SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ----- to -----
Commission file number 0-13163
Acxiom Corporation
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 71-0581897
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
P.O. Box 2000, 301 Industrial Boulevard,
Conway, Arkansas 72033-2000
(Address of Principal Executive Offices) (Zip Code)
(501) 336-1000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares of Common Stock, $ 0.10 par value per share,
outstanding as of January 28, 1997 was 51,486,328.
Form 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Company for which report is filed:
ACXIOM CORPORATION
The consolidated financial statements included herein have been prepared by
Registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of the Registrant's
management, however, all adjustments necessary for a fair statement of the
results for the periods included herein have been made and the disclosures
contained herein are adequate to make the information presented not misleading.
All such adjustments are of a normal recurring nature.
Form 10-Q
ACXIOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, March 31,
1996 1996
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 2,029,000 3,469,000
Trade accounts receivable, net 71,907,000 44,474,000
Refundable income taxes --- 1,537,000
Other current assets 8,060,000 4,534,000
------------ ------------
Total current assets 81,996,000 54,014,000
------------ ------------
Property and equipment 190,325,000 153,224,000
Less - Accumulated depreciation
and amortization 77,552,000 64,123,000
------------ ------------
Property and equipment, net 112,773,000 89,101,000
------------ ------------
Software, net of accumulated amortization 18,559,000 10,524,000
Excess of cost over fair value of net
assets acquired 38,933,000 13,982,000
Other assets 31,889,000 26,428,000
------------ ------------
$ 284,150,000 194,049,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term notes payable 1,500,000 646,000
Current installments of long-term debt 3,935,000 3,866,000
Trade accounts payable 16,647,000 13,596,000
Accrued interest 724,000 435,000
Accrued payroll and related expenses 6,909,000 5,111,000
Other accrued expenses 6,947,000 7,189,000
Advances from customers 858,000 316,000
Income taxes 8,563,000 ---
------------ ------------
Total current liabilities 46,083,000 31,159,000
------------ ------------
Long-term debt, excluding current
installments 78,642,000 26,885,000
Deferred income taxes 10,933,000 10,933,000
Deferred revenue 2,828,000 2,331,000
Stockholders' equity:
Preferred stock --- ---
Common stock 5,261,000 4,870,000
Additional paid-in capital 58,072,000 52,079,000
Retained earnings 83,597,000 68,978,000
Foreign currency translation adjustment 987,000 (863,000)
Treasury stock, at cost (2,253,000) (2,323,000)
------------ ------------
Total stockholders' equity 145,664,000 122,741,000
------------ ------------
Commitments and contingencies $ 284,150,000 194,049,000
============ ============
See accompanying condensed notes to consolidated financial statements.
For the Three Months Ended
--------------------------
December 31,
--------------------------
1996 1995
----------- -----------
Revenue $ 104,534,000 71,315,000
Operating costs and expenses:
Salaries and benefits 35,175,000 25,844,000
Computer, communications and other
equipment 16,585,000 11,998,000
Data costs 17,920,000 14,930,000
Other operating costs and expenses 19,047,000 9,011,000
----------- -----------
Total operating costs and expenses 88,727,000 61,783,000
----------- -----------
Income from operations 15,807,000 9,532,000
----------- -----------
Other income (expense):
Interest expense (773,000) (239,000)
Other, net (622,000) (75,000)
----------- -----------
(1,395,000) (314,000)
----------- -----------
Earnings before income taxes 14,412,000 9,218,000
Income taxes 5,549,000 3,406,000
----------- -----------
Net earnings $ 8,863,000 5,812,000
=========== ===========
Earnings per share $ 0.15 0.11
=========== ===========
Weighted average shares outstanding 59,441,000 52,114,000
=========== ===========
See accompanying condensed notes to consolidated financial statements.
Form 10-Q
ACXIOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
For the Nine Months Ended
---------------------------
December 31,
---------------------------
1996 1995
----------- -----------
Revenue $ 296,034,000 192,873,000
Operating costs and expenses:
Salaries and benefits 105,745,000 71,281,000
Computer, communications and other
equipment 44,978,000 27,963,000
Data costs 54,572,000 46,422,000
Other operating costs and expenses 53,337,000 24,816,000
----------- -----------
Total operating costs and expenses 258,632,000 170,482,000
----------- -----------
Income from operations 37,402,000 22,391,000
----------- -----------
Other income (expense):
Interest expense (2,497,000) (1,177,000)
Other, net (3,408,000) (226,000)
----------- -----------
(5,905,000) (1,403,000)
----------- -----------
Earnings before income taxes 31,497,000 20,988,000
Income taxes 12,126,000 7,968,000
----------- -----------
Net earnings $ 19,371,000 13,020,000
=========== ===========
Earnings per share $ 0.33 0.25
=========== ===========
Weighted average shares outstanding 59,011,000 51,932,000
=========== ===========
See accompanying condensed notes to consolidated financial statements.
