We are a leading worldwide designer, manufacturer, marketer, and servicer of enterprise information solutions for the global hospitality and specialty retail industries. 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.

We are organized and operate in four operating segments: U.S./Canada, Europe, the Pacific Rim, and Latin America regions. We have identified our U.S./Canada operating segment as a separate reportable segment and we 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./Canada and international segments separately in operating our business, although the products and services are similar for each segment.

We have been adversely impacted by the current global economic uncertainty. We believe that cautious consumer spending, coupled with difficulties in obtaining credit, may continue to negatively impact our customers' abilities to acquire or open new hospitality and retail venues, and may also limit customers' willingness and ability to make certain capital expenditures on new systems and system upgrades. In light of these challenging and uncertain conditions, we continue to review the timing of certain discretionary expenses, and scrutinize carefully and cautiously the expansion of our workforce.

FORWARD-LOOKING STATEMENTS

The following management's discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. Certain statements contained in this Quarterly Report on Form 10-Q 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"). Our actual results may differ materially from those anticipated in these forward-looking statements.

Examples of such forward-looking statements in this Quarter Report on Form 10-Q include the following:

· our expectations regarding the effects of current economic conditions on our customers, our distributors, and our business generally;

· our expectations about the adequacy of our cash flows and our available borrowing capacity to meet our working capital needs, and our ability to raise additional funds if and when needed;

· our statements regarding valuation of our investment in an auction rate security and our plans to monitor our investment including as to liquidity of and creditworthiness of the issuer of the one remaining auction rate security;

· our belief that any reduction in liquidity of our one remaining auction rate security will not have a material impact on our overall liquidity;

· our expectations regarding the impact or lack of impact on our financial position and results of operations of the application of recently adopted accounting standards;

· our belief that, except as noted, existing legal claims or proceedings will not have a material adverse effect on our results of operations or financial position;

· our expectations regarding effective tax rates in future periods; and

· our statements regarding the effects of foreign currency rate fluctuations (in particular, the Euro and British Pound Sterling) on our financial performance.

RESULTS OF OPERATIONS

The following discussion of our results of operations for the three- and six-month periods ended December 31, 2012 includes the results of operations of Torex Retail Holdings Ltd. ("Torex"), a company we acquired on May 31, 2012.

Revenue:

Three Months Ended December 31, 2012:

The following table provides information regarding sales mix by reportable segments for the three months ended December 31, 2012 and 2011 (amounts are net of intersegment eliminations, and are allocated to the particular segment based on the location of the customer):

                                         Three Months Ended December 31,
                       U.S./Canada                International                   Total
(in thousands)        2012          2011          2012          2011          2012          2011
Hardware         $  28,166     $  26,371     $  39,079     $  31,056     $  67,245     $  57,427
Software            14,252        11,514        24,495        23,038        38,747        34,552
Service             84,090        78,490       134,438        99,934       218,528       178,424
Total Revenue    $ 126,508     $ 116,375     $ 198,012     $ 154,028     $ 324,520     $ 270,403

The following table provides information regarding the total sales mix as a percent of total revenue:

                   Three Months Ended
                      December 31,
(in thousands)         2012         2011
Hardware               20.7 %       21.2 %
Software               11.9 %       12.8 %
Service                67.4 %       66.0 %
Total                 100.0 %      100.0 %

For the three months ended December 31, 2012, total revenue was approximately $324.5 million, an increase of approximately $54.1 million, or 20.0% compared to the same period last year. The revenue increase reflects the following factors:

· Hardware, software and service revenue increased by 17.1%, 12.1% and 22.5%, respectively, compared to the same period last year. These increases were largely attributable to the approximately $48.0 million of revenue generated by Torex, which was comprised of hardware revenue of approximately $10.7 million, software revenue of approximately $2.8 million and services revenue of approximately $34.4 million.

· Current global economic uncertainty continued to have an adverse impact on revenues.

