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 June 30, 1998 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 August 10, 1998 was 52,548,698.
Form 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Company for which report is filed:
ACXIOM CORPORATION
The condensed 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
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
June 30, March 31,
1998 1998
------- -------
Assets
Current assets:
Cash and cash equivalents $ 8,533 5,675
Trade accounts receivable, net 97,369 86,360
Other current assets 26,900 22,517
------- -------
Total current assets 132,802 114,552
------- -------
Property and equipment 244,633 234,470
Less - Accumulated depreciation
and amortization 110,312 103,916
------- -------
Property and equipment, net 134,321 130,554
------- -------
Software, net of accumulated
amortization 27,597 24,143
Excess of cost over fair value of
net assets acquired 56,677 54,002
Other assets 82,358 71,059
------- -------
$ 433,755 394,310
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt 3,550 3,979
Trade accounts payable 19,659 18,448
Accrued payroll and related expenses 9,921 14,950
Other accrued expenses 15,410 17,492
Deferred revenue 8,780 11,197
Income taxes 3,995 2,234
------- -------
Total current liabilities 61,315 68,300
------- -------
Long-term debt, excluding current
installments 137,161 99,917
Deferred income taxes 25,965 25,965
Stockholders' equity:
Common stock 5,328 5,321
Additional paid-in capital 70,713 68,977
Retained earnings 134,626 127,335
Foreign currency translation adjustment 750 676
Treasury stock, at cost (2,103) (2,181)
------- -------
Total stockholders' equity 209,314 200,128
------- -------
Commitments and contingencies 433,755 394,310
======= =======
See accompanying notes to condensed consolidated financial statements.
Form 10-Q
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
For the Three Months Ended
--------------------------
June 30
--------------------------
1998 1997
------- -------
Revenue $128,608 100,327
Operating costs and expenses:
Salaries and benefits 50,911 37,979
Computer, communications and other
equipment 17,355 14,929
Data costs 25,260 20,688
Other operating costs and expenses 22,245 17,097
------- -------
Total operating costs and expenses 115,771 90,693
------- -------
Income from operations 12,837 9,634
------- -------
Other income (expense): (2,210) (1,534)
Interest expense 945 401
Other, net ------- -------
(1,265) (1,133)
------- -------
Earnings before income taxes 11,572 8,501
Income taxes 4,281 3,188
------- -------
Net earnings $ 7,291 5,313
======= =======
Earnings per share:
Basic $ 0.14 0.10
====== =======
Diluted $ 0.09 0.12
====== =======
See accompanying notes to condensed consolidated financial statements.
Form 10-Q
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the Three Months Ended
--------------------------
June 30
--------------------------
1998 1997
====== ======
Cash flows from operating activities:
Net earnings $ 7,291 5,313
Non-cash operating activities:
Depreciation and amortization 12,802 9,532
Gain on disposal of assets (21) (3)
Provision for returns and doubtful
accounts 1,462 317
Changes in operating assets and
liabilities:
Accounts receivable (12,500) (11,446)
Other assets (8,911) (4,318)
Accounts payable and other
liabilities (6,397) (2,553)
------ ------
Net cash used by operating activities (6,274) (3,158)
------ ------
Cash flows from investing activities:
Disposition of assets 35 372
Development of software (5,025) (2,089)
Capital expenditures (12,446) (10,944)
Investments in joint ventures (8,034) -
Net cash paid in acquisitions (3,378) -
------ ------
Net cash used by investing activities (28,848) (12,661)
------ ------
Cash flows from financing activities:
Proceeds from debt 39,302 14,158
Payments of debt (3,137) (2,424)
Sale of common stock 1,821 1,989
------ ------
Net cash provided by financing
activities 37,986 13,723
------ ------
Effect of exchange rate changes
on cash (6) 1
------ ------
Net increase (decrease) in cash and
cash equivalents 2,858 (2,095)
Cash and cash equivalents at beginning
of period 5,675 2,721
------ ------
Cash and cash equivalents at end of period $ 8,533 626
====== ======
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 1,661 1,063
Income taxes 2,520 193
====== ======
See accompanying notes to condensed 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 16 of the Notes to
Consolidated Financial Statements filed as a part of Item 14 of
Registrant's 1998 Annual Report on Form 10-K as filed with the Securities
and Exchange Commission ("SEC") on June 23, 1998, as amended by Amendment
No. 1 thereto, filed with the SEC on July 29, 1998, and by Amendment No. 2
thereto, filed with the SEC on August 4, 1998.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Included in other assets are unamortized conversion costs in the amount of
$25.7 million and $25.0 million at June 30, 1998 and March 31, 1998,
respectively. Noncurrent receivables from software license, data, and
equipment sales are also included in other assets in the amount of $17.9
million and $20.3 million at June 30, 1998 and March 31, 1998,
respectively. The current portion of such receivables is included in other
current assets in the amount of $10.2 million and $9.5 million as of June
30, 1998 and March 31, 1998, respectively.
