment to Employment Agreement dated June 6, 2006, between MICROS
Systems, Inc. and A.L. Giannopoulos is incorporated herein by reference
to
Exhibit 10 to the Current Report on Form 8-K filed on November
17,
2006.
|
10(b)(10)*
|
Tenth
Amendment to Employment Agreement dated June 12, 2008, between
MICROS
Systems, Inc. and A.L. Giannopoulos is incorporated herein by reference
to
Exhibit 10 to the Current Report on Form 8-K filed on June 13,
2008.
|
10(c)*
|
Consulting
Agreement dated June 30, 1995 between MICROS Systems, Inc. and
Louis M.
Brown, Jr. is incorporated herein by reference to Exhibit 10 to
the Annual
Report on Form 10-K of the Company for the Fiscal Year ended June
30,
1995.
|
10(c)(1)*
|
First
Amendment to Consulting Agreement dated February 1, 1999 between
MICROS
Systems, Inc. and Louis M. Brown, Jr. is incorporated herein by
reference
to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 1998.
|
10(c)(2)*
|
Second
Amendment to Consulting Agreement dated April 26, 2001 between
MICROS
Systems, Inc. and Louis M. Brown, Jr. is incorporated herein by
reference
to Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended March 31, 2001.
|
10(c)(3)*
|
Third
Amendment to Consulting Agreement dated September 4, 2003 between
MICROS
Systems, Inc. and Louis M. Brown, Jr. is incorporated herein by
reference
to Exhibit 10 to the Annual Report on Form 10-K of the Company
for the
Fiscal Year ended June 30, 2003.
|
10(c)(4)*
|
Fourth
Amendment to Consulting Agreement dated June 12, 2007 between MICROS
Systems, Inc. and Louis M. Brown, Jr. is incorporated herein by
reference
to Exhibit 10 to the Current Report on Form 8-K filed on June 12,
2007.
|
10(d)*
|
Employment
Agreement dated May 28, 1997 between MICROS Systems, Inc. and Gary
C.
Kaufman is incorporated herein by reference to Exhibit 10 to the
Annual
Report on Form 10-K of the Company for the Fiscal Year ended June
30,
1997.
|
10(d)(1)*
|
First
Amendment to Employment Agreement dated October 1, 1998 between
MICROS
Systems, Inc. and Gary C. Kaufman is incorporated herein by reference
to
Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 1998.
|
10(d)(2)*
|
Second
Amendment to Employment Agreement dated October 1, 1998 between
MICROS
Systems, Inc. and Gary C. Kaufman is incorporated herein by reference
to
Exhibit 10 to the Current Report on Form 8-K filed on November
17,
2006.
|
10(e)*
|
Employment
Agreement dated May 28, 1997 between MICROS Systems, Inc. and Thomas
L.
Patz is incorporated herein by reference to Exhibit 10 to the Annual
Report on Form 10-K of the Company for the Fiscal Year ended June
30,
1997.
|
10(e)(1)*
|
First
Amendment to Employment Agreement dated October 1, 1998 between
MICROS
Systems, Inc. and Thomas L. Patz is incorporated herein by reference
to
Exhibit 10 to the Quarterly Report on Form 10-Q of the Company
for the
period ended December 31, 1998 (see 10(d)(1) above, as Mr. Patz’ amendment
is an amendment identical (except for the identity of the executive
and
the economic terms) to that entered into by the Company with Mr.
Kaufman).
|
10(e)(2)*
|
Second
Amendment to Employment Agreement dated October 1, 1998 between
MICROS
Systems, Inc. and Thomas L. Patz is incorporated herein by reference
to
Exhibit 10 to the Current Report on Form 8-K filed on November
17, 2006
(see 10(d)(2) above, as Mr. Patz’ amendment is an amendment identical
(except for the identity of the executive and the economic terms)
to that
entered into by the Company with Mr. Kaufman).
|
10(f)*
|
Restated
Supplemental Executive Retirement Plan, as approved by the Board
of
Directors on
|
|
April
27, 2005, incorporated herein by reference to Exhibit 10 to the
Annual
Report on Form 10-K for the fiscal year ended June 30,
2006.
|
10(g)
|
Amended
and Restated Credit Agreement, effective as of July 29, 2005, among
MICROS
Systems, Inc., DV Technology Holdings Corporation, Datavantage
Corporation, MICROS Fidelio Nevada, LLC, MSI Delaware, LLC, MICROS-Fidelio
Worldwide, Inc., and JTECH Communications, Inc. as Borrower, Bank
of
America, N.A., as administrative agent, swing line lender and L/C
issuer,
and Wachovia Bank, N.A., and US Bank, N.A., and Banc of America
Securities
LLC, as sole lead arranger and book manager, is incorporated herein
by
reference to Exhibit 10 to the Annual Report on Form 10-K for the
period
ended June 30, 2005.
|
10(g)(1)
|
Amended
and Restated Credit Agreement, effective as of July 29, 2005, among
MICROS-Fidelio (Ireland) Ltd., MICROS-Fidelio Systems (UK) Ltd.,
MICROS-Fidelio España S.L., MICROS Fidelio (Canada), Ltd., MICROS-Fidelio
Brazil, Ltda., MICROS-Fidelio France S.A.S., Hospitality Technologies,
S.A., MICROS-Fidelio Mexico S.A. de C.V., MICROS Systems Holding
GmbH,
MICROS-Fidelio GmbH, MICROS-Fidelio Software Portugal Unipessoal
Lda,
MICROS-Fidelio (Thailand) Co., Ltd., MICROS-Fidelio Singapore Pte
Ltd.,
MICROS-Fidelio Software (Philippines), Inc., MICROS-Fidelio Japan
Ltd.,
MICROS-Fidelio Australia Pty. Ltd., MICROS-Fidelio Hong Kong, Ltd.,
Fidelio Nordic Norway A/S, Fidelio Nordic Oy, Fidelio Nordic Sverige,
A.B., Hotelbk, A.B., as Borrower, Bank Of America, N.A., as Administrative
Agent, swing line lender, and L/C issuer, and Wachovia Bank N.A.
and US
Bank N.A., and Banc of America Securities LLC, as sole lead arranger
and
book manager is incorporated herein by reference to Exhibit 10
to the
Annual Report on Form 10-K for the Fiscal Year ended June 30,
2005.
|
14
|
Code
of Ethics and Business Practices is incorporated herein by reference
to
Exhibit 14 to the Annual Report on Form 10-K of the Company for
the Fiscal
Year ended June 30, 2004.
|
21
|
Subsidiaries
of the Company (filed herewith)
|
23
|
Consent
of Independent Registered Public Accounting Firm (filed
herewith)
|
31(a)
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a) under
the
Securities Exchange Act of 1934 (filed herewith)
|
31(b)
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a) under
the
Securities Exchange Act of 1934 (filed herewith)
|
32(a)
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(b) under
the
Securities Exchange Act of 1934 and 18 U.S.C. 1350 (furnished
herewith)
|
32(b)
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(b) under
the
Securities Exchange Act of 1934 and 18 U.S.C. 1350 (furnished
herewith)
|
*
Management
contract or compensatory plan or arrangement.
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