· The unfavorable foreign currency exchange rate fluctuations, primarily for the Euro against the U.S. dollar, negatively impacted total revenue by approximately $0.9 million.

The International segment revenue for the three months ended December 31, 2012 increased by approximately $44.0 million, an increase of 28.6% compared to the same period last year due to the following:

· Hardware, software and service revenue increased by 25.8%, 6.3% and 34.5%, respectively, compared to the same period last year. These increases are largely due to the additional revenues generated by Torex.

· The unfavorable foreign currency exchange rate fluctuations, primarily for the Euro against the U.S. dollar, negatively impacted total revenue by approximately $0.9 million.

U.S. segment revenue for the three months ended December 31, 2012 increased approximately $10.1 million, an increase of 8.7% compared to the same period last year due to the following:

· Hardware, software and service revenue increased by 6.8%, 23.8% and 7.1%, respectively, compared to the same period last year.

· The increase in software revenue is primarily due to an increase in sales of our retail software.

· The increase in service revenue is primarily due to increases in hosting and maintenance services, partially offset by a decrease in our professional services.

Six Months Ended December 31, 2012:

The following table provides information regarding sales mix by reportable segments for the six months ended December 31, 2012 and 2011 (amounts are net of intersegment eliminations, and are allocated to the particular segment based on the location of the customer):

                                          Six Months Ended December 31,
                       U.S./Canada                International                   Total
(in thousands)        2012          2011          2012          2011          2012          2011
Hardware         $  55,640     $  47,874     $  75,364     $  57,963     $ 131,004     $ 105,837
Software            24,007        23,543        45,518        44,281        69,525        67,824
Service            165,224       159,115       258,618       194,185       423,842       353,300
Total Revenue    $ 244,871     $ 230,532     $ 379,500     $ 296,429     $ 624,371     $ 526,961

The following table provides information regarding the total sales mix as a percent of total revenue:

                   Six Months Ended
                     December 31,
(in thousands)        2012        2011
Hardware              21.0 %      20.1 %
Software              11.1 %      12.9 %
Service               67.9 %      67.0 %
Total                100.0 %     100.0 %

For the six months ended December 31, 2012, total revenue was approximately $624.4 million, an increase of approximately $97.4 million, or 18.5% compared to the same period last year. The revenue increase reflects the following factors:

· Hardware, software and service revenue increased by 23.8%, 2.5% and 20.0%, respectively, compared to the same period last year. These increases were largely attributable to the approximately $96.0 million of revenue generated by Torex, which was comprised of hardware revenue of approximately $23.8 million, software revenue of approximately $4.8 million and services revenue of approximately $67.4 million.

· Current global economic uncertainty continued to have an adverse impact on revenues.

· The unfavorable foreign currency exchange rate fluctuations, primarily for the Euro and British Pound Sterling against the U.S. dollar, negatively impacted total revenue by approximately $9.1 million.

The International segment revenue for the six months ended December 31, 2012 increased by approximately $83.1 million, an increase of 28.0% compared to the same period last year due to the following:

· Hardware, software and service revenue increased by 30.0%, 2.8% and 33.2%, respectively, compared to the same period last year. These increases are largely attributable to the additional revenues generated by Torex.

· The unfavorable foreign currency exchange rate fluctuations, primarily for Euro and British Pound Sterling against the U.S. dollar, negatively impacted total revenue by approximately $9.1 million.

U.S. segment revenue for the six months ended December 31, 2012 increased approximately $14.3 million, an increase of 6.2% compared to the same period last year due to the following:

· Hardware, software and service revenue increased by 16.2%, 2.0% and 3.8%, respectively, compared to the same period last year.

· The increase in hardware revenue was primarily due to an increase in sales of third party computer equipment to our retail customers during the three months ended September 30, 2012.

· The increase in software revenue is primarily due to increases in sales of our retail software and Simphony software, partially offset by a decrease in sales of third party software.

· The increase in service revenue was primarily due to increases in maintenance and hosting services, partially offset by a decrease in our professional services.