2. Long-term debt consists of the following (dollars in thousands):
June 30, March 31,
1998 1998
Unsecured revolving credit agreement $ 75,747 36,445
6.92% Senior notes due March 30, 2007, 30,000 30,000
payable in annual installments of $4,286
commencing March 30, 2001; interest is
payable semi-annually
3.12% Convertible note, interest and 25,000 25,000
principal due April 30, 1999; partially
collateralized by letter of credit;
convertible at maturity into two million
shares of common stock
9.75% Senior notes, due May 1, 2000, 4,286 6,429
payable in annual installments of
$2,143 each May 1; interest is payable
semi-annually
Other 5,678 6,022
------- -------
Total long-term debt 140,711 103,896
Less current installments 3,550 3,979
------- -------
Long-term debt, excluding current
installments $ 137,161 99,917
======= =======
The convertible note, although due within the next year, 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 in the event the holders of the note elect to receive cash at
maturity. Currently, the Company expects the holders to convert the note into
common stock, which would not require the Company to pay any cash at maturity.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the construction of the Company's new headquarters building
and a new customer service facility in Little Rock, Arkansas, the Company has
entered into 50/50 joint ventures between the Company and local real estate
investors. In each case, the Company is guaranteeing portions of the
construction loans for the buildings. The aggregate amount of the guarantees at
June 30, 1998 was $1.3 million.
3. The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share," during the year ended March 31, 1998. Below is a
calculation and reconciliation of the numerator and denominator of basic
and diluted earnings per share (in thousands, except per share amounts):
For the Quarter Ended
----------------------------------
June 30, 1998 June 30, 1997
------------- -------------
Basic earnings per share:
Numerator (net earnings) $ 7,291 5,313
====== ======
Denominator (weighted average
shares outstanding) 52,430 51,709
====== ======
Earnings per share $ .14 .10
====== ======
Diluted earnings per share:
Numerator:
Net earnings $ 7,291 5,313
Interest expense on
convertible debt (net
of tax effect) 111 111
------ ------
$ 7,402 5,424
====== ======
Denominator:
Weighted average shares outstanding 52,430 51,709
Effect of common stock options 2,908 2,510
Effect of common stock warrant 3,210 2,974
Convertible debt 2,000 2,000
------ ------
60,548 59,193
====== ======
Earnings per share $ .12 .09
====== ======
Options to purchase shares of common stock that were outstanding during the
period but were not included in the computation of diluted earnings per
share because the option exercise price was greater than the average market
price of the common shares are shown below:
For the Quarter Ended
------------------------------------
June 30, 1998 June 30, 1997
------------- -------------
Number of shares under option
(in thousands) 1,278 1,868
Range of exercise prices $ 23.55-$48.48 $ 15.69-$31.40
============ ============
4. Trade accounts receivable are presented net of allowances for doubtful
accounts, returns, and credits of $4.0 million and $3.3 million at June 30,
1998 and March 31, 1998, respectively.
5. 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. The
acquisition was accounted for as a purchase, and accordingly, the results
of operations of NormAdress are included in the consolidated statements of
earnings as of the purchase date. The purchase price exceeded the fair
value of net assets acquired by approximately $3.7 million. The resulting
excess of cost over net assets acquired is being amortized using the
straight-line method over its estimated economic life of 20 years.
The pro forma combined results of operations, assuming the acquisition
occurred at the beginning of fiscal 1997, are not materially different than
the historical results of operations reported. NormAdress had revenue of
$3.6 million and earnings before income taxes of $0.6 million for the year
ended December 31, 1997.
6. On May 26, 1998, the Company entered into a merger agreement with May &
Speh, Inc. The merger, which has been approved by the board of directors of
both companies, is intended to be accounted for as a pooling of interests
and to be a tax-free reorganization. Consummation of the transaction is
subject to regulatory approval and stockholder approval by both companies.
No effect has been given to the merger in the consolidated financial
statements.
7. The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," as of April 1, 1998. Statement No. 130
establishes standards for reporting and displaying comprehensive income and
its components in a financial statement that is displayed with the same
prominence as other financial statements. Statement No. 130 also requires
the accumulated balance of other comprehensive income to be displayed
separately in the equity section of the consolidated balance sheet. The
accumulated balance of other comprehensive income as of June 30, 1998 and
March 31, 1998 was $0.8 million and $0.7 million, respectively. The
adoption of this statement had no impact on net earnings or stockholders'
equity. Comprehensive income was $7.4 million and $5.6 million for the
quarters ended June 30, 1998 and 1997, respectively.
