Exhibit 13
Selected Financial Data
Years Ended March 31, 2001 2000 1999 1998 1997
Earnings Statement Data:
Revenue $ 1,009,887 964,460 754,057 592,329 499,232
Net earnings (loss) before cumulative
effect of change in accounting principle $ 43,867 90,363 (15,142) 47,155 38,944
Cumulative effect of change in
accounting principle $ (37,488) - - - -
Net earnings (loss) $ 6,379 90,363 (15,142) 47,155 38,944
Basic earnings (loss) per share:
Before cumulative effect of change
in accounting principle $ .50 1.06 (.19) .64 .55
Cumulative effect of change in
accounting principle $ (.43) - - - -
Net earnings (loss) $ .07 1.06 (.19) .64 .55
Diluted earnings (loss) per share:
Before cumulative effect of change
in accounting principle $ .47 1.00 (.19) .58 .49
Cumulative effect of change in
accounting principle $ (.40) - - - -
Net earnings (loss) $ .07 1.00 (.19) .58 .49
Pro Forma Earnings Statement Data, assuming
accounting change is applied retroactively:
Revenue $ 1,009,887 901,925 741,124 592,329 499,232
Net earnings (loss) $ 43,867 60,038 (22,305) 47,155 38,944
Basic earnings (loss) per share $ .50 .71 (.29) .64 .55
Diluted earnings (loss) per share $ .47 .67 (.29) .58 .49
March 31, 2001 2000 1999 1998 1997
Balance Sheet Data:
Current assets $ 352,447 340,046 301,999 294,704 150,805
Current liabilities $ 214,320 180,008 167,915 84,201 54,044
Total assets $ 1,232,725 1,105,296 889,800 681,634 419,788
Long-term debt, excluding
current installments $ 369,172 289,234 325,223 254,240 109,898
Stockholders' equity $ 616,448 587,730 357,773 308,225 237,606
(In thousands, except per share data. Per share data are restated to reflect a 2-for-1 stock split in fiscal
1997.)
8
The following table is submitted in lieu of the required graphs:
YEAR 1997 1998 1999 2000 2001
Pro Forma Revenue (1) $499 $592 $741 $902 $1010
(In Millions of Dollars)
Net Earnings (1)(3) $38.9 $50.1 $59.6 $60.0 $70.4
(In Millions of Dollars)
Pro Forma Revenue $395 $500 $642 $796 $1010
Excluding Divestitures (1)(2)
(In Millions of Dollars)
Diluted Earnings Per Share (1)(3) $0.49 $0.61 $0.70 $0.67 $0.75
(In Dollars)
Revenue Under $255 $315 $374 $539 $722
Long-Term Contract (1)
(In Millions of Dollars)
Earnings Before Interest, $104.0 $139.8 $176.6 $206.9 $262.2
Taxes, Depreciation and
Amortization (1)(3)
(In Millions of Dollars)
(1) Years prior to 2001 restated on a pro forma basis assuming SAB 101 was applied retroactively
(2) Excludes divested operations
(3) Excluding nonrecurring items
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
On May 28, 1999, the Company completed the acquisition of Computer Graphics
of Arizona, Inc. ("Computer Graphics") and all of its affiliated companies. On
September 17, 1998, the Company completed the acquisition of May & Speh, Inc.
("May & Speh"). Both mergers have been accounted for as poolings-of-interests.
Accordingly, the consolidated financial statements have been restated as if
the combining companies had been combined for all periods presented. See note
2 to the consolidated financial statements for a more detailed discussion of
the merger transactions.
Effective January 1, 2001, the Company changed its method of accounting for
revenue recognition retroactive to April 1, 2000, in accordance with Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." Previously, the Company had recognized revenue from the licensing
of data when the data was delivered and from services and from information
technology ("IT") outsourcing services as the services were performed, using
the percentage-of-completion method. The cumulative effect of the change on
years prior to fiscal 2001 resulted in a charge to earnings of $37.5 million,
which is included in the Company's consolidated earnings for the year ended
March 31, 2001. The effect of the change on the year ended March 31, 2001 was
to decrease earnings before the cumulative effect of the change in accounting
principle by $18.2 million ($.20 per diluted share). The pro forma unaudited
amounts presented in the accompanying consolidated statements of operations
and discussed in this Management's Discussion and Analysis were calculated
assuming the accounting change was made retroactively to prior periods. For
the year ended March 31, 2001, the Company recognized approximately $29
million in revenue that was included in the cumulative effect adjustment as of
April 1, 2000.
RESULTS OF OPERATIONS
For the fiscal year ended March 31, 2001, the Company's revenue was $1.01
billion. This represents the first time the Company's revenue for a fiscal
year has exceeded $1 billion and represents an increase of 5% over revenue of
$964.5 million in fiscal 2000. Adjusting the prior year revenue for the pro
forma effects of SAB 101, and also excluding revenue in the prior year from
operations which have since been divested, results in an increase in revenue
of 27% for 2001, fueled by revenue from the sale of AbiliTec(TM) software
licenses of $110 million. For the fiscal year ended March 31, 2000,
consolidated revenue increased 28% from 1999. Excluding the impact of Direct
Media, Inc. ("DMI"), which was sold during fiscal 2000, revenue increased 31%
over 1999.
The following table shows the Company's revenue by business segment for
each of the years in the three-year period ended March 31, 2001 (dollars in
millions):
2001 2000
2001 2000 1999 to 2000 to 1999
- --------------------------------------------------------------------------------
Services $ 732.6 $ 675.1 $ 524.1 + 9% + 29%
Data and Software Products 228.7 168.5 117.8 + 36 + 43
IT Management 223.4 194.9 154.5 + 15 + 26
Intercompany eliminations (174.8) (74.0) (42.3) + 136 + 75
- --------------------------------------------------------------------------------
$ 1,009.9 $ 964.5 $ 754.1 + 5% + 28%
- --------------------------------------------------------------------------------
The Services segment, the Company's largest segment, provides data
warehousing, list processing and consulting services to large corporations in
a number of vertical industries. Revenue growth for this segment was 9% for
fiscal 2001, but when the prior year is adjusted for SAB 101 and divestitures,
the adjusted growth rate was 29%, following another 29% increase in 2000.
The Data and Software Products segment provides data content and software
primarily in support of their customers' direct marketing activities. One of
the channels for the Data and Software Products segment is the customers of
the Services and IT Management segments. For internal reporting purposes,
these revenues are included in both segments and then adjusted within the
intercompany elimination. As evidenced by the table above, Data and Software
Products revenues from the Services and IT Management segments' customers grew
strongly in 2001 increasing 136% over the prior year after a 75% increase in
2000. Fiscal 2001 revenue for the Data and Software Products segment increased
11
36% after increasing 43% in 2000. Adjusting fiscal 2000 for SAB 101 and
divestitures yields a growth rate for 2001 of 137%. The growth in 2001 was
fueled by sales of AbiliTec software, while the growth in 2000 was primarily
due to data and data license sales of the InfoBase(R) products. As a result of
SAB 101, revenue from data licenses will now be recognized on a straight-line
basis over the terms of the agreements, rather than recognizing up-front
revenue upon delivery. Software revenue was also recognized upon delivery
during fiscal 2001, but the Company has subsequently modified its software
contracts so that revenue from these products will also be recognized over the
terms of the license agreements, beginning in fiscal 2002. See the "Outlook"
section of Management's Discussion and Analysis for more information.
The IT Management segment reflects outsourcing services primarily in the
areas of data center, client server and network management. This segment grew
15% in 2001 after increasing 26% in 2000. However, after adjusting 2000 for
SAB 101, the growth rate for 2001 was 21%. The IT Management segment lost a
major customer late in fiscal 2001 due to the bankruptcy of Montgomery Ward
("Wards"), discussed below. Revenue from Wards in fiscal 2001 was
approximately $20.1 million, and most of this revenue will not recur, since
the contract was substantially terminated in April 2001.
The following table presents operating expenses for each of the years in
the three-year period ended March 31, 2001 (dollars in millions):
2001 2000
2001 2000 1999 to 2000 to 1999
- -------------------------------------------------------------------------------
Salaries and benefits $ 363.5 $ 361.8 $ 283.6 + 0% + 28%
Computer, communications and
other equipment 186.0 151.8 111.9 + 23 + 36
Data costs 112.0 113.1 111.4 - 1 + 2
Other operating costs and
expenses 211.5 173.9 129.8 + 22 + 34
Gains, losses and nonrecurring
items 35.3 - 118.7 NA NA
- -------------------------------------------------------------------------------
$ 908.3 $ 800.6 $ 755.4 + 13% + 6%
- -------------------------------------------------------------------------------
Salaries and benefits increased less than 1% from 2000 to 2001 and by 28%
from 1999 to 2000. Excluding the effect on the prior year of divestitures, the
increase for 2001 was 18%. The increases in both years are generally due to
headcount and normal salary increases to support the Company's revenue growth.
Computer, communications and other equipment costs increased 23% for 2001
and 36% for 2000. Excluding divestitures, the increase would have been 33% for
2001. The increases in both years reflect depreciation on capital expenditures
and amortization of software costs made to accommodate business growth, in
particular the outsourcing business in the IT Management segment.
Data costs were about flat for the three years shown, due to changes in
Allstate Insurance Company ("Allstate") data revenue being offset by changes
in other data costs. Allstate data revenues are normally the largest single
driver of data costs.
Other operating costs and expenses increased by 22% in 2001 after
increasing 34% in 2000. Cost of sales in 2001 increased 15%, due to sales of
hardware. Advertising expenses increased 66% in 2001, travel and entertainment
increased 25% and consulting and outside services increased 35%. Facilities
costs increased 45% in 2000, principally due to new buildings in Little Rock,
Arkansas, and Downers Grove, Illinois. Cost of sales, primarily related to
sales of hardware, increased 80% in 2000. Other line items with significant
increases in 2000 included office supplies, operating supplies, travel,
amortization of goodwill, and consulting and outside services.
During fiscal 2001, the Company recorded gains, losses and nonrecurring
items totaling $35.3 million. Included in these charges were $34.6 million
related to the bankruptcy of Wards. These charges consisted of approximately
$8.1 million for the write-down of property and equipment; $13.7 million of
12
deferred contract costs; $5.3 million of pre-petition receivables; $3.5
million for the write-down of software; $2.3 million in ongoing contract
costs; and $1.7 million of other accruals. See note 3 to the consolidated
financial statements for more information regarding the Wards write-downs.
Also included in the gains, losses and nonrecurring items for fiscal 2001
were a $39.7 million gain on the sale of the DataQuick operation in April, a
$3.2 million loss on the sale of the CIMS business unit, a $20.4 million
write-down of the Company's remaining interest in the DMI operation, a $7.6
million write-down of campaign management software, a $6.3 million accrual to
fund over-attainment incentives, and $2.9 million in additional write-offs.
See note 15 to the consolidated financial statements for more information
regarding these write-offs.
In fiscal 1999, the Company recorded special charges which totaled $118.7
million. These charges were merger and integration expenses associated with
the May & Speh merger and the write-down of other impaired assets. The charges
consisted of approximately $10.7 million of transaction costs; $8.1 million in
associate-related reserves; $48.5 million in contract termination costs; $11.5
million for the write-down of software; $29.3 million for the write-down of
property and equipment; $7.8 million for the write-down of goodwill and other
assets; and $2.8 million in other accruals. See note 3 to the consolidated
financial statements for further information about the special charges.
Total spending on capitalized software and research and development expense
was $58.9 million in 2001, compared to $63.7 million in 2000 and $36.3 million
in 1999. Research and development expense was $22.3 million, $26.4 million and
$17.8 million for 2001, 2000 and 1999, respectively. The Company's operations
for fiscal 2001 were heavily impacted by investment in the AbiliTec software.
The investment totaled approximately $79 million for the year, including $25
million of capitalized software development, with the remaining $54 million
being expensed as advertising, training, sales and marketing, research and
development, and the AbiliTec infrastructure.
Excluding the effect of the gains, losses and nonrecurring items in both
2001 and 1999, income from operations was $137.0 million in 2001, compared to
$163.9 million in 2000 and $117.4 million in 1999. Operating income for 2001
grew 18% when compared to the prior year as adjusted for SAB 101. The
operating margin for 2001, after implementation of SAB 101 but excluding
gains, losses and nonrecurring items, was 14%. Operating margins for the
segments were 23%, 31% and 12% for the Services, Data and Software Products,
and IT Management segments, respectively, for fiscal 2001.
Interest expense increased by $3.0 million in 2001 after increasing $6.1
million in 2000. The increases are due primarily to increased average debt
levels, including increases in the Company's revolving credit agreement and
increases in enterprise software license liabilities.
Other, net for fiscal 2001 includes write-downs on marketable and
nonmarketable securities and investments of $12.7 million taken in the fourth
quarter, net of realized gains. More information about these write-downs can
be found in note 1 to the consolidated financial statements. These write-downs
were partially offset by gains recorded in the first quarter on Ceres, Inc.
More information about this transaction can be found in note 15 to the
consolidated financial statements. The remainder of the other, net category
consists primarily of interest income on unbilled and notes receivable
together with equity pickup on joint ventures. Other, net in 2000 and 1999 are
primarily comprised of interest income.
The Company's effective tax rate, excluding the gains, losses and
nonrecurring items, was 38.5%, 37.5% and 37.3% for 2001, 2000 and 1999,
respectively. In each year, the effective rate exceeded the U.S. statutory
rate because of state income taxes, partially offset by research,
experimentation and other tax credits. In 1999, the effect of the gains,
losses and nonrecurring items increased the effective tax rate as certain of
the special charges were not deductible for Federal or state tax purposes.