Cost of Sales:



Three Months Ended December 31, 2012:



The following table provides information regarding our cost of sales:



                                     Three Months Ended December 31,
                                  2012                             2011
                        Cost         % of Related        Cost         % of Related
(in thousands)        of Sales         Revenue         of Sales         Revenue
Hardware              $  43,295               64.4 %   $  36,637               63.8 %
Software                  5,257               13.6 %       4,294               12.4 %
Service                 103,849               47.5 %      77,151               43.2 %
Total Cost of Sales   $ 152,401               47.0 %   $ 118,082               43.7 %

For the three months ended December 31, 2012 and 2011, cost of sales as a percent of revenue was 47.0% and 43.7%, respectively. Hardware cost of sales as a percent of hardware revenue for the three months ended December 31, 2012 increased 0.6% compared to the same period last year. Software cost of sales as a percent of software revenue for the three months ended December 31, 2012 increased approximately 1.2% compared to the same period last year. Service costs as a percent of service revenue for the three months ended December 31, 2012 increased 4.3% compared to the same period last year. These increases were mostly due to our acquisition of Torex, which has higher sales of non-proprietary hardware, and lower margins in its products and services than MICROS generally realizes. The increases also reflect an unfavorable product mix between MICROS hardware products sales and third party hardware sales, and between professional services and maintenance services. MICROS generally realizes higher margins on professional services than it does on maintenance services.

Six Months Ended December 31, 2012:



The following table provides information regarding our cost of sales:



                                      Six Months Ended December 31,
                                  2012                             2011
                        Cost         % of Related        Cost         % of Related
(in thousands)        of Sales         Revenue         of Sales         Revenue
Hardware              $  86,352               65.9 %   $  66,800               63.1 %
Software                 10,621               15.3 %       9,153               13.5 %
Service                 202,019               47.7 %     154,271               43.7 %
Total Cost of Sales   $ 298,992               47.9 %   $ 230,224               43.7 %

For the six months ended December 31, 2012 and 2011, cost of sales as a percent of revenue were 47.9% and 43.7%, respectively. Hardware cost of sales as a percent of hardware revenue for the six months ended December 31, 2012 increased 2.8% compared to the same period last year. Software cost of sales as a percent of software revenue for the six months ended December 31, 2012 increased approximately 1.8% compared to the same period last year. Service costs as a percent of service revenue for the six months ended December 31, 2012 increased 4.0% compared to the same period last year. These increases were substantially due to our acquisition of Torex, which has higher sales of non-proprietary hardware, and lower margins in its products and services than MICROS generally realizes and due to an unfavorable product mix between MICROS hardware products sales and third party hardware sales, and between professional services and maintenance services. MICROS generally realizes higher margins on professional services than it does on maintenance services.

Selling, General and Administrative ("SG&A") Expenses:

SG&A expenses, as a percentage of revenue, for the three months ended December 31, 2012, were 26.9%, a decrease of 3.5% compared to the same period last year. SG&A expenses, as a percentage of revenue, for the six months ended December 31, 2012, were 26.4%, a decrease of 3.5% compared to the same period last year. The decreases in both 2012 periods were primarily due to decreases in compensation related expenses as compared to the same periods last year.

Research and Development ("R&D") Expenses:

R&D expenses consisted primarily of labor costs less capitalized software development costs. The following table provides information regarding our R&D expenses:

                                           Three Months Ended          Six Months Ended
                                              December 31,               December 31,
(in thousands)                              2012          2011         2012         2011
R&D labor and other costs                $   19,229     $ 14,603     $ 36,882     $ 27,763
Capitalized software development costs       (1,375 )     (2,124 )     (2,225 )     (3,949 )
Total R&D expenses                       $   17,854     $ 12,479     $ 34,657     $ 23,814
% of Revenue                                    5.5 %        4.6 %        5.6 %        4.5 %

The decrease in capitalized software development costs is primarily related to the completion of the development of our supply chain and life cycle management tool software during the three months ended September 30, 2012. The increase in total R&D expenses is primarily related to R&D expenses associated with Torex.