Form 10-Q
ACXIOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
---------------------------
December 31,
---------------------------
1996 1995
---------- ----------
Cash flows from operating activities:
Net earnings $ 19,371,000 13,020,000
Non-cash operating activities:
Depreciation and amortization 22,857,000 14,770,000
Loss on impairment of assets 2,326,000 ---
Other, net 1,873,000 292,000
Changes in assets and liabilities:
Accounts receivable (19,219,000) (8,167,000)
Other assets (4,297,000) (1,336,000)
Accounts payable and other liabilities 3,512,000 1,486,000
---------- ----------
Net cash provided by operating
activities 26,423,000 20,065,000
---------- ----------
Cash flows from investing activities:
Sale of assets 2,407,000 351,000
Cash acquired in pooling acquisition 21,000 1,624,000
Cash paid in purchase acquisition --- (5,914,000)
Development of software (5,016,000) (2,984,000)
Capital expenditures (44,161,000) (28,590,000)
---------- ----------
Net cash used by investing activities (46,749,000) (35,513,000)
---------- ----------
Cash flows from financing activities:
Proceeds from debt 32,567,000 18,108,000
Payments of debt (17,125,000) (4,708,000)
Sale of common stock 3,476,000 2,124,000
Cash dividends paid by acquired company
prior to merger --- (468,000)
Acquisition and retirement of common
stock by acquired company prior to merger --- (1,010,000)
Issuance of common stock by acquired
company prior to merger --- 190,000
---------- ----------
Net cash provided by financing activities 18,918,000 14,236,000
---------- ----------
Effect of exchange rate changes on cash (32,000) (31,000)
---------- ----------
Net decrease in cash and short-term cash
investments (1,440,000) (1,243,000)
Cash and short-term cash investments at
beginning of period 3,469,000 3,149,000
---------- ----------
Cash and short-term cash investments at
end of period $ 2,029,000 1,906,000
========== ==========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 2,208,000 1,525,000
Income taxes 2,026,000 4,122,000
========== ==========
See accompanying condensed notes to consolidated financial statements.
Form 10-Q
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain note information has been omitted because it has not changed
significantly from that reflected in Notes 1 through 17 of the Notes to
Consolidated Financial Statements filed as a part of Item 14 of
Registrant's 1996 Annual Report on Form 10-K as filed with the Securities
and Exchange Commission on June 26, 1996.
1. In April 1996, the Company purchased certain assets of Direct Media/DMI,
Inc. ("DMI") for $25,000,000 and the assumption of certain liabilities of
DMI. The $25,000,000 purchase price, payable in three (3) years, is
collaterized by a letter of credit, and may, at DMI's option, be paid in
two million shares of Acxiom common stock in lieu of cash plus accrued
interest. Headquartered in Greenwich, Connecticut, DMI provides list
brokerage, management, and consulting services to business-to-business and
consumer list owners and mailers. At April 1, 1996 the liabilities assumed
by the Company exceeded the fair value of the assets acquired from DMI by
$798,000. The resulting excess of purchase price over fair value of net
assets acquired of $25,798,000 is being amortized over its estimated
economic life of 20 years. The acquisition has been accounted for as a
purchase and the results of operations of DMI are included in the
consolidated results of operations from the date of acquisition. The
purchase price for DMI has been allocated as follows:
Trade accounts receivable $ 7,558,000
Property and equipment 2,010,000
Software 3,500,000
Excess of cost over fair value
of net assets acquired 25,798,000
Other assets 840,000
Short-term payable to bank (11,594,000)
Accounts payable and other liabilities (2,825,000)
Long-term debt (287,000)
----------
$ 25,000,000
==========
The following consolidated pro forma financial information (which includes
adjustments to reflect the accounting bases recognized in recording the
purchase and to eliminate the effects of transactions between the Company
and DMI) shows the results of the Company's operations for the nine months
ended December 31, 1995 as if the purchase of DMI had occurred at the
beginning of the period:
Revenue $ 226,972,000
===========
Net earnings $ 15,627,000
===========
Earnings per share $ 0.29
===========
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. On April 9, 1996, the Company issued approximately 1.7 million shares of
its common stock for all of the outstanding common stock and common stock
options of Pro CD, Inc. ("Pro CD"). Headquartered in Danvers,
Massachusetts, Pro CD is a publisher of business reference software on
CD-ROM. The acquisition is accounted for as a pooling of interests.