As noted above, the Company implemented SAB 101 as of the beginning of
fiscal 2001. The cumulative effect of this change in accounting principle, net
of related income tax benefit, was $37.5 million.
Net earnings before the cumulative effect of the accounting change were
$43.9 million for fiscal 2001. Excluding the gains, losses and nonrecurring
items, the investment gains and losses referred to above, and other
13
nonrecurring charges, net earnings would have been $70.4 million. Net earnings
for fiscal 2000, adjusted for SAB 101, were $60.0 million. Excluding the
effect of the special charges, and also adjusting for SAB 101, net earnings in
1999 would have been $59.6 million. Basic earnings per share, excluding the
special charges and adjusting for SAB 101 in prior years, would have been
$.79, $.71 and $.77 in 2001, 2000 and 1999, respectively. Diluted earnings per
share would have been $.75, $.67 and $.70, respectively.
In April 2001, in response to the slowing economy, the Company initiated a
series of expense reduction and control measures. The most significant of
these was a mandatory 5% pay reduction for most U.S. associates, with the
associates receiving stock options to offset the reduction. Associates were
offered the chance to take additional pay reductions of up to an additional
15% in return for more options, and approximately 38% of associates
volunteered for some amount of additional reduction. Share dilution as a
result of these additional options is estimated to be 3.2%, which the Company
believes will be more than offset by the cost savings and increased
productivity of virtually every Acxiom associate having a financial stake in
the future of the Company. The cost savings as a result of this program make
the overall impact accretive to earnings per share in fiscal 2002. The Company
has also put plans in place to reduce other expenses including advertising,
capital expenditures, and travel and entertainment, together with other
discretionary expenses. In total these initiatives are expected to reduce
expenses by at least $70 million from the level previously planned for fiscal
2002.
CAPITAL RESOURCES AND LIQUIDITY
Working capital at March 31, 2001 totaled $138.1 million, compared to
$160.0 million a year previously. At March 31, 2001, the Company had available
credit lines of $296.5 million of which $129.0 million was outstanding. The
Company's debt-to-capital ratio (capital defined as long-term debt plus
stockholders' equity) was 37% at March 31, 2001, compared to 33% at March 31,
2000. Included in long-term debt at March 31, 2001 and 2000 is a convertible
debt of $115 million, for which the conversion price is $19.89 per share. The
market price of the Company's common stock has been in excess of this
conversion price for most of the current fiscal year, although it has dropped
below this price subsequent to March 31, 2001. If the price of the Company's
common stock moves above the conversion price prior to the scheduled maturity
of the convertible note, management expects this debt to be converted to
equity. Assuming the convertible debt had been converted to equity, the
Company's debt-to-capital ratio would have been reduced to 26% at March 31,
2001. Total stockholders' equity increased 5% to $616.4 million at March 31,
2001. The components of this increase are detailed in the statements of
stockholders' equity in the accompanying consolidated financial statements.
Cash provided by operating activities was $48.1 million for 2001, compared
to $104.6 million for 2000 and $60.4 million for 1999. Earnings before
interest expense, taxes, depreciation and amortization ("EBITDA") of $262.2
million, excluding the impact of the gains, losses and nonrecurring items and
also excluding other noncash write-offs which are reported elsewhere in the
consolidated statements of operations, increased by 3% in 2001 after
increasing by 35% in 2000. EBITDA is not intended to represent cash flows for
the period, is not presented as an alternative to operating income as an
indicator of operating performance, may not be comparable to other similarly
titled measures of other companies, and should not be considered in isolation
or as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles. However, EBITDA is a relevant
measure of the Company's operations and cash flows and is used internally as a
surrogate measure of cash provided by operating activities. Adjusting 2000 for
the pro forma effects of SAB 101 yields an increase in EBITDA for 2001 of 27%.
The resulting operating cash flow was reduced by $149.8 million in 2001,
$112.6 million in 2000 and $124.3 million in 1999 due to the net change in
operating assets and liabilities. The change primarily reflects higher current
and noncurrent receivables, partially offset by higher accounts payable and
accrued liabilities resulting from the growth of the business. Days sales
outstanding ("DSO") was 67 days at March 31, 2000 and was 70 days at March 31,
2001.
Investing activities used $115.6 million in 2001, $157.8 million in 2000,
and $190.3 million in 1999. Investing activities in 2001 included $111.5
million in capital expenditures, compared to $120.6 million in 2000 and $127.9
million in 1999. Capital expenditures are principally due to purchases of data
14
center equipment to support the Company's outsourcing agreements, as well as
the purchase of additional data center equipment in the Company's core data
centers. In fiscal 2000, the Company occupied two new buildings in Little
Rock, Arkansas, and in fiscal 1999, the Company occupied a new building in
Downers Grove, Illinois. During fiscal 2000 and 2001, the Company entered into
synthetic off-balance sheet lease arrangements with a financial institution
for computer equipment, furniture and airplane financing, under which it has
acquired equipment totaling $91.1 million during 2001 and $67.8 million during
2000. Of the total funded in 2000, $34.8 million was received in a sale and
leaseback transaction of equipment that had previously been owned by the
Company. The remaining lease funding reduced capital expenditures. At March
31, 2001, the Company had obtained commitments for future additional synthetic
lease funding totaling approximately $94.6 million.
Investing activities during 2001 also included $36.6 million in software
development costs, compared to $37.3 million in 2000 and $18.5 million in
1999. Capitalization in 2001, 2000 and 1999 included approximately $25.2
million, $19.2 million and $4.1 million, respectively, related to the Acxiom
Data Network and AbiliTec products. The remainder of the software
capitalization includes software tools and databases developed for customers
in all three segments of the business. Investing activities also reflect cash
paid for acquisitions of $16.0 million in 2001, $33.0 million in 2000 and
$46.0 million in 1999. Dispositions of assets in 2001 included cash proceeds
of $55.5 million from the sale of DataQuick. Notes 2 and 15 to the
consolidated financial statements discuss the acquisitions and dispositions in
more detail. Investing activities also reflect the investment of $20.5 million
in 2001, $5.8 million in 2000 and $10.4 million in 1999 by the Company in
joint ventures. Investments made in the current year include an additional
advance of $5.4 million to the Company's joint venture in Australia, a $5.0
million investment in HealthCareProConnect, LLC, a joint venture with the
American Medical Association, a $6.0 million investment in USADATA.com, Inc.,
and an investment of $1.1 million in Landscape Co., Ltd., a Japanese data
company. Investing activities in 2001 also include the sale of certain
marketable securities that had been received in exchange for one of the
Company's previous investments. Investing activities for 1999 also included
sales of marketable securities which had been owned by May & Speh prior to the
merger.
Financing activities in 2001 provided $58.0 million, primarily from
increases in debt, along with sales of stock through the Company's stock
option and employee stock purchase plans. Financing activities in 2001 also
included payments under the Company's equity forward contracts and purchases
of treasury stock in the open market. The equity forward contracts are
discussed in further detail below. Financing activities in 2000 provided $64.6
million, including the sale of stock by the Company in a secondary offering
which generated approximately $51.3 million in cash, along with sales of stock
through the Company's stock option and employee stock purchase plans.
Financing activities in 1999 included sales of stock through the Company's
stock option and employee stock purchase plans and the exercise of a warrant
by TransUnion LLC ("TransUnion") for the purchase of 4 million shares. This
warrant was issued to TransUnion in 1992 in conjunction with the data center
management agreement between TransUnion and the Company.
During fiscal 2001, the Company began construction on a customer service
facility in Little Rock and is in the planning stage of another customer
service and data center facility in Phoenix. The Little Rock building is
expected to cost approximately $30.0 million to $35.0 million including
interest during construction, with construction expected to last until October
2002. The Phoenix project is expected to cost approximately $25.0 million,
including land and construction interest, with construction expected to last
until September 2002. The City of Little Rock has issued revenue bonds for the
Little Rock project. The Company is financing both the Phoenix and Little Rock
projects using an off-balance sheet synthetic lease arrangement. Upon
completion, the combined impact of these two leasing arrangements will reduce
operating cash flow by approximately $5.0 million per year over the term of
the lease.
While the Company does not have any other material contractual commitments
for capital expenditures, additional investments in facilities and computer
equipment continue to be necessary to support the growth of the business. In
addition, new outsourcing or facilities management contracts frequently
require substantial up-front capital expenditures in order to acquire or
replace existing assets. In some cases, the Company also sells software and
15
hardware to customers under extended payment terms or notes receivable
collectible generally over three years. These arrangements also require up-
front expenditures of cash, which are repaid over the life of the agreement.
The Company also evaluates acquisitions from time to time which may require
up-front payments of cash. Depending on the size of the acquisition, it may be
necessary to raise additional capital. If additional capital becomes
necessary, the Company would first use available borrowing capacity under its
revolving credit agreement, followed by the issuance of other debt or equity
securities.
As of March 31, 2001, the Company has entered into three equity forward
purchase agreements with a commercial bank under which the Company will
purchase 3.1 million, 0.2 million and 0.5 million shares of its common stock
at an average total cost of approximately $21.81, $27.51 and $24.37 per share,
respectively, for a total notional amount of $83.8 million. In accordance with
the terms of the forward contracts, the shares remain issued and outstanding
until the forward purchase contracts are settled. The Company has the option
to settle the contracts at any time prior to December 15, 2001, when the
contracts are required to be settled. The agreements may be settled in cash,
shares of common stock or in net shares of common stock. The Company has
accounted for these forward contracts as permanent equity. The fair value of
the equity forward contracts as of March 31, 2001 was a liability of $7.5
million, based on a stock price of $20.88. An increase or decrease in the
stock price of $1.00 per share increases or decreases the market value by
approximately $3.7 million.
During April 2001, the Company paid, and has recorded as a component of
stockholders' equity, approximately $20 million to reduce the strike price of
the equity forward agreement for purchase of the 3.1 million shares from
$21.81 to $15.48 per share. As a result, the total notional amount under the
equity forward agreements has been reduced to approximately $64 million and
the required settlement date was changed to December 15, 2001.
The Emerging Issues Task Force ("EITF") of the Financial Accounting
Standards Board reached a consensus in EITF 00-7 that requires equity forward
contracts entered into after March 15, 2000 to be recorded as assets and
liabilities, with adjustments to the market value of the common stock to be
recorded on the income statement, in situations in which the counter party can
force the contracts to be settled in cash. The effective date of the new
consensus was delayed until December 31, 2000 to allow such contracts to be
amended. The EITF reached conclusions in EITF 00-19 that also require asset
and liability treatment in certain circumstances, including when an agency
agreement is in place. In order to qualify for permanent equity treatment, the
forward contract must permit settlement in unregistered shares, contain an
explicit cap on the number of shares to be delivered under a net share
settlement, must not require the posting of collateral and must not provide
the commercial bank with any right that would rank higher than those of a
common shareholder. Additionally, the forwards must not require cash "true-
ups" under the net-share method and must not contain any economic penalties
that would compel the Company to net cash settle. The Company amended the
forward agreements in October 2000 to comply with the permanent equity
provisions of EITF 00-7 and EITF 00-19.
SEASONALITY AND INFLATION
Although the Company cannot accurately determine the amounts attributable
thereto, the Company has been affected by inflation through increased costs of
compensation and other operating expenses. Generally, the effects of inflation
are offset by technological advances, economies of scale and other operational
efficiencies. The Company has established a pricing policy for long-term
contracts which provides for the effects of expected increases resulting from
inflation.
The Company's operations have not proven to be significantly seasonal,
although the Company's traditional direct marketing operations experience
slightly higher revenues in the Company's second and third quarters. In order
to minimize the impact of these fluctuations, the Company continues to move
toward long-term strategic partnerships with more predictable revenues.
Revenues under long-term contract (defined as three years or longer) were 70%,
62% and 53% of consolidated revenues for 2001, 2000 and 1999, respectively.
Effective April 1, 2001, the Company has made certain modifications to its
standard software sales agreements entered into on a prospective basis such
that vendor-specific objective evidence is not available in many of its
software sale transactions. Accordingly, the Company now recognizes revenue
16
from the sale of software on a straight-line basis over the term of the
agreement. See the "Outlook" section for the Company's estimates of revenue on
this basis for next year.
ACQUISITIONS
In fiscal 1999, the Company acquired Normadress, SIGMA Marketing Group,
Inc., May & Speh and three business units from Deluxe Corporation. The May &
Speh acquisition was accounted for as a pooling-of-interests and the other
acquisitions were treated as purchases. In fiscal 2000, the Company acquired
Horizon Systems, Inc., Computer Graphics, Access Communication Systems, Inc.
and Litton Enterprise Solutions. Computer Graphics was accounted for as a
pooling-of-interests and the remaining acquisitions were accounted for as
purchases. In fiscal 2001, the Company acquired MCRB Service Bureau, Inc. and
Data Dimension Information Services, Inc. See footnote 2 to the consolidated
financial statements for more information regarding these acquisitions.
OTHER INFORMATION
In 1999, the Company had one major customer who accounted for more than 10%
of revenue. Allstate accounted for 10.9% of revenue in 1999. Allstate is under
a long-term contract which expires in 2004. In 2000 and 2001, the Company had
no customers who accounted for more than 10% of revenue.