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 $128.6 million for the quarter ended June 30,
1998, a 28% increase over the same quarter a year ago. Each of the four
operating divisions grew in excess of 20%. These results do not include the
results of May & Speh, Inc., since the merger which was announced May 27, 1998
is still awaiting regulatory and shareholder approval.
The following table shows the Company's revenue by division for the quarters
ended June 30, 1998 and 1997 (dollars in millions):
1998 1997 % Increase
----- ----- ----------
Services Division $ 45.8 $ 35.7 +28%
Alliances Division 37.9 28.3 +34
Data Products Division 35.5 29.0 +22
International Division 9.4 7.3 +29
----- ----- ---
$128.6 $100.3 +28%
===== ===== ===
Services Division revenue of $45.8 million reflects a 28% increase over the
prior year despite only 8% growth in Allstate Insurance Company ("Allstate")
revenue and lower revenue than last year from Citibank. However, this was more
than offset by strong results from the High Tech, Publishing, Insurance, Retail,
Telecommunications, and Utilities business units. The Services Division also
benefited from revenue of $3.7 million in the current year's quarter from the
acquisition of Buckley Dement, which was purchased effective October 1, 1997.
Alliances Division revenue of $37.9 million increased 34% over the same quarter
a year ago. The Financial Services group continued its outstanding growth rate
by more than doubling last year's revenue. Trans Union, Polk, and ADP also
reported double-digit revenue gains. Guideposts reported lower revenue as a
result of a software license in the first quarter of the previous year.
The Data Products Division revenue grew 22% compared to last year. DMI grew 21%
reflecting growth in both the brokerage business and SmartBase. Acxiom Data
Group (InfoBase) revenue grew 35% and DataQuick increased 48%. The quarterly
results for the prior year included $1.8 million of Pro CD retail revenue. This
business was sold in August of last year.
The International Division revenue of $9.4 million grew 29% reflecting 50%
growth in data processing services, partly mitigated by flat revenue from
fulfillment services.
The Company's operating expenses increased 28% compared to the same quarter a
year ago. Salaries and benefits grew $12.9 million or 34% which was faster than
the 28% revenue growth as a result of higher incentive accruals in the current
quarter. Before incentive accruals, salaries and benefits grew at approximately
the same rate as revenue, resulting from acquisitions and increased headcount.
Computer, communications and other equipment costs rose $2.4 million or 16%
higher than the first quarter in the prior year. Data costs grew $4.6 million or
22% reflecting the growth in data revenue, primarily from Acxiom Data Group, and
to a lesser extent, Allstate. Other operating costs and expenses grew $5.1
million or 30% resulting from the higher sales volume and the impact of
acquisitions made in the prior year on travel, supplies, facilities, outside
services, goodwill amortization, and administrative costs. These increases were
partially mitigated by decreases due to the disposal of the Pro CD retail
business.
Income from operations for the quarter ended June 30, 1998 was $12.8 million,
compared to $9.6 million for the same quarter a year ago, an increase of 33%.
The operating margin improved from 9.6% to 10.0%.
Interest expense increased by $0.7 million compared to the previous year's first
quarter as a result of higher average debt levels, which was created primarily
by higher accounts receivable levels and increased capital and investment
spending. Other income and expense for both the current period and the
year-earlier period consists primarily of interest income from long-term
receivables related to customer contracts.
The Company's effective tax rate was 37.0% for the current quarter, compared
with 37.5% for the prior year's quarter. The rate for the full year ended March
31, 1998 was 37.0%. The Company expects the rate for fiscal 1999 to remain in
the 37-39% range. This estimate is based on current tax law and current
estimates of earnings, and is subject to change.
Net earnings were a record $7.3 million for the quarter, an increase of 37% from
the previous year. Basic and diluted earnings per share increased 40% and 33%,
respectively.
Capital Resources and Liquidity
Working capital at June 30, 1998 totaled $71.5 million compared to $46.3 million
at March 31, 1998. At June 30, 1998, the Company had available credit lines of
$119.9 million of which $75.7 million was outstanding. The Company's
debt-to-capital ratio (capital defined as long-term debt plus stockholders'
equity) was 40% at June 30, 1998 compared to 33% at March 31, 1998. The increase
in the ratio is due to the additional borrowings under the line of credit,
discussed below.
Cash used by operating activities was $6.3 million for the quarter ended June
30, 1998 compared to $3.2 million in the same period in the previous year.
Earnings before interest, taxes, depreciation, and amortization ("EBITDA")
increased by 26% compared to a year ago. The resulting operating cash flow was
reduced by $27.8 million in the current quarter and $18.3 million in the
previous year due to the net change in operating assets and liabilities,
including increases in accounts receivable for each year. 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.