The stockholders' equity and operations of Pro CD are not material in
relation to those of the Company. As such, the Company has recorded the
combination by restating stockholders' equity as of April 1, 1996, without
restating prior year statements of earnings to reflect the pooling of
interests combination. For the year ended December 31, 1995, Pro CD had
revenues and a net loss of approximately $21,675,000 and $970,000,
respectively. At April 1, 1996, Pro CD's liabilities exceeded its assets by
approximately $1,775,000.
3 Effective March 31, 1994 the Company sold substantially all of the assets
of its former Acxiom Mailing Services operating unit to MorCom, Inc.
("MorCom") in exchange for the assumption of certain liabilities,
$4,500,000 in cash, a mortgage note receivable, and $1,000,000 of preferred
stock issued by MorCom. Additionally, the Company sold MorCom a software
license to use certain applications of the Company's software. At June 30,
1996 the assets remaining on the Company's books related to this
transaction were as follows:
Mortgage note receivable (other assets) $ 3,912,000
Software license receivable (other assets) 640,000
Preferred stock (other assets) 1,000,000
Trade accounts receivable 491,000
---------
$ 6,043,000
=========
In June 1996, MorCom ceased operations. In the first quarter of fiscal 1997
the Company established valuation reserves for the full amount of the
software license receivable, preferred stock, and trade accounts
receivable. In the second quarter, the Company obtained title to and sold a
portion of the property related to the mortgage note, receiving proceeds of
$949,000. The Company is negotiating a sale of the remaining property and
has established a valuation reserve of $1,600,000 toward its ultimate
disposition. Management believes that any further loss associated with this
event will not be material to the financial statements.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Long-term debt consists of the following:
December 31, March 31,
1996 1996
Unsecured revolving credit agreement $ 41,541,000 11,995,000
Convertible note, payable April 30,
1999 together with interest at 3.12%;
collateralized by letter of credit;
convertible at maturity into one
million shares of common stock 25,000,000 ---
9.75% senior notes, due May 1, 2000,
payable in annual installments of
$2,143,000 each May 1; interest is
payable semiannually 8,571,000 10,714,000
8.94% note payable due in monthly
installments of principal and interest
of $50,000 with remaining balance due
June 30, 1997; collateralized by real
estate 4,092,000 4,264,000
Other notes and capital lease obligations
payable 3,373,000 3,778,000
---------- ----------
Total long term debt 82,577,000 30,751,000
Less current installments 3,935,000 3,866,000
---------- ----------
Long-term debt, excluding current
installments $ 78,642,000 $ 26,885,000
========== ==========
During the quarter ended September 30, 1996 the unsecured revolving credit
facility was increased to provide for loans of up to $50,000,000 and now
expires on July 30, 2001. The 8.94% note payable which is due June 30, 1997
continues to be classified as long-term debt because the Company intends to
use available funding under the revolving credit agreement to refinance the
note on a long-term basis.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Earnings per share computations are based upon the weighted average number
of shares outstanding, including the dilutive effect of stock options and
warrants and the convertible debt issued for the purchase of DMI, all of
which are considered common stock equivalents. For purposes of calculating
earnings per share, the interest expense on the convertible note is
eliminated. The calculation of earnings per share for the periods presented
is as follows:
For the Nine Months Ended
December 31, 1996 December 31, 1995
----------------- -----------------
Net earnings $ 19,371,000 13,020,000
Interest expense (net of tax effect) 334,000 ---
---------- ----------
Adjusted net earnings $ 19,705,000 13,020,000
========== ==========
Earnings per share $ 0.33 0.25
==== ====
Weighted average shares outstanding 59,011,000 51,932,000
========== ==========
6. On October 10, 1996, the Company settled the arbitration matter between the
Company and Highlights for Children, Inc. ("Highlights"). On July 25, 1995,
Highlights had filed a demand for arbitration with the American Arbitration
Association. The demand alleged, among other things, breaches of express
warranties in connection with a software license agreement for the
Company's GS/2000 software product. The demand sought compensatory damages
of approximately $22,000,000 and punitive damages of $44,000,000 plus
attorneys' fees and costs. The settlement, the terms of which are
confidential, was not material to the financial statements of the Company.