Acxiom, Ltd., the Company's United Kingdom ("U.K.") business, provides
services primarily to the U.K. market which are similar to the traditional
direct marketing industry services the Company provides in the United States
("U.S."). In addition, Acxiom, Ltd. also provides promotional materials
handling and response services to its U.K. customers. Most of the Company's
exposure to exchange rate fluctuation is due to translation gains and losses
as there are no material transactions which cause exchange rate impact. The
U.K. operation generally funds its own operations and capital expenditures,
although the Company occasionally advances funds from the U.S. to the U.K.
These advances are considered to be long-term investments, and any gain or
loss resulting from changes in exchange rates as well as gains or losses
resulting from translating the financial statements into U.S. dollars are
included in accumulated other comprehensive income (loss). There are no
restrictions on transfers of funds from the U.K.
Efforts are continuing to expand the services of Acxiom to customers in
Europe and the Pacific region. Management believes that the market for the
Company's services in such locations is largely untapped. To date the Company
has had no significant revenues or operations outside of the U.S. and the
U.K., although the Company has offices in Spain, France and Japan, and is
involved in a joint venture in Australia. The Company's U.K. operations had a
net loss of $0.5 million in fiscal 2001, compared to profits of $5.1 million
in fiscal 2000 and $1.9 million in fiscal 1999. The fiscal 2001 loss
principally resulted from investments to build the European AbiliTec software
product.
As discussed more fully in note 15 to the consolidated financial
statements, the Company has sold its Acxiom/DMI business unit and part of its
DataQuick business group. The DMI sale was originally considered a divestiture
for legal and tax purposes, but not for accounting purposes under applicable
accounting rules because the collection of the sales price is primarily
dependent on the buyer's ability to repay the note through operations of the
business. Accordingly, the results of operations of DMI were required to be
included in the Company's consolidated financial statements until such time as
a sufficient portion of the note balance was collected, at which time the
Company could account for the transaction as a sale. During 2001, a sufficient
portion of the note balance was collected, and this transaction has now been
accounted for as a sale. The remaining note receivable balance from DMI
totaled $17.6 million at March 31, 2001.
NEW ACCOUNTING PRONOUNCEMENTS
The Company is assessing the reporting and disclosures requirements of
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
For Derivative Instruments and Hedging Activities," as amended by Statement of
Financial Accounting Standards Nos. 137 and 138. These statements establish
accounting and reporting standards for derivative instruments and hedging
activities and will require the Company to recognize all derivatives on its
balance sheet at fair value. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of the derivatives will either
be offset against the change in fair value of the hedged item through earnings
or recognized in other comprehensive income until the hedged item is
17
recognized in earnings. The Company expects to adopt SFAS 133 in the first
quarter of fiscal 2002 and does not anticipate that the adoption will have a
material effect on the Company's results of operations or financial position.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation: An Interpretation of APB Opinion No. 25." Among
other issues, FIN 44 clarifies the application of Accounting Principles Board
Opinion No. 25 ("APB 25") regarding (a) the definition of employee for
purposes of applying APB 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequences of
various modifications to the terms of a previously fixed stock option or award
and (d) the accounting for an exchange of stock compensation awards in a
business combination. The provisions of FIN 44 affecting the Company have been
applied on a prospective basis effective July 1, 2000.
In September 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 140 ("SFAS 140"), "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" which replaces SFAS No. 125. This standard revises the methods
for accounting for securitizations and other transfers of financial assets and
collateral as outlined in SFAS No. 125 and requires certain additional
disclosures. For transfers and servicing of financial assets and
extinguishments of liabilities, this standard will be effective for the
Company's June 30, 2001 financial statements. However, for disclosures
regarding securitizations and collateral, as well as the accounting for
recognition and reclassification of collateral, this standard is currently
effective. The Company does not expect the adoption of this standard to have a
material effect on its financial position or results of operations.
The Financial Accounting Standards Board has issued an exposure draft, and
is expected to issue a final standard in June 2001, on business combinations.
The standard, although not yet complete, is expected to prohibit pooling-of-
interests accounting for business combinations initiated after June 30, 2001.
The final standard is also expected to require that goodwill and other
intangible assets with indefinite lives will no longer be systematically
amortized, but rather evaluated periodically for impairment. Amortization of
existing goodwill would cease. A company with a March 31 year-end may be able
to cease amortizing goodwill as of April 1, 2001, if it commits to completing
an initial review of existing goodwill and recording any impairments by March
31, 2002 and it has not released any earnings for any interim periods
subsequent to March 31, 2001. The final standard has not been released and may
change prior to its release. Once the standard is released in its final form,
the Company will evaluate whether it can discontinue the amortization of
goodwill, based on the final standard.
OUTLOOK
The opportunities for AbiliTec software continue to grow as companies
implement their customer relationship management ("CRM") strategies. These CRM
efforts are putting focus on the need to aggregate customer information across
an enterprise, with the ability to do so in real time. Acxiom's AbiliTec
software provides the Customer Data Integration ("CDI") that can accurately
and quickly aggregate all records about an individual or a business. CDI is
the foundational data management process for every use of CRM.
The financial projections stated today are based on current expectations.
It is anticipated that the current economic situation may improve slightly
through the fiscal year, and our guidance is structured accordingly. These
projections are forward-looking and actual results may differ materially.
These projections do not include the potential impact of any mergers,
acquisitions, divestitures or other business combinations that may be
completed after March 31, 2001.
The Company expects that revenue for fiscal 2002 will exceed $1 billion.
This expectation reflects the implementation of SAB 101 and a subscription
model for software revenue recognition beginning April 1, 2001. Fiscal 2002
projected revenue represents approximately a 10% increase over the fiscal 2001
revenue prepared on a pro forma basis as if the subscription model had been
followed for software revenue in 2001. The Company expects that fiscal 2002
earnings per share will be approximately $.60.
18
With straight-line revenue recognition we expect software revenue to start
low and grow as new contracts are added. The Company expects software revenue
for fiscal 2002 in the range of $20 million to $25 million.
For the first quarter ended June 30, 2001, the Company expects revenue in
the range of $220 million to $230 million and earnings per share of $.04 to
$.06. Historically, the first quarter is the lowest revenue and earnings
quarter of the year.
For fiscal 2003, the Company expects that revenue will grow approximately
20% above the fiscal 2002 guidance and that earnings per share will grow 25%
to 35%.
The Company currently expects that the effective tax rate for fiscal 2002
will be 38.5%.
With respect to cash flow related items for fiscal 2002, the Company
expects that depreciation and amortization will be approximately $120 million,
capital expenditures will be $100 million to $110 million and software
development will be $25 million to $30 million. The net result is expected to
produce positive operating cash flow for fiscal 2002 in excess of $150
million.
Certain statements in this filing may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements, which are not statements of historical fact, may
contain estimates, assumptions, projections and/or expectations regarding the
Company's financial position, results of operations, market position, product
development, regulatory matters, growth opportunities and growth rates,
acquisition and divestiture opportunities, and other similar forecasts and
statements of expectation. Words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates" and "should," and variations of
these words and similar expressions, are intended to identify these forward-
looking statements. Such forward-looking statements are not guarantees of
future performance. They involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. The
forward-looking statements include: statements concerning the Company's need
for additional capital and the ability to raise additional capital; statements
that the indicated revenue, earnings per share, cash flow, tax rate,
depreciation, amortization, capital expenditures, software development and the
indicated growth rates for future periods will be within the indicated amounts
and ranges; statements concerning the length and future impact of the
Company's investment in AbiliTec on the Company's future revenue and margins;
statements concerning the benefits of AbiliTec and our other products and
services for our customers; statements concerning any competitive advantage;
statements concerning the impact of implementation of AbiliTec in CRM
applications; statements concerning the momentum of CRM applications;
statements concerning the future growth and size of the CRM market; statements
concerning AbiliTec becoming an industry standard; statements concerning
efficiency gains related to the implementation of AbiliTec; statements
concerning potential growth of international markets; statements concerning
future economic and business conditions; statements that the Company will be
able to achieve the anticipated cost savings and will be able to effectively
continue its expense reduction efforts within the indicated ranges. The
following are important factors, among others, that could cause actual results
to differ materially from these forward-looking statements. With regard to all
statements regarding AbiliTec: the complexity and uncertainty regarding the
development of new software and high technologies; the difficulties associated
with developing new AbiliTec products and AbiliTec Enabled Services; the loss
of market share through competition or the acceptance of these or other
Company offerings on a less rapid basis than expected; changes in the length
of sales cycles; the introduction of competent, competitive products or
technologies by other companies; changes in the consumer and/or business
information industries and markets; the Company's ability to protect
proprietary information and technology or to obtain necessary licenses on
commercially reasonable terms; the impact of changing legislative, accounting,
regulatory and consumer environments in the geographies in which AbiliTec will
19
be deployed. With regard to the statements that generally relate to the
business of the Company: all of the above factors; the fact that the future
financial numbers listed herein are estimates and ranges that are based on the
Company's understanding of current facts and circumstances; the possibility
that certain contracts may not be closed; the possibility that economic or
other conditions might lead to a reduction in demand for the Company's
products and services; the possibility that the current economic slowdown may
worsen and/or persist for an unpredictable period of time; the possibility
that significant customers may experience extreme, severe economic difficulty;
the future impact of the discussed accounting standards and interpretations;
the continued ability to attract and retain qualified technical and leadership
associates and the possible loss of associates to other organizations; the
ability to properly motivate the sales force and other associates of the
Company; the ability to achieve cost reductions and avoid unanticipated costs;
changes in the legislative, accounting, regulatory and consumer environments
affecting the Company's business including but not limited to litigation,
legislation, regulations and customs relating to the Company's ability to
collect, manage, aggregate and use data; data suppliers might withdraw data
from the Company, leading to the Company's inability to provide certain
products and services; short-term contracts affect the predictability of the
Company's revenues; the potential loss of data center capacity or interruption
of telecommunication links; postal rate increases that could lead to reduced
volumes of business; customers that may cancel or modify their agreements with
the Company; the successful integration of any acquired businesses and other
competitive factors. With respect to the providing of products or services
outside the Company's primary base of operations in the U.S.: all of the above
factors and the difficulty of doing business in numerous sovereign
jurisdictions due to differences in culture, laws and regulations. Other
factors are detailed from time to time in the Company's other periodic reports
and registration statements filed with the United States Securities and
Exchange Commission. Acxiom believes that it has the product and technology
offerings, facilities, associates and competitive and financial resources for
continued business success, but future revenues, costs, margins and profits
are all influenced by a number of factors, including those discussed above,
all of which are inherently difficult to forecast. Acxiom undertakes no
obligation to update the information contained in this Management's Discussion
and Analysis or any other forward-looking statement.