Depreciation and Amortization Expenses:

Depreciation and amortization expenses for the three months ended December 31, 2012 were approximately $5.5 million, an approximately $1.9 million increase compared to the same period in 2011. Depreciation and amortization expenses for the six months ended December 31, 2012 were approximately $11.0 million, an approximately $3.2 million increase compared to the same period in 2011. The increases in both 2012 periods are primarily due to amortization of acquired intangible assets related to Torex.

Share-Based Compensation Expenses:



The following table provides information regarding the allocation of non-cash
share-based compensation expense across SG&A expense, R&D expense and cost of
sales:



                                            Three Months Ended             Six Months Ended
                                               December 31,                  December 31,
(in thousands)                             2012            2011           2012           2011
Selling, general and administrative     $     6,905     $    5,424     $   10,605     $    8,082
Research and development                        328            305            766            614
Cost of sales                                    82             48            155             85
Total non-cash share-based
compensation expense                          7,315          5,777         11,526          8,781
Income tax benefit                           (2,391 )       (1,959 )       (3,655 )       (2,902 )
Total non-cash share-based
compensation expense, net of tax
benefit                                 $     4,924     $    3,818     $    7,871     $    5,879
Impact on diluted net income per
share attributable to MICROS Systems,
Inc. common shareholders                $      0.06     $     0.05     $     0.10     $     0.07

As of December 31, 2012, there was approximately $31.2 million in non-cash share-based compensation expense related to non-vested awards that were not yet recognized in our consolidated statements of operations. This expense is expected to be recognized over a weighted-average period of 2.0 years.

Non-operating Income:

Net non-operating income for the three months ended December 31, 2012 was approximately $4.0 million compared to approximately $1.4 million for the same period in 2011. The increase of approximately $2.6 million was due to an approximately $4.1 million gain on the sale of auction rate securities during the three months ended December 31, 2012. This increase was partially offset by a $0.6 million credit based impairment loss on our one remaining auction rate security in our portfolio and a decrease in interest income of approximately $0.7 million for the three months ended December 31, 2012. The decrease in interest income was due to lower funds available to earn interest, primarily reflecting funds used to acquire Torex, and lower interest rates during the three months ended December 31, 2012.

Net non-operating income for the six months ended December 31, 2012 was approximately $4.8 million compared to approximately $3.8 million for the same period in 2011. The increase of approximately $1.1 million was due to an approximately $4.1 million gain on sale of auction rate securities, offset by lower interest income of approximately $1.3 million, higher foreign currency exchange losses of approximately $1.3 million, and credit based impairment loss related to the our one remaining auction rate security in our portfolio of approximately $0.6 million. The lower interest income was due to lower funds available to earn interest, primarily reflecting funds used to acquire Torex, and lower interest rates during the six months ended December 31, 2012.

Income Tax Provisions:

The effective tax rate for the three months ended December 31, 2012 and 2011 was 32.5% and 31.4%, respectively. The increase in tax rate for the three months ended December 31, 2012 compared to the same period last year was primarily attributable to an increase in taxes associated with changes in our earnings mix among jurisdictions.

The effective tax rate for the six months ended December 31, 2012 and 2011 was 28.6% and 32.2%, respectively. The decrease in tax rate for the six months ended December 31, 2012 compared to the same period last year was primarily attributable to an increase in tax benefits realized upon the expiration of statutes of limitation or settlements with tax authorities, partially offset by an increase due to changes in our earnings mix among jurisdictions. We have recognized a decrease in unrecognized tax benefits for the six months ended December 31, 2012 as compared to the same period last year, which resulted in a reduction in income tax expense of approximately $6.3 million and a reduction in the effective tax rate of 5.4%. This reduction was primarily due to favorable settlements with tax authorities.