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 these matters will not have a material adverse effect on the
Company's consolidated financial position or its expected future
consolidated results of operations.
7. Trade accounts receivable are presented net of allowances for doubtful
accounts, returns, and credits of $4,250,000 and $1,880,000 at December 31,
1996 and March 31, 1996, respectively.
8. At a special meeting held on October 10, 1996, the Company's board of
directors approved a two-for-one stock split effective November 11, 1996.
The split has been effected in the form of a stock dividend. Certificates
for the additional shares were mailed on November 12, 1996 to shareholders
of record as of October 25, 1996. All share and per-share information in
the financial statements has been restated to give effect to the stock
split.
Form 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Consolidated revenue was a record $104,534,000 for the quarter ended December
31, 1996, a 47% increase over the same quarter a year ago. Excluding the impacts
of the Pro CD and DMI acquisitions which were completed during the first
quarter, revenue was up 25%. Direct marketing industry revenue of $35.8 million
grew 61%, including the incremental revenue from DMI, together with growth in
Acxiom UK, retail, and the high-tech business. Information and communications
revenue of $24.7 million grew 116%, which includes the incremental revenue from
Pro CD together with the revenues associated with the Polk Company ("Polk") data
center outsourcing contract, for which revenues were not ramped up until the
fourth quarter of the prior fiscal year. Financial services revenue of $20.3
million grew 12% including growth in DataQuick revenues of 29% and growth in
credit card processing revenues of 6%. Insurance revenues of $19.1 million grew
20% primarily reflecting growth in Allstate contract revenues. Media/publishing
revenues of $4.7 million grew 23%.
For the nine months ended December 31, 1996, consolidated revenue was
$296,034,000, a 53% increase over the same period in the previous year.
Excluding the effects of the Pro CD and DMI acquisitions, revenue was up 31%
over the prior year. Direct marketing industry revenue grew 116%, including the
additional revenue from DMI, and information and communications revenue grew
117%, including the additional revenue from Pro CD. Insurance, media/publishing,
and financial services revenues grew 20%, 12%, and 3% respectively. The
explanations cited in the prior paragraph also address these variances.
Operating expenses for the quarter increased 44% compared to the same quarter a
year ago. Salaries and benefits increased 36%; however, excluding the effects of
the acquisitions noted above the increase was 8%. Computer, communications and
other equipment increased 38% compared to the prior year. After excluding the
increases due to the acquisitions noted above, the increase was 29%, which was
due to additional depreciation and other equipment costs related to increases in
data center equipment. Data costs were up 20% due to increasing revenue under
the Allstate contract. Other operating costs and expenses more than doubled from
the prior year, but after adjusting for the impact of the acquisitions noted
above, the increase was 33% largely due to increased costs associated with new
contracts and higher levels of activity necessary to support increased revenues.
Income from operations was 15.1% of revenue compared to 13.4% for the same
quarter in the prior year.
Interest expense in the quarter increased due to increased levels of debt when
compared to the year-earlier period. Other expense in the quarter consists
primarily of the amortization of the excess of costs over fair value of net
assets acquired (goodwill). This amortization is increased from the prior year
due to amortization of goodwill associated with the DMI acquisition.
For the nine months ended December 31, 1996, operating costs and expenses
increased 52% compared to the previous year. Salaries and benefits increased
48%, computer, communications and other equipment costs increased 61%, and other
operating costs and expenses were up 115%. After adjusting for the impact of the
acquisitions noted above, salaries and benefits were up 20%,
computer, communications and other equipment costs increased 51%, and other
operating costs and expenses were up 38%. These expense increases in the nine
months were largely due to the Polk and Trans Union Marketing Services
contracts. Data expenses for the nine months were up 18% due to increases in
revenue under the Allstate contract. Income from operations was 12.6% compared
to 11.6% a year ago.
Interest expense for the nine months ended December 31, 1996 more than doubled
from the prior year, due to higher levels of debt during the current year. Other
expense for the nine months includes writedowns related to the MorCom property
and preferred stock investment totaling $2,600,000 (see discussion below).
The Company's effective tax rate for both the quarter and nine-month period was
38.5% compared to 36.9% and 38.0% for the previous year's quarter and nine
months, respectively. The Company expects the actual effective rate for the full
fiscal year to remain in the 37-39% range.