20
CONSOLIDATED BALANCE SHEETS
Years ended March 31, 2001 and 2000
(Dollars in thousands) 2001 2000
- ------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 14,176 $ 23,924
Trade accounts receivable, net
(note 19) 196,107 198,818
Deferred income taxes (note 9) 36,211 18,432
Other current assets 105,953 98,872
- ------------------------------------------------------------------------------
Total current assets 352,447 340,046
Property and equipment, net of
accumulated depreciation and
amortization (note 5) 245,340 249,676
Software, net of accumulated
amortization of $37,988 in 2001 and
$27,829 in 2000 (note 4) 63,906 58,964
Excess of cost over fair value of net
assets acquired, net of accumulated
amortization of $28,995 in 2001 and
$17,860 in 2000 (note 2) 172,741 145,082
Purchased software licenses, net of
accumulated amortization of $65,662
in 2001 and $30,735 in 2000 (note
4) 168,673 123,846
Unbilled and notes receivable,
excluding current portions 71,735 55,804
Deferred costs 108,928 63,173
Other assets, net 48,955 68,705
- ------------------------------------------------------------------------------
$ 1,232,725 $ 1,105,296
- ------------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term
debt (note 6) $ 31,031 $ 23,156
Trade accounts payable 68,882 54,016
Accrued expenses:
Merger, integration and
impairment costs (note 3) 3,215 15,106
Payroll 18,467 26,483
Other 49,767 31,779
Deferred revenue 31,273 19,995
Income taxes 11,685 9,473
- ------------------------------------------------------------------------------
Total current liabilities 214,320 180,008
Long-term debt, excluding current
installments (note 6) 369,172 289,234
Deferred income taxes (note 9) 32,785 48,324
Stockholders' equity (notes 2, 6, 8
and 17):
Common stock 9,055 8,831
Additional paid-in capital 351,921 325,729
Retained earnings 263,755 257,376
Accumulated other comprehensive
loss (5,996) (1,448)
Treasury stock, at cost (2,287) (2,758)
- ------------------------------------------------------------------------------
Total stockholders' equity 616,448 587,730
Commitments and contingencies (notes
6, 7, 8, 10 and 14)
- ------------------------------------------------------------------------------
$ 1,232,725 $ 1,105,296
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
21
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended March 31, 2001, 2000 and 1999
(Dollars in thousands, except per
share amounts) 2001 2000 1999
- ------------------------------------------------------------------------------
Revenue (notes 1, 2 and 12) $ 1,009,887 $ 964,460 $ 754,057
Operating costs and expenses
(notes 7 and 10):
Salaries and benefits 363,463 361,768 283,659
Computer, communications and
other equipment 185,950 151,816 111,876
Data costs 112,019 113,083 111,395
Other operating costs and
expenses 211,500 173,909 129,764
Gains, losses and nonrecurring
items, net (notes 3, 14 and
15) 35,330 - 118,747
- ------------------------------------------------------------------------------
Total operating costs and
expenses 908,262 800,576 755,441
- ------------------------------------------------------------------------------
Income (loss) from
operations 101,625 163,884 (1,384)
- ------------------------------------------------------------------------------
Other income (expense):
Interest expense (26,513) (23,532) (17,393)
Other, net (note 15) (3,780) 4,225 6,478
- ------------------------------------------------------------------------------
(30,293) (19,307) (10,915)
- ------------------------------------------------------------------------------
Earnings (loss) before income
taxes and cumulative effect of
change in accounting principle 71,332 144,577 (12,299)
- ------------------------------------------------------------------------------
Income taxes (note 9) 27,465 54,214 2,843
- ------------------------------------------------------------------------------
Earnings (loss) before cumulative
effect of change in accounting
principle 43,867 90,363 (15,142)
Cumulative effect of change in
accounting principle, net of
income tax benefit of $21,548 37,488 - -
- ------------------------------------------------------------------------------
Net earnings (loss) $ 6,379 $ 90,363 $ (15,142)
- ------------------------------------------------------------------------------
Basic earnings (loss) per share:
Earnings (loss) before
cumulative effect of change
in accounting principle $.50 $1.06 $(.19)
Cumulative effect of change in
accounting principle (.43) - -
- ------------------------------------------------------------------------------
Net earnings (loss) $.07 $1.06 $(.19)
- ------------------------------------------------------------------------------
Diluted earnings (loss) per share:
Earnings (loss) before
cumulative effect of change
in accounting principle $.47 $1.00 $(.19)
Cumulative effect of change in
accounting principle (.40) - -
- ------------------------------------------------------------------------------
Net earnings (loss) $.07 $1.00 $(.19)
- ------------------------------------------------------------------------------
Unaudited pro forma amounts
assuming the cumulative effect
of change in accounting
principle is applied
retroactively:
Net earnings (loss) $ 60,038 $ (22,305)
- ------------------------------------------------------------------------------
Basic earnings (loss) per
share $ .71 $ (.29)
- ------------------------------------------------------------------------------
Diluted earnings (loss) per
share $ .67 $ (.29)
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
22
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, 2001, 2000 and 1999
(Dollars in thousands) 2001 2000 1999
- ------------------------------------------------------------------------------
Cash flows from operating
activities:
Net earnings (loss) $ 6,379 $ 90,363 $ (15,142)
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating
activities:
Depreciation and
amortization 120,793 86,529 64,097
Gains and losses on disposal
or impairment of assets,
net 33,437 354 118,773
Provision for returns and
doubtful accounts 3,563 2,313 2,373
Deferred income taxes (11,770) 21,646 (23,854)
Tax benefit of stock options
and warrants exercised 8,001 15,921 36,393
ESOP compensation - - 2,055
Cumulative effect of change
in accounting principle
(note 1) 37,488 - -
Changes in operating assets
and liabilities:
Accounts receivable (14,704) (25,081) (61,286)
Other assets (126,745) (78,434) (62,596)
Accounts payable and
other liabilities 7,521 8,742 27,983
Merger and integration
costs (15,862) (17,795) (28,385)
- ------------------------------------------------------------------------------
Net cash provided by
operating
activities 48,101 104,558 60,411
- ------------------------------------------------------------------------------
Cash flows from investing
activities:
Proceeds from the disposition
of assets 60,025 4,148 733
Proceeds from sale of
marketable securities 8,918 - 11,794
Capitalized software (36,558) (37,317) (18,544)
Capital expenditures (111,486) (120,616) (127,880)
Proceeds from sale and
leaseback transaction - 34,763 -
Investments in joint ventures (20,456) (5,774) (10,400)
Net cash paid in acquisitions
(note 2) (16,030) (32,960) (45,983)
- ------------------------------------------------------------------------------
Net cash used in
investing
activities (115,587) (157,756) (190,280)
- ------------------------------------------------------------------------------
Cash flows from financing
activities:
Proceeds from debt 153,359 194,657 18,939
Payments of debt (107,388) (215,012) (18,607)
Payments on equity forward
contracts (note 8) (6,678) - -
Sale of common stock 26,145 84,970 24,566
Purchase of treasury stock (7,478) - -
- ------------------------------------------------------------------------------
Net cash provided by
financing
activities 57,960 64,615 24,898
- ------------------------------------------------------------------------------
Effect of exchange rate changes on
cash (222) (97) (77)
- ------------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents (9,748) 11,320 (105,048)
Cash and cash equivalents at
beginning of year 23,924 12,604 117,652
- ------------------------------------------------------------------------------
Cash and cash equivalents at end
of year $ 14,176 $ 23,924 $ 12,604
- ------------------------------------------------------------------------------
Supplemental cash flow
information:
Cash paid (received) during the
year for:
Interest $ 25,754 $ 25,902 $ 15,608
Income taxes 29,022 (5,459) (4,715)
Noncash investing and financing
activities:
Issuance of warrants 220 1,100 2,676
Enterprise software licenses
acquired under software
obligations 35,185 9,164 74,638
Land acquired for common
stock - 1,300 -
Purchase of subsidiaries for
stock (note 2) 6,897 10,346 -
Convertible debt and accrued
interest converted into
common stock (note 6) - 27,081 -
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
23
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended March 31, 2001, 2000 and 1999
Common stock
---------------------------- Additional
Number of paid-in
(Dollars in thousands) shares Amount capital
- ------------------------------------------------------------------------------
Balances at March 31, 1998 75,920,218 $ 7,592 $ 122,038
Sale of common stock 4,000,000 400 11,850
Tax benefit of stock options
and warrants exercised (note
9) - - 36,393
Issuance of warrants - - 2,676
Employee stock awards and
shares issued to employee
benefit plans 1,144,198 114 13,054
ESOP compensation earned - - -
Comprehensive loss:
Foreign currency translation - - -
Net loss - - -
- ------------------------------------------------------------------------------
Total comprehensive loss
Balances at March 31, 1999 81,064,416 8,106 186,011
Sale of common stock 4,684,714 468 78,072
Tax benefit of stock options
and warrants exercised (note
9) - - 15,921
Issuance of warrants - - 1,100
Employee stock awards and
shares issued to employee
benefit plans 42,962 5 6,150
Conversion of debt and accrued
interest to stock 2,000,000 200 26,881
Purchase of subsidiaries for
stock (note 2) 465,546 47 10,299
Purchase of land for stock 54,450 5 1,295
Comprehensive income:
Foreign currency translation - - -
Unrealized depreciation on
marketable securities - - -
Net earnings - - -
- ------------------------------------------------------------------------------
Total comprehensive
income
Balances at March 31, 2000 88,312,088 8,831 325,729
Tax benefit of stock options
and warrants exercised (note
9) - - 8,001
Issuance of warrants - - 220
Employee stock awards and
shares issued to employee
benefit plans 2,245,126 225 25,229
Purchase of subsidiaries for
stock (note 2) 275,862 28 6,869
Payments on equity forward
contracts (note 8) - - (6,678)
Purchase of treasury stock - - -
Retirement of treasury stock (287,500) (29) (7,449)
Comprehensive income:
Foreign currency translation - - -
Unrealized depreciation on
marketable securities,
net of reclassification
adjustment (note 17) - - -
Net earnings - - -
- ------------------------------------------------------------------------------
Total comprehensive
income
Balances at March 31, 2001 90,545,576 $ 9,055 $ 351,921
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
24
Accumulated
other Treasury stock Total
Comprehensive comprehensive Unearned ------------------------------- stockholders'
income (loss) Retained income (loss) ESOP Number equity
(note 17) earnings (note 17) compensation of shares Amount (note 8)
- --------------------------------------------------------------------------------------------------------------------------
$ - $ 182,155 $ 676 $ (2,055) (836,920) $ (2,181) $ 308,225
- - - - - - 12,250
- - - - - - 36,393
- - - - - - 2,676
- - - - 104,649 (852) 12,316
- - - 2,055 2,055
(1,000) - (1,000) - - - (1,000)
(15,142) (15,142) - - - - (15,142)
- ---------------------------------------------------------------------------------------------------------------------------
$ (16,142)
---------------
167,013 (324) - (732,271) (3,033) 357,773
- - - - - - 78,540
- - - - - - 15,921
- - - - - - 1,100
- - - - 257,883 275 6,430
- - - - - - 27,081
- - - - - - 10,346
- - - - - - 1,300
(971) - (971) - - - (971)
(153) - (153) - - - (153)
90,363 90,363 - - - - 90,363
- ---------------------------------------------------------------------------------------------------------------------------
$ 89,239
---------------
257,376 (1,448) - (474,388) (2,758) 587,730
- - - - - - 8,001
- - - - - - 220
- - - - 305,890 471 25,925
- - - - - - 6,897
- - - - - - (6,678)
- - - - (287,500) (7,478) (7,478)
- - - - 287,500 7,478 -
(4,701) - (4,701) - - - (4,701)
153 - 153 - - - 153
6,379 6,379 - - - - 6,379
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,831
---------------
$ 263,755 $ (5,996) - (168,498) $ (2,287) $ 616,448
- ---------------------------------------------------------------------------------------------------------------------------
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001, 2000 and 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Acxiom Corporation ("Acxiom" or "the Company") provides customer data
integration solutions using customer, consumer and business data primarily for
customer relationship management applications. Business segments of the
Company provide list services, data warehousing, consulting, data content,
fulfillment services, and outsourcing and facilities management services
primarily in the United States (U.S.) and United Kingdom (U.K.).
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation. Investments in 20% to 50% owned
entities are accounted for using the equity method with equity in earnings
recorded in other, net in the accompanying consolidated statements of
operations. Investments in less than 20% owned entities are accounted for at
cost.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with accounting principles generally accepted in the
United States. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts, unbilled
and notes receivable. The Company's receivables are from a large number of
customers. Accordingly, the Company's credit risk is affected by general
economic conditions. Although the Company has several large individual
customers, concentrations of credit risk are limited because of the diversity
of the Company's customers.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are calculated on the straight-line method over the estimated useful lives of
the assets as follows: buildings and improvements, 5-31.5 years; office
furniture and equipment, 3-12 years; and data processing equipment, 2-10
years.
Property held under capitalized lease arrangements is included in property
and equipment, and the associated liabilities are included in long-term debt.
Property and equipment taken out of service and held for sale is recorded at
net realizable value and depreciation is ceased.
Software and Research and Development Costs
Costs of internally developed software are amortized on a straight-line
basis over the remaining estimated economic life of the product, generally two
to five years, or the amortization that would be recorded by using the ratio
of gross revenues for a product to total current and anticipated future gross
revenues for that product, whichever is greater. Research and development
costs incurred prior to establishing technological feasibility of software
products are charged to operations as incurred. Once technological feasibility
is established, costs are capitalized until the software is available for
general release.
Costs of purchased software licenses are amortized using a units-of-
production basis over the estimated economic life of the license, generally
not to exceed ten years.
Excess of Cost Over Fair Value of Net Assets Acquired
Goodwill, which represents the excess of acquisition costs over the fair
values of net assets acquired in business combinations treated as purchase
transactions, is being amortized on a straight-line basis over its estimated
period of benefit of fifteen to forty years. The Company evaluates the
recoverability of goodwill by determining whether the carrying amount is fully
recoverable from the projected, undiscounted net cash flows of the related
business unit. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
26
Other Current Assets
Other current assets include the current portion of the unbilled and notes
receivable from software and data license and equipment sales of $49.1 million
and $42.4 million as of March 31, 2001 and 2000, respectively. Other current
assets also include prepaid expenses, nontrade receivables and other
miscellaneous assets of $56.8 million and $56.5 million as of March 31, 2001
and 2000, respectively.
Unbilled and Notes Receivable
Unbilled and notes receivable includes the noncurrent portion of all long-
term and unbilled receivables. Certain of the unbilled and notes receivable
from software and data licenses and equipment sales have no stated interest
rate and have been discounted using an imputed interest rate, generally 8%,
based on the customer, type of agreement, collateral and payment terms. The
term of these notes is generally three years or less. This discount is being
recognized into income using the interest method and is included as a
component of other, net in the consolidated statements of operations.
Other Assets
Other assets primarily include the Company's investment in marketable and
nonmarketable securities of $30.6 million and $22.9 million as of March 31,
2001 and 2000, respectively. The Company has classified its marketable
securities as available for sale. Unrealized holding gains and losses, net of
the related tax effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of other comprehensive
income (loss) until realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific identification
basis.
During the year ended March 31, 2001, the Company determined that certain
of its investments in marketable securities and certain other nonmarketable
securities were other than temporarily impaired. As a result, the Company
recorded a charge to earnings of $12.7 million, net of realized gains, to
write down these impaired investments to their approximate fair market values
at March 31, 2001, resulting in a new carrying value for these investments.
These revised carrying values will be used as the basis for recognizing
realized and unrealized gains and losses during future reporting periods.
Also included in other assets are certain noncurrent prepaid expenses,
deposits and other miscellaneous noncurrent assets of $18.4 million and $45.8
million as of March 31, 2001 and 2000, respectively.
Revenue Recognition
Revenues from services, including consulting, list processing and data
warehousing, and from information technology outsourcing services, including
facilities management contracts, are recognized ratably over the term of the
contract. In the case of certain long-term contracts, capital expenditures and
start-up costs that are direct and incremental to obtaining the contract are
capitalized and amortized on a straight-line basis over the service term of
the contract, in accordance with Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." In certain outsourcing
contracts, additional revenue is recognized based upon attaining certain
annual margin improvements or cost savings over performance benchmarks as
specified in the contracts. Such additional revenue is recognized when such
benchmarks have been met.