Based on currently available information, we estimate that the fiscal year 2013 effective tax rate will be approximately between 28% and 29%. We believe that due to earnings fluctuations, changes in the mix of earnings among jurisdictions, and the impact of certain discrete items recognized during the interim reporting periods, there may be some degree of adjustment to the effective tax rate on a quarterly basis.

We estimate that within the next 12 months, our unrecognized income tax benefits will decrease by between approximately $3.8 million and approximately $5.8 million due to the expiration of statues of limitations and settlement of issues with tax authorities. However, audit outcomes and the timing of audit settlements are subject to significant uncertainty. Over the next 12 months, it is reasonably possible that our tax positions will continue to generate liabilities related to uncertain tax positions.

We currently have no plans to repatriate to the U.S. our cumulative unremitted foreign earnings, as we intend to permanently reinvest such earnings internationally. If we change our strategy in the future and repatriate such funds, the amount of any U.S. taxes due on the repatriation of such funds, which could be significant, and the application of any tax credits, would be determined based on the appropriate jurisdictional income tax laws at the time of such repatriation. Due to the extent of uncertainty as to which remittance structure would be used should a decision be made in the future to repatriate, the availability and the complexity of calculating foreign tax credits, and the implications of indirect taxes, including withholding taxes, determination of the unrecognized deferred income tax liability related to these unremitted earnings is not practicable.

Our income tax returns are no longer subject to examination by the U.S. tax authorities for tax years ending before June 2011, by the U.K. tax authorities for tax years ending before June 2009, by the German tax authorities for tax years ending before June 2007 and the Irish tax authorities for tax years ending before June 2008. Certain periods prior to these dates, however, could be subject to adjustment as a result of the competent authority process or due to the impact of items such as carryback or carryforward claims.

Recent accounting standards

Recently Adopted Accounting Pronouncements

On July 1, 2012, we adopted FASB guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in stockholders' equity. The new guidance requires that changes in other comprehensive income be presented either in a single continuous statement of net income and other comprehensive income or in two separate but consecutive statements. In accordance with the new guidance, we have presented two separate but consecutive statements which include the components of net income and other comprehensive income. The adoption of this new guidance did not have a material impact on our condensed consolidated financial statements.

Recent Accounting Guidance Not Yet Adopted

In July 2012, the FASB issued revised guidance on how an entity tests indefinite-lived intangible assets for impairment. Under the new guidance, an entity is no longer required to calculate the fair value of the indefinite-lived intangible assets and perform the quantitative impairment test unless the entity determines, based on a qualitative assessment, that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. This revised guidance is effective for us beginning in our fiscal year 2014. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based on our condensed 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 that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on historical experience and on various assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates.

The following comprise the categories of critical accounting estimates that we used in the preparation of our condensed consolidated financial statements:

· Revenue recognition;

· Allowance for doubtful accounts;

· Inventory;

· Financial instruments and fair value measurements;

· Capitalized software development costs;

· Valuation of long-lived assets and intangible assets;

· Goodwill and indefinite-lived intangible assets;

· Share-based compensation;

· Income taxes.

We have reviewed our critical accounting estimates and the related disclosures with our Audit Committee. Critical accounting estimates are described further in our Annual Report on Form 10-K for the year ended June 30, 2012 in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading "Critical Accounting Estimates."

LIQUIDITY AND CAPITAL RESOURCES



Sources and Uses of Cash



Our Condensed Consolidated Statement of Cash Flows summary is as follows:



                                     Six Months Ended
                                       December 31,
(in thousands)                         2012          2011
Net cash provided by (used in):
Operating activities              $  65,735     $  63,389
Investing activities                (35,654 )     (17,173 )
Financing activities                (48,188 )     (44,149 )

Operating activities:

Net cash provided by operating activities for the six months ended December 31, 2012 increased approximately $2.3 million compared to the six months ended December 31, 2011. This increase was primarily due to an increase in net income of approximately $9.6 million, partially offset by certain unfavorable changes . . .