Net earnings for the quarter increased 52% over the previous year, while net
earnings for the nine months ended December 31, 1996 increased 49%. Earnings per
share increased 36% and 32% for the quarter and nine months, respectively, while
the weighted average number of shares outstanding increased 14% for each of the
reported periods. The increase in the number of shares from the prior year is
primarily due to the acquisitions of Pro CD and DMI during the first quarter of
this fiscal year, while the net impact on net earnings of Pro CD and DMI was not
significant.
Capital Resources and Liquidity
Working capital at December 31, 1996 was $35,913,000 compared to $22,855,000 at
March 31, 1996. During the second quarter of this fiscal year, the Company's
unsecured revolving credit agreement was increased to provide for revolving
loans of up to $50,000,000, and now expires on July 31, 2001. The Company's
short-term unsecured credit agreement, which expires on June 30, 1997, was
increased to $1,500,000. At December 31, 1996, a total of $41,541,000 was
outstanding under the revolving credit agreement and $1,500,000 was outstanding
under the short-term credit agreement. The Company continues to classify as
long-term debt the note payable totaling $4,092,000, which is due in full on
June 30, 1997, as it is the Company's intention to retire this loan with
additional proceeds from the revolving credit facility.
The Company's debt-to-capital ratio (capital defined as long-term debt plus
stockholders' equity) was 35% at December 31, 1996 compared to 18% at March 31,
1996. The increase in the ratio is largely due to the issuance of a $25,000,000
convertible note for the purchase of DMI, plus the increase in the revolving
credit agreement as noted above.
Cash provided by operating activities was $26,423,000 for the nine months ended
December 31, 1996 compared to $20,065,000 for the same period a year earlier.
Earnings before interest, taxes, depreciation, and amortization ("EBITDA")
increased by 54% compared to the year-earlier period, but the resulting increase
in operating cash flow was partially offset by an $11,052,000 increase in
accounts receivable during the period. Operating cash flow increased by 32%
compared to the year-earlier period. In the current year, $46,749,000 was used
by investing activities and $18,918,000 was provided by financing activities.
Investing activities included $44,161,000 in capital expenditures compared to
$28,590,000 in the prior year. The majority of the capital expenditures in the
current year relate to the purchase of data center equipment for the Polk data
center, the Trans Union data center, and the Company's Conway, Arkansas data
center.
Management expects capital expenditures in the remaining quarter of the fiscal
year to be approximately $10 million. Financing activities included paying off
short-term bank debt incurred when the Company acquired DMI, and proceeds from
additional borrowings under the revolving credit agreement.
While the Company does not have any 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.
Management believes that the combination of existing working capital,
anticipated funds to be generated through future operations and the Company's
available credit lines is sufficient to meet the Company's current operating
needs. Management is currently exploring the possibility of raising additional
debt capital in order to fund future operations and anticipated capital
expenditures. If additional funds are required, the Company would use existing
credit lines to generate cash, followed by either additional borrowings to be
secured by the Company's assets or the issuance of additional equity securities
in either public or private offerings. Management believes that the Company has
significant unused capacity to raise capital which could be used to support
future growth.
Effective March 31, 1994 the Company sold substantially all of the assets of its
former AMS operation in exchange for the assumption of certain liabilities,
$4,500,000 in cash, a mortgage note receivable, and $1,000,000 of preferred
stock issued by the buyer, MorCom, Inc. Additionally the Company sold MorCom a
software license to use certain of the Company's software. In June 1996, MorCom
ceased operations. In the first quarter of the fiscal year, the Company
established valuation reserves for the full amount of the software license
receivable, preferred stock, and trade accounts receivable. In the second
quarter, the Company obtained title to and sold a portion of the property
related to the mortgage note, receiving proceeds of $949,000. The Company is
negotiating a sale of the remaining property and has established a valuation
reserve of $1,600,000 for its ultimate disposition. Management believes that any
further loss associated with this event will not be material to the financial
statements.
Form 10-Q
ACXIOM CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27 Financial Data Schedules
(b) Reports on Form 8-K.
None
Form 10-Q
ACXIOM CORPORATION AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Acxiom Corporation
Dated: February 3, 1997
By: /s/ Robert S. Bloom
------------------------------------
(Signature)
Robert S. Bloom
Chief Financial Officer
(Chief Accounting Officer)
EXHIBIT INDEX
Exhibits to Form 10-Q
Exhibit Number Exhibit
27 Financial Data Schedules