Revenues from the licensing of data are recognized upon delivery of the
data to the customer in circumstances where no update or other obligations
exist. Revenue from the licensing of data in which the Company is obligated to
provide future updates on a monthly, quarterly or annual basis is recognized
on a straight-line basis over the license term.
Revenues from the sale of software are recognized in accordance with the
American Institute of Certified Public Accountants Statement of Position
("SOP") 97-2, "Software Revenue Recognition", as amended by SOP 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, with Respect to
Certain Transactions." SOP 97-2, as amended, generally requires revenue earned
on software arrangements involving multiple elements to be allocated to each
element based on the relative fair values of the elements. The fair value of
an element must be based on the evidence that is specific to the vendor. If
evidence of fair value does not exist for all elements of a license
arrangement, then all revenue for the license arrangement is recognized
ratably over the term of the agreement. If evidence of fair value of all
undelivered elements exists but evidence does not exist for one or more
delivered elements, then revenue is recognized using the residual method.
Additionally, the Company earns revenue for the maintenance of its
software, which provides for the Company to provide technical support and
software updates to customers. Revenue on technical support and software
update rights is recognized ratably over the term of the support agreement.
Effective January 1, 2001, the Company changed its method of accounting for
certain transactions, retroactive to April 1, 2000, in accordance with SAB
101. Previously, the Company had recognized revenue from the licensing of
data, whereby the Company was obligated to provide future updates, when the
27
data was delivered using a percentage of completion method of accounting,
based on the percentage of unique records delivered to the customer.
Additionally, revenue from services and from information technology
outsourcing services was recognized as such services were performed. The
Company is now recognizing revenue in accordance with the policies stated
above. The cumulative effect of the change on prior years resulted in a charge
to earnings of $37.5 million, which is included in the Company's consolidated
earnings for the year ended March 31, 2001. The effect of the change on the
year ended March 31, 2001 was to decrease earnings before the cumulative
effect of the change in accounting principle by $18.2 million ($.20 per
diluted share). The unaudited pro forma amounts presented in the accompanying
consolidated statements of operations were calculated assuming the accounting
change was made retroactively to prior periods. For the year ended March 31,
2001, the Company recognized approximately $29 million in revenue that was
included in the cumulative effect adjustment as of April 1, 2000.
Income Taxes
The Company and its domestic subsidiaries file a consolidated Federal
income tax return. The Company's foreign subsidiaries file separate income tax
returns in the countries in which their operations are based.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Foreign Currency Translation
The balance sheets of the Company's foreign subsidiaries are translated at
year-end rates of exchange, and the statements of earnings are translated at
the weighted-average exchange rate for the period. Gains or losses resulting
from translating foreign currency financial statements are included in
accumulated other comprehensive income (loss) in the consolidated statements
of stockholders' equity.
Earnings Per Share
A reconciliation of the numerator and denominator of basic and diluted
earnings (loss) per share is shown below (in thousands, except per share
amounts):
2001 2000 1999
- ------------------------------------------------------------------------------
Basic earnings per share:
Numerator-net earnings (loss) $ 6,379 $ 90,363 $ (15,142)
- ------------------------------------------------------------------------------
Denominator-weighted-average
shares outstanding 88,579 85,085 77,840
- ------------------------------------------------------------------------------
Earnings (loss) per share $ .07 $ 1.06 $ (.19)
- ------------------------------------------------------------------------------
Diluted earnings per share:
Numerator:
Net earnings (loss) $ 6,379 $ 90,363 $ (15,142)
Interest expense on
convertible debt (net of
tax effect) - 3,773 -
- ------------------------------------------------------------------------------
$ 6,379 $ 94,136 $ (15,142)
- ------------------------------------------------------------------------------
Denominator:
Weighted-average shares
outstanding 88,579 85,085 77,840
Effect of common stock
options 3,721 3,600 -
Effect of common stock
warrants 104 72 -
Effect of equity forward
contracts 90 - -
Convertible debt - 5,783 -
- ------------------------------------------------------------------------------
92,494 94,540 77,840
- ------------------------------------------------------------------------------
Earnings (loss) per share $ .07 $ 1.00 $ (.19)
- ------------------------------------------------------------------------------
28
All potentially dilutive securities were excluded from the above
calculations for the year ended March 31, 1999, and the convertible debt was
excluded from the above calculations for the year ended March 31, 2001 because
such items were antidilutive. The equivalent share effects of common stock
options and warrants which were excluded for the year ended March 31, 1999
were 5,632, and the equivalent share effects of convertible debt which were
excluded for the years ended March 31, 2001 and 1999 were 5,783 and 7,783,
respectively. Interest expense on the convertible debt (net of income tax
effect) excluded in computing diluted earnings (loss) per share for the years
ended March 31, 2001 and 1999 was $3,713 and $4,257, respectively.
Options to purchase shares of common stock that were outstanding during
2001, 2000 and 1999 but were not included in the computation of diluted
earnings (loss) per share because the option exercise price was greater than
the average market price of the common shares are shown below (in thousands,
except per share amounts):
2001 2000 1999
- --------------------------------------------------------------------------------
Number of shares under option 1,650 3,213 1,491
Range of exercise prices $ 17.93-$ 62.06 $ 17.93-$ 54.00 $ 24.24-$ 54.00
- --------------------------------------------------------------------------------
Impairment of Long-lived Assets and Long-lived Assets to Be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net operating cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell
(see note 3).
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Advertising Expense
The Company expenses advertising costs as incurred. Advertising expense was
approximately $19.5 million, $11.8 million and $11.2 million for the years
ended March 31, 2001, 2000 and 1999, respectively.
Prior Year Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation. Such reclassifications had no effect on the prior years'
net earnings (loss) as previously reported.
(2) ACQUISITIONS
Effective December 28, 2000, the Company acquired certain assets and
assumed certain liabilities of Data Dimension Information Services, Inc.
("DDIS") for $5.4 million. DDIS provides information technology outsourcing to
a variety of customers including mainframe, client/server and application
service provider hosting. The acquisition has been accounted for as a
purchase, and accordingly, the results of operations of DDIS are included in
the Company's consolidated results from the date of acquisition. The excess of
purchase price over the fair value of net assets acquired of $9.7 million is
being amortized over twenty years. The pro forma effect of the acquisition is
not material to the Company's consolidated results for the periods reported.
Effective May 15, 2000, the Company acquired certain assets and assumed
certain liabilities of MCRB Service Bureau, Inc. ("MCRB") for cash of $5.8
million. MCRB provides information technology outsourcing services. The
acquisition has been accounted for as a purchase, and accordingly, the results
of operations of MCRB are included in the Company's consolidated results from
the date of acquisition. The excess of purchase price over the fair value of
net assets acquired of $11.8 million is being amortized over twenty years. The
pro forma effect of the acquisition is not material to the Company's
consolidated results for the periods reported.
Effective December 15, 1999, the Company acquired the net assets of Litton
Enterprise Solutions ("LES") for cash of $17.3 million. The acquisition has
been accounted for as a purchase, and accordingly, the results of operations
29
of LES are included in the Company's consolidated results from the date of
acquisition. The excess of the purchase price over the net assets acquired of
$18.9 million is being amortized over twenty years. The pro forma effect of
the acquisition is not material to the Company's consolidated results for the
periods reported.
Effective August 1, 1999, the Company acquired all of the issued and
outstanding common stock of Access Communication Systems, Inc. ("Access") for
300,000 shares of the Company's common stock, valued at $6.3 million. Under
the acquisition agreement, the Company issued approximately 276,000 additional
shares of stock in the fourth quarter of 2001 to the former owners of Access
based on the performance of Access. The value of the stock, which was
approximately $6.9 million, has been charged to the excess of cost over fair
value of net assets acquired. The acquisition has been accounted for as a
purchase, and accordingly, the results of operations of Access are included in
the Company's consolidated results of operations from the date of acquisition.
The excess of the purchase price over the net assets acquired of $15.5 million
is being amortized over twenty years. The pro forma effect of the acquisition
is not material to the Company's consolidated results for the periods
presented.
On May 28, 1999, the Company completed the acquisition of Computer Graphics
of Arizona, Inc. ("Computer Graphics") and all of its affiliated companies in
a stock-for-stock merger. The Company issued 1,871,334 shares of its common
stock in exchange for all outstanding common stock of Computer Graphics. The
acquisition was accounted for as a pooling-of-interests, and, accordingly, the
Company's consolidated financial statements for periods prior to the
combination have been restated to include the accounts and results of
operations of Computer Graphics.
The results of operations previously reported by Acxiom and Computer
Graphics and the combined amounts presented in the accompanying consolidated
financial statements are summarized below (dollars in thousands):
1999
- -----------------------------------------------
Revenue:
Acxiom $ 729,984
Computer Graphics 24,073
- -----------------------------------------------
Combined $ 754,057
- -----------------------------------------------
Net earnings (loss):
Acxiom $ (16,430)
Computer Graphics 1,288
- -----------------------------------------------
Combined $ (15,142)
- -----------------------------------------------
Included in the statement of operations for the year ended March 31, 2000
are revenues of $5.3 million and net earnings of $1.1 million for Computer
Graphics for the period from April 1, 1999 to May 28, 1999.
Effective April 1, 1999, the Company acquired the assets of Horizon
Systems, Inc. ("Horizon") for $16.5 million in cash and common stock and the
assumption of certain liabilities of Horizon, and other cash and stock
consideration based on the future performance of Horizon. The acquisition has
been accounted for as a purchase, and accordingly, the results of operations
of Horizon are included in the Company's consolidated results of operations
from the date of the acquisition. The excess of the purchase price over the
net assets acquired of $14.1 million is being amortized over twenty years. The
pro forma effect of the acquisition is not material to the Company's
consolidated results of operations for the periods presented.
Effective January 1, 1999, the Company acquired three database-marketing
units from Deluxe Corporation ("Deluxe"). The purchase price was $23.6
million, of which $18.0 million was paid in cash at closing and the remainder
was paid in April 1999. Deluxe's results of operations are included in the
Company's consolidated results of operations beginning January 1, 1999. This
acquisition was accounted for as a purchase. The excess of cost over net
assets acquired of $21.9 million is being amortized using the straight-line
method over fifteen years. The pro forma effect of the acquisition is not
material to the Company's consolidated results of operations for the periods
presented.
On September 17, 1998, the Company issued 20,858,923 shares of its common
stock in exchange for all outstanding capital stock of May & Speh, Inc. ("May
& Speh"). Additionally, the Company assumed all of the outstanding options
granted under May & Speh's stock option plans with the result that 4,289,202
shares of the Company's common stock became subject to issuance upon exercise
of such options. This business combination has been accounted for as a
pooling-of-interests, and accordingly, the consolidated financial statements
for periods prior to the combination have been restated to include the
accounts and results of operations of May & Speh.
Included in the statement of operations for the year ended March 31, 1999
are revenues of $66.6 million and net earnings of $9.3 million for May & Speh
for the period from April 1, 1998 to September 17, 1998.
30
Effective May 1, 1998, May & Speh acquired substantially all of the assets
of SIGMA Marketing Group, Inc. ("Sigma"), a full-service database marketing
company headquartered in Rochester, New York. Under the terms of the
agreement, May & Speh paid $15 million at closing for substantially all of
Sigma's assets and paid the former owners an additional $6 million of
contingent consideration as certain operating objectives were met. Sigma's
former owners were also issued warrants to acquire 276,800 shares of the
Company's common stock at a price of $17.50 per share in connection with the
transaction. Sigma's results of operations are included in the Company's
consolidated results of operations beginning May 1, 1998. This acquisition was
accounted for as a purchase. The excess of cost over net assets acquired of
$30.5 million is being amortized using the straight-line method over twenty
years. The pro forma effect of the acquisition is not material to the
Company's consolidated results of operations for the periods reported.
Effective April 1, 1998, the Company purchased the outstanding stock of
Normadress, a French company located in Paris. Normadress provides database
and direct marketing services to its customers. The purchase price was 20
million French Francs (approximately $3.4 million) in cash and other
additional cash consideration of which approximately $900,000 is guaranteed
and the remainder is based on the future performance of Normadress.
Normadress' results of operations are included in the Company's consolidated
results of operations beginning April 1, 1998. This acquisition was accounted
for as a purchase. The excess of cost over net assets acquired of $5.7 million
is being amortized using the straight-line method over twenty years. The pro
forma effect of the acquisition is not material to the Company's consolidated
results of operations for the periods reported.
At March 31, 2001, there were no significant contingent obligations
associated with these business acquisitions.
(3) MERGER, INTEGRATION AND IMPAIRMENT CHARGES
During the year ended March 31, 1999, the Company recorded special charges
totaling $118.7 million related to merger and integration charges associated
with the May & Speh merger discussed in note 2 and the write-down of other
impaired assets. The charges consisted of approximately $10.7 million of
transaction costs to be paid to investment bankers, accountants and attorneys;
$8.1 million in associate-related reserves, principally employment contract
termination costs and severance costs; $48.5 million in contract termination
costs; $11.5 million for the write-down of software; $29.3 million for the
write-down of property and equipment; $7.8 million for the write-down of
goodwill and other assets; and $2.8 million in other write-downs and accruals.