Investing activities used $28.8 million in the quarter ended June 30, 1998
compared to $12.7 million in the year-earlier quarter. Investing activities in
the current period included $12.4 million in capital expenditures, compared to
$10.9 million in the previous year, and $5.0 million in software development,
compared to $2.1 million in the previous year. Investing activities also
included $3.4 million paid in the acquisition of NormAdress, which is discussed
more fully in note 5 to the consolidated financial statements, and $8.0 million
invested in joint ventures, including $4.0 million of additional investment in
Bigfoot International, Inc., an emerging company that provides services and
tools for internet e-mail users, and $3.1 million invested in Ceres Integrated
Solutions, a provider of software and analytical services to large retailers.
Financing activities in the current period provided $38.0 million, consisting
primarily of additional borrowings under the revolving line of credit.
Construction has begun on the Company's new headquarters building and a new
customer service facility in Little Rock, Arkansas. Both of these buildings are
scheduled to be completed and occupied before the end of fiscal 1999. Each
building is being built pursuant to a 50/50 joint venture between the Company
and local real estate investors. The total cost of the headquarters and customer
service projects is expected to be $6.4 million and $9.6 million, respectively.
The Company expects other capital expenditures to total approximately $55-65
million in fiscal 1999.
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, hardware, and
data to customers under extended payment terms or notes receivable collectible
over one to eight years. These arrangements also require up-front expenditures
of cash, which are repaid over the life of the agreement. Management believes
that the combination of existing working capital, anticipated funds to be
generated from future operations, and the Company's available credit lines is
sufficient to meet the Company's current operating needs as well as to fund the
anticipated levels of 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.
The Company, like many owners of computer software, has assessed and is in the
process of modifying, where needed, its computer applications to ensure they
will function properly in the
year 2000 and beyond. The financial impact to the Company has not been and is
not expected to be material to its financial position or results of operations
in any given year. The Company is currently operating under an internal goal to
ensure all of its computer applications are "year 2000 ready" by December 31,
1998.
Other Information
On May 26, 1998, the Company entered into a merger agreement with May & Speh,
Inc. May & Speh, headquartered in Downers Grove, Illinois, provides
computer-based information management services with a focus on direct marketing
and information technology outsourcing services. The merger, which has been
approved by the board of directors of both companies, is intended to be
accounted for as a pooling of interests and to be a tax-free reorganization.
Consummation of the transaction is subject to regulatory approval and
stockholder approval by both companies. No effect has been given to the merger
in the consolidated financial statements.
The Company has had a long-term contractual relationship with Allstate. The
initial contract had a five-year term expiring in September, 1997 and was
extended until September, 1998. The Company is currently in negotiations with
Allstate to further extend the relationship.
Certain statements in this quarterly report 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.
Representative examples of such factors are discussed in more detail in the
Company's Annual Report on Form 10-K and include, among other things, the
possible adoption of legislation or industry regulation concerning certain
aspects of the Company's business; the removal of data sources and/or marketing
lists from the Company; the ability of the Company to retain customers who are
not under long-term contracts with the Company; technology challenges; year 2000
software issues; the risk of damage to the Company's data centers or
interruptions in the Company's telecommunications links; acquisition
integration; the effects of postal rate increases; and other market factors. See
"Additional Information Regarding Forward-looking Statements" in the Company's
Annual Report on Form 10-K.
Form 10-Q
ACXIOM CORPORATION
PART II - OTHER INFORMATION
Item 5 - Other Information.
Shareholder Proposals
Proposals of shareholders intended to be presented at the Company's 1999 annual
meeting of shareholders must be received at the Company's principal executive
offices no later than February 19, 1999, which is deemed to be a reasonable
period of time prior to the Company's printing and mailing of its proxy
materials, in order to be included in the Company's proxy statement and form of
proxy relating to the 1999 annual meeting.
Pursuant to new amendments to Rule 14a-4(c) promulgated under the Securities
Exchange Act of 1934, as amended, if a shareholder intends to present a proposal
at the 1999 annual meeting of shareholders without requesting the Company to
include such proposal in the Company's proxy materials, but does not notify the
Company of such proposal on or prior to May 1, 1999, which is deemed to be a
reasonable period of time prior to the Company's mailing of its proxy materials,
then management proxies would be allowed to use their discretionary voting
authority to vote on the proposal when the proposal is raised at the annual
meeting, even though there is no discussion of the proposal in the 1999 proxy
statement.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K.
A report was filed on June 4, 1998, which reported the
proposed merger with May & Speh, Inc.
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: August 14, 1998
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 Schedule