The transaction costs are fees that were incurred as a direct result of the
merger transaction. The associate-related reserves include 1) payments to be
made under a previously existing employment agreement with one terminated May
& Speh executive in the amount of $3.5 million, 2) payments to be made under
previously existing employment agreements with seven May & Speh executives who
are remaining with Acxiom but are entitled to payments totaling $3.6 million
due to the termination of their employment agreements, and 3) involuntary
termination benefits aggregating $1.0 million to seven May & Speh and Company
employees whose positions were to be eliminated. One of the seven positions,
for which $0.7 million was accrued, was not related to the May & Speh merger
but related to a Company associate whose position was eliminated as a result
of the closure of the Company's New Jersey business location. Two of the seven
associates were ultimately terminated. The other five were transferred or
changed job duties within the Company. The remaining amounts accrued for the
five associates of approximately $0.3 million were used to pay other
associate-related merger and integration costs.
The contract termination costs were incurred to terminate duplicative
software contracts. The amounts recorded represent cash payments which the
Company has made to the software vendors to terminate existing May & Speh
agreements.
For all other write-downs and costs associated with the merger, the Company
performed an analysis as required under Statement of Financial Accounting
Standards ("SFAS") No. 121 to determine whether and to what extent any assets
were impaired. The analysis included estimating expected future cash flows
from each of the assets which were expected to be held and used by the
Company. These expected cash flows were compared to the carrying amount of
each asset to determine whether an impairment existed. If an impairment was
indicated, the asset was written down to its fair value. Quoted market prices
were used to estimate fair value when market prices were available. In cases
31
where quoted prices were not available, the Company estimated fair value using
internal valuation sources. In the case of assets to be disposed of, the
Company compared the carrying value of the asset to its estimated fair value
and, if an impairment was indicated, wrote the asset down to its estimated
fair value.
Approximately $110.1 million of the charge was for duplicative assets or
costs directly attributable to the May & Speh merger. The remaining $8.6
million related to other impaired assets which were impaired during the year,
primarily $5.7 million related to goodwill and shut-down costs associated with
the closing of certain business locations in New Jersey, Malaysia and the
Netherlands.
The following table shows the balances that were initially accrued as of
September 30, 1998 and the changes in those balances during the years ended
March 31, 1999, 2000 and 2001 (dollars in thousands):
September 30, March 31, March 31, March 31,
1998 Additions Payments 1999 Payments 2000 Payments 2001
- --------------------------------------------------------------------------------------------------------------------
Transaction costs $ 9,163 $ - $ 9,163 $ - $ - $ - $ - $ -
Associate-related
reserves 6,783 1,375 3,804 4,354 3,302 1,052 876 176
Contract termination
costs 40,500 - 13,500 27,000 13,500 13,500 13,500 -
Other accruals 3,745 - 1,918 1,827 1,273 554 545 9
- --------------------------------------------------------------------------------------------------------------------
$ 60,191 $ 1,375 $ 28,385 $ 33,181 $ 18,075 $ 15,106 $ 14,921 $ 185
- --------------------------------------------------------------------------------------------------------------------
The remaining associate-related reserves and other accruals will be paid
out over remaining periods ranging up to three years.
On December 28, 2000, Montgomery Ward ("Wards"), a significant customer of
the Information Technology ("IT") Management segment, filed a petition for
bankruptcy under Chapter 11 of the United States Bankruptcy Code. The
Bankruptcy Court has approved the petition, and Wards is proceeding with a
liquidation of its assets. As a result of Wards filing for bankruptcy, the
Company has identified certain assets that are now impaired and certain
ongoing obligations that will have no future benefit to the Company.
Accordingly, during the fourth quarter, the Company has recorded in gains,
losses and nonrecurring items, net charges totaling $34.6 million related to
these obligations and impaired assets. The charges consisted of approximately
$8.1 million for the write-down of property and equipment; $13.7 million of
deferred contract costs; $5.3 million of pre-petition receivables; $3.5
million for the write-down of software; $2.3 million in ongoing contract
costs; and $1.7 million of other accruals.
The deferred contract costs represent migration and other costs that had
been deferred and were being amortized over the term of the Wards contract.
The pre-petition receivables represent amounts billed by Acxiom for work
performed prior to Wards' bankruptcy filing. The software write-down
represents software licenses that specifically support the information
technology needs of Wards and have no alternative use. The write-down of the
property and equipment was performed in accordance with SFAS No. 121, as
previously discussed. The Company intends to dispose of the property and
equipment for a nominal amount during the next fiscal year.
The following table shows the balances that were accrued for the Wards'
nonrecurring charges as of March 31, 2001 (dollars in thousands):
Amount March 31,
accrued Payments 2001
- ------------------------------------------------------------------------------
Ongoing contract costs $ 2,299 315 $ 1,984
Other accruals 1,672 626 1,046
- ------------------------------------------------------------------------------
$ 3,971 941 $ 3,030
- ------------------------------------------------------------------------------
The remaining accruals will be paid out over remaining periods ranging up
to four years.
32
(4) SOFTWARE AND RESEARCH AND DEVELOPMENT COSTS
The Company recorded amortization expense related to internally developed
computer software of $19.9 million, $10.3 million and $8.3 million in 2001,
2000 and 1999, respectively, and amortization of purchased software licenses
of $17.4 million, $9.6 million and $0.2 million in 2001, 2000 and 1999,
respectively. Additionally, research and development costs of $22.3 million,
$26.4 million and $17.8 million were charged to operations during 2001, 2000
and 1999, respectively.
(5) PROPERTY AND EQUIPMENT
Property and equipment, certain amounts of which are pledged as collateral
for long-term debt (see note 6), is summarized as follows (dollars in
thousands):
2001 2000
- ------------------------------------------------------------------------------
Land $ 8,643 $ 10,309
Buildings and improvements 122,012 107,888
Office furniture and equipment 39,944 41,155
Data processing equipment 257,645 222,590
- ------------------------------------------------------------------------------
428,244 381,942
Less accumulated depreciation and
amortization 182,904 132,266
- ------------------------------------------------------------------------------
$ 245,340 $ 249,676
- ------------------------------------------------------------------------------
(6) LONG-TERM DEBT
Long-term debt consists of the following (dollars in thousands):
2001 2000
- ------------------------------------------------------------------------------
5.25% Convertible subordinated notes
due 2003 $ 115,000 $ 115,000
Software license liabilities payable
over terms up to seven years;
effective interest rates at
approximately 6% 91,019 67,545
Unsecured revolving credit agreement 129,042 61,500
6.92% Senior notes due March 30,
2007, payable in annual
installments of $4,286 commencing
March 30, 2001; interest is
payable semiannually 25,714 30,000
Capital leases on land, buildings and
equipment payable in monthly
payments of principal and
interest; remaining terms up to
twenty years; interest rates at
approximately 8% 19,612 18,051
8.5% Unsecured term loan; quarterly
principal payments of $200 plus
interest with the balance due in
2003 7,400 8,200
Other capital leases, debt and long-
term liabilities 12,416 12,094
- ------------------------------------------------------------------------------
Total long-term debt 400,203 312,390
Less current installments 31,031 23,156
- ------------------------------------------------------------------------------
Long-term debt, excluding
current installments $ 369,172 $ 289,234
- ------------------------------------------------------------------------------
In March 1998, May & Speh completed an offering of $115 million 5.25%
convertible subordinated notes due 2003. The notes are convertible at the
option of the holder into shares of the Company's common stock at a conversion
price of $19.89 per share. The notes also are redeemable, in whole or in part,
at the option of the Company at any time on or after April 3, 2001.
In April 1999, a holder of a 3.12% convertible note exchanged the note for
two million shares of the Company's common stock. Accordingly, the balance of
the debt of $25 million and related accrued interest of $2.1 million has been
reclassified into equity.
On December 29, 1999, the Company entered into an unsecured revolving
credit agreement with a group of commercial banks and completely repaid the
33
balance due under the prior revolving credit agreement. The agreement expires
December 29, 2002, unless extended in accordance with the terms of the
agreement. The new agreement provides for revolving loans and letters of
credit in amounts of up to $295 million, the entire unused amount of which was
available as of March 31, 2001, and provides for interest at various market
rates at the Company's option, including the prime rate, a LIBOR-based rate
and a rate based on the Federal funds rate. The agreement requires a
commitment fee of 0.3% on the average unused portion of the loan commitment.
The interest rate on the revolving credit facility was approximately 6.5% as
of March 31, 2001.
In connection with the construction of certain of the Company's buildings
and facilities, the Company has entered into 50/50 joint ventures with local
real estate developers. In each case, the Company is guaranteeing portions of
the loans for the buildings. The aggregate amount of the guarantees at March
31, 2001 was $4.5 million.
Under the terms of certain of the above borrowings, the Company is required
to maintain certain tangible net worth levels, debt-to-equity and debt service
coverage ratios, among other restrictions. At March 31, 2001, the Company was
in compliance with these covenants and restrictions. The aggregate maturities
of long-term debt for the five years ending March 31, 2006 are as follows:
2002, $31.0 million; 2003, $167.2 million; 2004, $137.6 million; 2005, $30.2
million; and 2006, $11.0 million.
(7) LEASES
The Company leases data processing equipment, software, office furniture
and equipment, land and office space under noncancellable operating leases.
Additionally, the Company is financing certain of its buildings and facility
projects currently under construction, along with a significant portion of its
equipment purchases, through the use of off-balance sheet synthetic lease
arrangements. Future minimum lease payments under noncancellable operating
leases, including the synthetic lease arrangements, for the five years ending
March 31, 2006 are as follows: 2002, $68.9 million; 2003, $54.6 million; 2004,
$35.5 million; 2005, $21.1 million; and 2006 $15.2 million.
Total rental expense on operating leases, including the synthetic lease
arrangements, was $55.3 million, $17.0 million and $24.7 million for the years
ended March 31, 2001, 2000 and 1999, respectively.
(8) STOCKHOLDERS' EQUITY
The Company has authorized 200 million shares of $.10 par value common
stock and 1.0 million shares of $1.00 par value preferred stock. The Board of
Directors of the Company may designate the relative rights and preferences of
the preferred stock when and if issued. Such rights and preferences could
include liquidation preferences, redemption rights, voting rights and
dividends, and the shares could be issued in multiple series with different
rights and preferences. The Company currently has no plans for the issuance of
any shares of preferred stock.
On July 28, 1999, the Company completed a secondary offering of 1.5 million
shares of its common stock. In addition, four shareholders of the Company sold
4.0 million shares of common stock. In connection with the offering, the
Company granted an over-allotment option to the underwriters to purchase up to
an additional 800,000 shares. The underwriters exercised the option on August
17, 1999 for 500,000 shares, bringing the total shares sold by the Company to
2.0 million. The net proceeds to the Company, after deducting underwriting
discounts and offering expenses, were approximately $51.3 million.
In connection with its data center management agreement entered into in
August 1992 with TransUnion LLC ("TransUnion"), the Company issued a warrant
which entitled TransUnion to acquire up to 4.0 million additional shares of
newly issued common stock. The exercise price for the warrant stock was $3.06
per share through August 31, 1998 and increased $.25 per share in each of the
two years subsequent to August 31, 1998. The warrant was exercised for 4.0
million shares on August 31, 1998. The Company recorded $68.0 million as
additional sales discounts on its tax return for the difference in the fair
value of the stock on the date the warrant was exercised and the fair value of
the warrant on the date the warrant was issued (note 9).
The Company has a Key Employee Stock Option Plan ("Plan") for which 15.2
million shares of the Company's common stock have been reserved for issuance
to its U.S. employees. The Company has, for its U.K. employees, a U.K. Share
Option Scheme ("Scheme") for which 1.6 million shares of the Company's common
stock have been reserved. These plans provide that the option price, as
determined by the Board of Directors, will be at least the fair market value
at the time of the grant. The term of nonqualified options is also determined
34
by the Board of Directors. At March 31, 2001, there were 4.4 million shares
available for future grants under the Plan and none available under the
Scheme.
May & Speh had options outstanding under two separate plans at March 31,
1998. Generally, such options vest and become exercisable in five equal annual
increments beginning one year after the issue date and expire ten years after
the issue date except in the event of change in control of May & Speh all
options become fully vested and exercisable. Pursuant to the merger, the
Company assumed all of the currently outstanding options granted under the May
& Speh plans with the result that shares of the Company's common stock became
subject to issuance upon exercise of such options.
Activity in stock options was as follows:
Weighted-
average Number
Number exercise price of shares
of shares per share exercisable
- ------------------------------------------------------------------------------
Outstanding at March 31,
1998 11,401,980 $ 9.63 5,316,861
Granted 1,066,891 27.82
Exercised (937,411) 6.95
Forfeited or cancelled (115,462) 12.96
- ------------------------------------------------------------------------------
Outstanding at March 31,
1999 11,415,998 12.19 7,913,294
Granted 3,981,376 25.45
Exercised (2,510,323) 9.74
Forfeited or cancelled (474,422) 26.52
- ------------------------------------------------------------------------------
Outstanding at March 31,
2000 12,412,629 16.36 6,726,860
Granted 3,046,828 16.58
Exercised (1,306,378) 11.94
Forfeited or cancelled (198,748) 27.20
- ------------------------------------------------------------------------------
Outstanding at March 31,
2001 13,954,331 $ 18.82 7,722,488
- ------------------------------------------------------------------------------
The per share weighted-average fair value of stock options granted during
fiscal 2001, 2000 and 1999 was $11.95, $10.96 and $13.43, respectively, on the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: dividend yield of 0% for 2001, 2000 and 1999;
risk-free interest rate of 6.19% in 2001, 5.60% in 2000 and 5.44% in 1999;
expected option life of five years for 2001, six years for 2000 and ten years
for 1999; and expected volatility of 57% in 2001, 45% in 2000 and 40% in 1999.
Following is a summary of stock options outstanding as of March 31, 2001:
Options outstanding Options exercisable
---------------------------------------------------- ----------------------------------
Weighted- Weighted- Weighted-
average average average
Range of exercise Options remaining exercise price Options exercise price
prices outstanding contractual life per share exercisable per share
- ----------------------------------------------------------------------------------------------------------------------
$ 1.49-$ 2.86 1,106,536 5.10 years $ 2.33 1,106,536 $ 2.33
3.13- 4.69 1,164,426 4.07 years 3.95 1,051,970 3.95
5.38- 6.25 1,252,827 2.11 years 6.11 1,106,368 6.10
7.43- 15.75 1,481,028 6.18 years 13.23 1,154,475 13.46
16.41- 17.96 1,474,723 11.58 years 17.65 1,338,287 17.66
18.38- 22.50 996,634 7.66 years 19.90 583,268 19.68
23.44- 23.67 1,964,976 14.31 years 23.44 67,604 23.45
24.24- 27.26 2,268,361 9.88 years 25.53 1,006,259 25.40
27.75- 34.07 1,047,306 13.53 years 28.66 208,867 28.03
34.69- 62.06 1,197,514 13.19 years 39.53 98,854 39.56
- ----------------------------------------------------------------------------------------------------------------------
13,954,331 9.13 years $ 18.82 7,722,488 $ 13.09
- ----------------------------------------------------------------------------------------------------------------------
35
The Company applies the provisions of Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for the stock-based
compensation plans. Accordingly, no compensation cost has been recognized by
the Company in the accompanying consolidated statements of operations for any
of the fixed stock options granted. Had compensation cost for options granted
been determined on the basis of the fair value of the awards at the date of
grant, consistent with the methodology prescribed by SFAS No. 123, the
Company's net earnings (loss) would have been reduced to the following
unaudited pro forma amounts for the years ended March 31 (dollars in
thousands, except per share amounts):
2001 2000 1999
- ------------------------------------------------------------------------------
Net earnings
(loss) As reported $ 6,379 $ 90,363 $ (15,142)
Pro forma 10 81,673 (32,302)
- ------------------------------------------------------------------------------
Basic earnings
(loss) per
share As reported $ .07 $ 1.06 $ (.19)
Pro forma - .96 (.41)
- ------------------------------------------------------------------------------
Diluted earnings
(loss) per
share As reported $ .07 $ 1.00 $ (.19)
Pro forma - .90 (.41)
- ------------------------------------------------------------------------------
Pro forma net earnings (loss) reflect only options granted after fiscal
1995. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net earnings
amounts presented above because compensation cost is reflected over the
options' vesting period of up to nine years and compensation cost for options
granted prior to April 1, 1995 is not considered.
The Company maintains an employee stock purchase plan which provides for
the purchase of shares of common stock at 85% of the market price. There were
210,197, 218,139 and 129,741 shares purchased under the plan during the years
ended March 31, 2001, 2000 and 1999, respectively.
The Company has entered into three equity forward purchase agreements with
a commercial bank under which the Company was obligated to purchase 3.1
million, 0.2 million and 0.5 million shares of its common stock at an average
total cost of approximately $21.81, $27.51 and $24.37 per share, respectively,
for a total notional amount of $83.8 million, subject to certain modifications
discussed below. The cost of the equity forwards of $6.7 million during 2001
and $0.3 million during 2000 have been accounted for as a component of
stockholders' equity. If the market value of the stock exceeds the price under
the equity forward, the Company has the option of settling the contract by
receiving cash or stock in an amount equal to the excess of the market value
over the price under the equity forward. If the market value of the stock is
less than the price under the equity forward, the Company has the option of
settling the contract by paying cash or delivering shares in the amount of the
excess of the contract amount over the fair market value of the stock. The
Company can also settle the contracts by paying the full notional amount and
taking delivery of the stock. The shares remain issued and outstanding until
the forward purchase contracts are settled. The Company has the option to
settle the contracts at any time prior to December 15, 2001, when the
contracts are required to be settled. The fair value of the equity forward
contracts in effect at March 31, 2001 was a liability of $7.5 million, based
on a stock price of $20.88 per share. An increase or decrease in the stock
price of $1.00 per share increases or decreases the fair value by
approximately $3.7 million.
During April 2001, the Company paid, and has recorded as a component of
stockholders' equity, approximately $20 million to amend the agreements
whereby the strike price of the equity forward agreement for purchase of the
3.1 million shares was reduced from $21.81 to $15.48 per share. As a result,
the total notional amount under the equity forward agreements has been reduced
to approximately $64 million.
The Emerging Issues Task Force ("EITF") of the Financial Accounting
Standards Board reached a consensus in EITF 00-7 that requires such contracts
entered into after March 15, 2000 to be recorded as assets and liabilities,
with adjustments to the market value of the common stock to be recorded in the
results of operations, in situations in which the counter party can force the
contracts to be settled in cash. The effective date of the new consensus was
delayed until December 31, 2000 to allow such contracts to be amended. The
36
EITF reached conclusions in EITF 00-19 that also require asset and liability
treatment in certain circumstances, including when an agency agreement is in
place. To qualify for permanent equity treatment, the forward contract must
permit settlement in unregistered shares, contain an explicit cap on the
number of shares to be delivered under a net share settlement, must not
require the posting of collateral and must not provide the commercial bank
with any right that would rank higher than those of a common shareholder.
Additionally, the forwards must not require cash "true-ups" under the net
share method and must not contain any economic penalties that would compel the
Company to net cash settle. The Company amended the equity forward agreements
in October 2000 to comply with the permanent equity provisions of EITF 00-7
and EITF 00-19.
(9) INCOME TAXES
Total income tax expense (benefit) was allocated as follows (dollars in
thousands):
2001 2000 1999
- ------------------------------------------------------------------------------
Income from operations $ 27,465 $ 54,214 $ 2,843
Cumulative effect of change in
accounting principle (21,548) - -
Stockholders' equity, for
expenses for tax purposes in
excess of amounts recognized
for financial reporting
purposes:
Compensation (8,001) (15,921) (9,178)
Sale discounts (note 8) - - (27,215)
- ------------------------------------------------------------------------------
$ (2,084) $ 38,293 $ (33,550)
- ------------------------------------------------------------------------------
Income tax expense (benefit) attributable to earnings (loss) from
operations consists of (dollars in thousands):
2001 2000 1999
- ------------------------------------------------------------------------------
Current:
Federal $ 34,277 $ 29,392 $ 18,285
Foreign 928 1,875 1,165
State 4,030 1,301 7,247
- ------------------------------------------------------------------------------
39,235 32,568 26,697
- ------------------------------------------------------------------------------
Deferred:
Federal (9,955) 15,154 (14,780)
Foreign (338) (248) (248)
State (1,477) 6,740 (8,826)
- ------------------------------------------------------------------------------
(11,770) 21,646 (23,854)
- ------------------------------------------------------------------------------
Total $ 27,465 $ 54,214 $ 2,843
- ------------------------------------------------------------------------------
37
A reconciliation of income tax expense (benefit) computed using the U.S.
Federal statutory income tax rate of 35% of earnings (loss) from operations
before income taxes to the actual provision for income taxes follows (dollars
in thousands):
2001 2000 1999
- ------------------------------------------------------------------------------
Computed expected tax expense (benefit) $ 24,966 $ 50,602 $ (4,305)
Increase (reduction) in income taxes
resulting from:
Nondeductible merger and integration
expenses - - 7,836
State income taxes, net of Federal
income tax benefit 1,659 5,227 (1,026)
Research, experimentation and other
tax credits (1,460) (757) (265)
Other 2,300 (858) 603
- ------------------------------------------------------------------------------
$ 27,465 $ 54,214 $ 2,843
- ------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at March 31, 2001 and 2000
are presented below (dollars in thousands):
2001 2000
- --------------------------------------------------------------------------
Deferred tax assets:
Accrued expenses not currently
deductible for tax purposes $ 2,206 $ 14,932
Revenue deferred for financial
reporting purposes 33,718 -
Investments, principally due to
differences in basis for tax
and financial reporting
purposes 3,886 309
Intangible assets, principally
due to differences in
amortization 5,243 -
Other 287 3,191
- --------------------------------------------------------------------------
Total deferred tax assets 45,340 18,432
- --------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment,
principally due to differences
in depreciation $ (17,560) $ (22,276)
Intangible assets, principally
due to differences in
amortization - (2,417)
Capitalized software and other
costs expensed as incurred for
tax purposes (23,045) (22,105)
Installment sale gains for tax
purposes (1,309) (1,526)
- --------------------------------------------------------------------------
Total deferred tax liabilities (41,914) (48,324)
- --------------------------------------------------------------------------
Net deferred tax asset
(liability) $ 3,426 $ (29,892)
- --------------------------------------------------------------------------
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Based upon the
Company's history of profitability and taxable income and the reversal of
taxable temporary differences, management believes it is more likely than not
the Company will realize the benefits of these deductible differences.
(10) RELATED PARTY TRANSACTIONS
The Company leases certain equipment from a business partially owned by an
officer. Rent expense under this lease was approximately $1.0 million, $0.9
million and $0.8 million during the years ended March 31, 2001, 2000 and 1999,
respectively. Under the terms of the lease in effect at March 31, 2001, the
Company will make monthly lease payments of $85,000 through August 2006. The
Company has agreed to pay the difference, if any, between the sales price of
the equipment and 70 percent of the lessor's related loan balance
(approximately $6.9 million at March 31, 2001) should the Company elect to
exercise its early termination rights or not extend the lease beyond its
initial term and the lessor sells the equipment as a result thereof.
38
(11) RETIREMENT PLANS
The Company has a retirement savings plan which covers substantially all
domestic employees. The Company also offers a supplemental nonqualified
deferred compensation plan for certain management employees. The Company
matches 50% of the employees' contributions under both plans up to 6% annually
and may contribute additional amounts to the plans from the Company's earnings
at the discretion of the Board of Directors.
Effective October 1, 1988, May & Speh established the May & Speh, Inc.
Employee Stock Ownership Plan ("ESOP") for the benefit of substantially all of
its employees. May & Speh borrowed $22.5 million from a bank and loaned the
proceeds to the ESOP for the purpose of providing the ESOP sufficient funds to
purchase 9,887,340 shares of May & Speh's common stock at $2.28 per share. The
terms of the ESOP agreement required May & Speh to make minimum contributions
sufficient to meet the ESOP's debt service obligations. During the year ended
March 31, 1999, the ESOP loan was paid in full and the ESOP was merged into
the Company's retirement savings plan.
Company contributions for the above plans amounted to approximately $3.4
million, $4.0 million and $4.8 million in 2001, 2000 and 1999, respectively.
(12) MAJOR CUSTOMERS
During 2001 and 2000, the Company had no customer who accounted for more
than 10% of revenue. Allstate Insurance Company accounted for revenue of $82.2
million (10.9%) in 1999.
(13) FOREIGN OPERATIONS
Foreign operations are conducted primarily in the U.K. The Company
attributes revenue to each geographic region based on the location of the
Company's operations. The following table shows financial information by
geographic area for the years 2001, 2000 and 1999 (dollars in thousands):
United States Foreign Consolidated
- ---------------------------------------------------------------------------
2001:
Revenue $ 960,806 $ 49,081 $ 1,009,887
Long-lived assets 696,836 10,701 707,537
- ---------------------------------------------------------------------------
2000:
Revenue $ 908,261 $ 56,199 $ 964,460
Long-lived assets 606,059 14,109 620,168
- ---------------------------------------------------------------------------
1999:
Revenue $ 712,907 $ 41,150 $ 754,057
Long-lived assets 454,631 10,687 465,318
- ---------------------------------------------------------------------------
(14) COMMITMENTS AND CONTINGENCIES
In May 2000, the compensation committee of the Company committed to pay in
cash $6.3 million of "over-attainment" incentive which was related to results
of operations in prior years. Under the normal policy of the Company's
compensation plan, such over-attainment would have been distributed in the
form of stock options with an exercise price equal to the market price at date
of grant. Therefore, under applicable accounting rules, there would have been
no compensation expense. The one-time decision to pay this amount in cash is
an accruable event and resulted in a charge that has been recorded in gains,
losses and nonrecurring items. In accordance with the Company's existing over-
attainment plan, the amount accrued will be paid over the next three fiscal
years beginning in May 2001, assuming continued performance.
On September 20, 1999, the Company and certain of its directors and
officers were sued by an individual shareholder in a purported class action
filed in the United States District Court for the Eastern District of Arkansas
("the Court"). The action alleges that the defendants violated Section 11 of
the Securities Act of 1933 in connection with the July 23, 1999 public
offering of 5,421,000 shares of the common stock of the Company. In addition,
the action seeks to assert liability against the Company Leader pursuant to
39
Section 15 of the Securities Act of 1933. The action seeks to have a class
certified of all purchasers of the stock sold in the public offering. Two
additional suits were subsequently filed in the same venue against the same
defendants and asserting the same allegations. On March 29, 2001, the Court
granted the defendants' Motion to Dismiss. The plaintiffs have filed a Notice
of Appeal to appeal the decision to dismiss to the United States Court of
Appeals for the Eighth Circuit. The Company continues to believe the
allegations are without merit and will continue to vigorously contest the
cases.
The Company is involved in various other claims and legal actions in the
ordinary course of business. In the opinion of management, the ultimate
disposition of all of these matters will not have a material adverse effect on
the Company's consolidated financial position or its expected future
consolidated results of operations.
(15) DISPOSITIONS
Effective February 1, 2000, the Company sold certain assets and a 51%
interest in a newly formed Limited Liability Company ("LLC") to certain
management of its Acxiom/Direct Media, Inc. business unit ("DMI"). The LLC was
formed by the contribution of net assets used in the DMI operations. As
consideration, the Company received a 6% note in the approximate amount of
$22.5 million payable over seven years. During the year ended March 31, 2001,
the Company agreed to sell its remaining 49% interest in the LLC and certain
other assets to DMI management for an additional note of $1.0 million. The
Company also committed to complete the development of a computer system for
the LLC. As a result of this sale agreement, the Company has written down its
investment in the assets of DMI by $20.4 million. The sale was a divestiture
for legal and tax purposes, but not for accounting purposes under applicable
accounting rules because the collection of the sales price is primarily
dependent on the buyer's ability to repay the note through operations of the
business. Accordingly, the results of operations of the LLC were required to
be included in the Company's consolidated financial statements until such time
as a sufficient portion of the note balance was collected, at which time the
Company can account for the transaction as a sale. During 2001, a sufficient
amount of the note balance was collected, and this transaction is now
accounted for as a sale.
Effective April 25, 2000, the Company sold a part of its DataQuick business
group, which is based in San Diego, California, for $55.5 million. The Company
retained the real property data sourcing and compiling portion of DataQuick.
The gain on the sale of these assets was approximately $39.7 million and is
included in gains, losses and nonrecurring items in the accompanying
consolidated statements of operations.
Effective April 10, 2000, the Company sold its investment in Ceres, Inc. to
NCR Corporation. The Company received cash, a note and NCR stock totaling
$14.8 million and recorded investment income of $6.2 million on the disposal,
which is included in other, net in the accompanying consolidated statements of
operations. During 2001, the Company sold the shares of the NCR stock and
realized an additional gain of $2.1 million, which is included in other, net
in the accompanying consolidated statements of operations.
Effective April 1, 2000, the Company sold its CIMS business unit for
preferred stock and options in Sedona Corp., a publicly traded company. The
preferred stock and options received had an aggregate fair value of $3.1
million. The Company recorded a loss on the disposal of $3.2 million, which is
included in gains, losses and nonrecurring items in the accompanying
consolidated statement of operations.
In addition to the DataQuick gain, DMI write-down and CIMS loss noted
above, gains, losses and nonrecurring items for the year ended March 31, 2001
also includes the write-off of $7.6 million of certain campaign management
software which management decided to discontinue support of as a result of the
Company's strategy to utilize external application software tools rather than
building such tools internally. The Company performed an analysis to determine
whether and to what extent these assets had been impaired. As a result, these
assets were completely written off as their fair value was estimated to be
zero.
40
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
_ Cash and cash equivalents, trade receivables, short-term borrowings, and
trade payables--The carrying amount approximates fair value because of the
short maturity of these instruments.
_ Marketable securities--The carrying value of marketable securities is equal
to fair value as determined by reference to quoted market prices.
_ Equity forward--See note 8.
_ Long-term debt--The interest rate on the revolving credit agreement is
adjusted for changes in market rates and therefore the carrying value of
the credit agreement approximates fair value. The estimated fair value of
other long-term debt was determined based upon the present value of the
expected cash flows considering expected maturities and using interest
rates currently available to the Company for long-term borrowings with
similar terms. At March 31, 2001, the estimated fair value of long-term
debt approximates its carrying value.
(17) COMPREHENSIVE INCOME (LOSS)
The following table summarizes the unrealized holding gains (losses) on
marketable securities included in other comprehensive income (dollars in
thousands):
2001 2000 1999
- ------------------------------------------------------------------------------
Net unrealized loss arising
during the year $ (943) $ (153) $ -
Reclassification adjustment for
net gains reported in net
earnings for the period 1,096 - -
- ------------------------------------------------------------------------------
Net unrealized gain (loss)
reported in other
comprehensive income (loss) $ 153 $ (153) $ -
- ------------------------------------------------------------------------------
The balance of accumulated other comprehensive loss as reported on the
consolidated balance sheets consists of the following components (dollars in
thousands):
2001 2000
- ------------------------------------------------------------------------------
Net unrealized loss on available-
for-sale marketable securities $ - $ (153)
Cumulative loss on foreign currency
translation (5,996) (1,295)
- ------------------------------------------------------------------------------
Accumulated other comprehensive loss $ (5,996) $ (1,448)
- ------------------------------------------------------------------------------
(18) SEGMENT INFORMATION
The Company reports segment information consistent with the way management
internally disaggregates its operations to assess performance and to allocate
resources. The Company's business segments consist of Services, Data and
Software Products, and IT Management. The Services segment substantially
consists of consulting, database and data warehousing and list processing
services. The Data and Software Products segment includes all of the Company's
data content and software products. IT Management includes information
technology outsourcing and facilities management for data center management,
network management, client server management and other complementary IT
services. The Company evaluates performance of the segments based on segment
operating income, which excludes certain gains, losses and nonrecurring items.
The Company accounts for sales of certain data and software products as
revenue in both the Data and Software Products segment and the Services
segment which bills the customer. The duplicate revenues are eliminated in
consolidation.
41
The following tables present information by business segment (dollars in
thousands):
2001 2000 1999
- ------------------------------------------------------------------------------
Revenue:
Services $ 732,620 $ 675,094 $ 524,081
Data and Software Products 228,738 168,504 117,778
IT Management 223,364 194,908 154,526
Intercompany eliminations (174,835) (74,046) (42,328)
- ------------------------------------------------------------------------------
Total revenue $ 1,009,887 $ 964,460 $ 754,057
- ------------------------------------------------------------------------------
Income (loss) from operations:
Services $ 167,933 $ 131,513 $ 91,331
Data and Software Products 70,639 25,135 14,829
IT Management 26,737 44,019 34,826
Intercompany eliminations (134,455) (36,584) (20,689)
Corporate and other (29,229) (199) (121,681)
- ------------------------------------------------------------------------------
Income (loss) from
operations $ 101,625 $ 163,884 $ (1,384)
- ------------------------------------------------------------------------------
Depreciation and amortization:
Services $ 51,295 $ 36,869 $ 24,360
Data and Software Products 25,459 22,888 19,214
IT Management 43,140 26,563 20,039
Corporate and other 899 209 484
- ------------------------------------------------------------------------------
Depreciation and
amortization $ 120,793 $ 86,529 $ 64,097
- ------------------------------------------------------------------------------
Total assets:
Services $ 652,964 $ 494,110 $ 427,210
Data and Software Products 145,005 202,243 167,111
IT Management 419,330 372,923 238,164
Corporate and other 15,426 36,020 57,315
- ------------------------------------------------------------------------------
Total assets $ 1,232,725 $ 1,105,296 $ 889,800
- ------------------------------------------------------------------------------
During 2001, the Company reorganized its segments such that the business
units associated with DMI were reclassified from the Data and Software
Products segment to the Services segment. Also, the international operations,
which were included in the Services segment, have been reorganized with the
appropriate revenues and expenses allocated to the Services, Data and Software
Products and the IT Management segments. The prior years' segment information
has been restated to conform to the current year presentation.
42
(19) ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary of the activity of the allowance for doubtful accounts, returns
and credits is as follows (dollars in thousands):
Additions Bad debts
Balance at charged written off, net Balance
beginning to costs and Other of amounts at end
of period expenses additions recovered of period
- --------------------------------------------------------------------------------------------------------
2001:
Allowance for doubtful
accounts, returns and
credits $ 5,352 $ 3,563 $ 500 $ 4,049 $ 5,366
- --------------------------------------------------------------------------------------------------------
2000:
Allowance for doubtful
accounts, returns and
credits $ 5,619 $ 2,313 $ 1,010 $ 3,590 $ 5,352
- --------------------------------------------------------------------------------------------------------
1999:
Allowance for doubtful
accounts, returns and
credits $ 3,847 $ 2,373 $ 710 $ 1,311 $ 5,619
- --------------------------------------------------------------------------------------------------------
Included in other additions are valuation accounts acquired in connection
with business combinations.
43
(20) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The table below sets forth selected financial information for each quarter
of the last two years. The information for the first three quarters of 2001
reflects the quarters as previously reported prior to the adoption of SAB 101
and as restated for the retroactive adoption of SAB 101 to April 1, 2000. The
2000 quarterly information has not been restated for the adoption of SAB 101.
However, the pro forma amounts for 2000 presented below were calculated
assuming the accounting change was made retroactively to the beginning of
fiscal 2000 (dollars in thousands, except per share amounts).
Fourth
quarter ended
First quarter ended Second quarter ended Third quarter ended March 31,
June 30, 2000 September 30, 2000 December 31, 2000 2001
--------------------------- -------------------------- --------------------------- --------------
As As As
previously As previously As previously As As
reported restated reported restated reported restated reported
- -----------------------------------------------------------------------------------------------------------------------------------
Revenue $ 245,557 $ 239,573 $ 276,061 $ 263,862 $ 279,501 $ 262,748 $ 243,704
Income (loss) from operations 36,286 34,190 52,236 45,329 58,305 44,335 (22,229)
Cumulative effect of change
in accounting principle - (37,488) - - - - -
Net earnings (loss) 24,423 (14,768) 28,253 23,600 32,790 23,697 (26,150)
Basic earnings (loss) per
share:
Earning (loss) before
cumulative effect of
accounting change .28 .26 .32 .27 .37 .27 (.29)
Cumulative effect of
accounting change - (.43) - - - - -
Net earnings (loss) .28 (.17) .32 .27 .37 .27 (.29)
Diluted earnings (loss) per
share:
Earning (loss) before
cumulative effect of
accounting change .26 .24 .30 .25 .34 .25 (.29)
Cumulative effect of
accounting change - (.41) - - - - -
Net earnings (loss) .26 (.17) .30 .25 .34 .25 (.29)
- -----------------------------------------------------------------------------------------------------------------------------------
First quarter ended Second quarter ended Third quarter ended Fourth quarter ended
June 30, 1999 September 30, 1999 December 31, 1999 March 31, 2000
--------------------------- ------------------------- ------------------------- ----------------------------
As As As As
previously previously previously previously
reported Pro forma reported Pro forma reported Pro forma reported Pro forma
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues $ 211,506 $ 204,819 $ 246,840 $ 234,464 $ 244,303 $ 226,054 $ 261,811 $ 236,588
Income from operations 30,246 28,480 39,883 29,089 46,389 30,958 47,366 27,601
Net earnings 15,749 14,628 21,300 14,446 26,478 16,679 26,836 14,285
Earnings per share:
Basic .19 .18 .25 .17 .31 .19 .31 .16
Diluted .18 .17 .24 .16 .29 .19 .29 .16
- -----------------------------------------------------------------------------------------------------------------------------------
44
INDEPENDENT AUDITORS' REPORTS
THE BOARD OF DIRECTORS AND STOCKHOLDERS ACXIOM CORPORATION:
We have audited the accompanying consolidated balance sheet of Acxiom
Corporation and subsidiaries as of March 31, 2001, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Acxiom Corporation and
subsidiaries as of March 31, 2001, and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.
As discussed in note 1 to the consolidated financial statements, effective
April 1, 2000, the Company changed certain of its accounting principles for
revenue recognition as a result of the adoption of Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements."
Little Rock, Arkansas,
May 11, 2001
THE BOARD OF DIRECTORS AND STOCKHOLDERS
ACXIOM CORPORATION:
We have audited the accompanying consolidated balance sheet of Acxiom
Corporation and subsidiaries as of March 31, 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the two-year period ended March 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Acxiom
Corporation and subsidiaries as of March 31, 2000, and the results of their
operations and their cash flows for each of the years in the two-year period
ended March 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
Dallas, Texas,
May 2, 2000, except as to note 18 which is as of June 11, 2001
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MARKET INFORMATION
STOCK PRICES
The Company's Common Stock is traded on the national Market System of Nasdaq
under the symbol "ACXM." The following table sets forth for the periods
indicated the high and low closing sale prices of the Common Stock.
Fiscal 2001 High Low
- ----------------------------------------------------------
Fourth Quarter $20 11/16 $39 1/4
Third Quarter 31 3/4 44 5/32
Second Quarter 20 3/16 31 25/32
First Quarter 25 1/4 32 1/8
- ----------------------------------------------------------
Fiscal 2000 High Low
- ----------------------------------------------------------
Fourth Quarter $35 3/8 $24 7/8
Third Quarter 24 25/32 14 3/4
Second Quarter 29 3/8 16 3/8
First Quarter 29 3/8 23
- ----------------------------------------------------------
During the period beginning April 1, 2001, and ending May 15, 2001, the high
closing sales price per share for the Company's Common Stock as reported by
Nasdaq was $16.81 and the low closing sales price per share was $11.50. On May
15, 2001, the closing price per share was $14.60.
SHAREHOLDERS OF RECORD
The approximate number of shareholders of record of the Company's Common Stock
as of May 15, 2001, was 2,058.
DIVIDENDS
The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain earnings to provide funds for its business
operations and for the expansion of its business. Thus, it does not anticipate
paying cash dividends in the foreseeable future.
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