SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
-----------------------
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
February 8, 1999
DATE OF REPORT (Date of earliest event reported)
ACXIOM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-13163 71-0581897
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification Number)
incorporation)
301 Industrial Boulevard
Conway, Arkansas 72033-2000
(Address of principal executive offices)
(Zip Code)
(501) 336-1000
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events.
As has been disclosed by registrant in prior filings, on September 17,
1998, registrant acquired May & Speh, Inc. Registrant accounted for the
transaction as a pooling of interests. Because of this transaction, if
registrant desires to file a registration statement under the Securities Act of
1933, registrant will be required to prepare restated financial statements
reflecting such transaction.
Registrant has prepared restated consolidated financial statements
reflecting the above-described transaction and is filing them as Exhibit 99 to
this Current Report on Form 8-K so that registrant may incorporate such
financial statements into any future registration statements by reference to
this report.
Item 7. Financial Statements and Exhibits
(c) Exhibits
23.1 Consent of KPMG LLP
23.2 Consent of PricewaterhouseCoopers LLP
99 Consolidated Financial Statements of Acxiom Corporation (as
restated to reflect the acquisition of May & Speh, Inc. on
September 17, 1998)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ACXIOM CORPORATION
By: /s/ Catherine L. Hughes
-----------------------------------
Catherine L. Hughes
Secretary and General Counsel
Date: February 8, 1999
<PAGE>
Exhibit Index
Number in
Exhibit Table Exhibit
23.1 Consent of KPMG LLP
23.2 Consent of PricewaterhouseCoopers LLP
99 Consolidated Financial Statements of Acxiom Corporation (as
restated to reflect the acquisition of May & Speh, Inc. on
September 17, 1998)
<PAGE>
EXHIBIT 23.1
Independent Auditors' Consent
The Board of Directors
Acxiom Corporation:
We consent to incorporation by reference in the registration statements (No.
33-17115, No. 33-37609, No. 33-37610, No. 33-42351, No. 33-72310, No. 33-72312,
No. 33-63423 and No. 333-03391) on Form S-8 of Acxiom Corporation of our report
dated January 28, 1999, relating to the consolidated financial statements and
related consolidated financial statement schedule of Acxiom Corporation and
subsidiaries as of March 31, 1998 and 1997, and for each of the years in the
three-year period ended March 31, 1998 which report appears in this current Form
8-K of Acxiom Corporation.
/s/ KPMG LLP
Little Rock, Arkansas
February 5, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-17115, No. 33-37609, No. 33-37610, No. 33-42351,
No. 33-72310, No. 33-72312, No. 33-63423, No. 333-03391 and No. 333-63633) of
Acxiom Corporation of our report dated November 1, 1996, in this Current Report
on Form 8-K of Acxiom Corporation, relating to the consolidated balance sheet of
May & Speh, Inc. as of September 30, 1996 (not presented separately herein) and
the related consolidated statements of operations and of cash flows for the
years ended September 30, 1996 and 1995 (not presented separately herein).
PricewaterhouseCoopers LLP
Chicago, Illinois
February 2, 1999
<PAGE>
ACXIOM CORPORATION
AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
Independent Auditors' Reports 1
Consolidated Balance Sheets - March 31, 1998 and 1997 3
Consolidated Statements of Earnings - Years ended March 31, 1998,
1997 and 1996 4
Consolidated Statements of Stockholders' Equity - Years ended
March 31, 1998, 1997 and 1996 5
Consolidated Statements of Cash Flows - Years ended
March 31, 1998, 1997 and 1996 7
Notes to Consolidated Financial Statements 9
Financial Statement Schedule - Valuation and Qualifying Accounts -
Years ended March 31, 1998, 1997 and 1996 26
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Acxiom Corporation:
We have audited the accompanying consolidated financial statements of Acxiom
Corporation and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we have also audited
the financial statement schedule as listed in the accompanying index. 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 did not audit the consolidated
financial statements of May & Speh, Inc., a wholly-owned subsidiary, which
statements reflect total assets constituting 27 percent at March 31, 1997, and
total revenues constituting 16 percent and 19 percent during the years ended
March 31, 1997 and 1996, respectively, of the related consolidated totals. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for May & Speh,
Inc., is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. 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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, 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, 1998 and 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended March 31, 1998,
in conformity with generally accepted accounting principles. Also in our
opinion, based on our audits and the report of other auditors, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ KPMG LLP
Little Rock, Arkansas
January 28, 1999
-1-
<PAGE>
Report of Independent Accountants
The Board of Directors and Stockholders
of May & Speh, Inc.
In our opinion, the consolidated balance sheet of May & Speh, Inc. (not
presented separately herein) and the related statements of operations, of cash
flows and of changes in stockholders' equity (not presented separately herein)
present fairly, in all material respects, the financial position, results of
operations and cash flows of May & Speh, Inc. as of and for each of the two
years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles. 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 audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
November 1, 1996
-2-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1998 and 1997
(Dollars in thousands)
Assets 1998 1997
------- -------
Current assets:
Cash and cash equivalents $ 115,510 13,119
Marketable securities 11,794 20,334
Trade accounts receivable, net 118,281 90,922
Refundable income taxes 7,670 5,360
Other current assets (note 8) 34,615 14,412
------- -------
Total current assets 287,870 144,147
Property and equipment, net of accumulated
depreciation and amortization (notes 4 and 5) 185,684 142,919
Software, net of accumulated amortization of $11,642
in 1998 and $11,347 in 1997 (note 3) 38,673 24,167
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $8,585 in 1998
and $5,030 in 1997 (note 2) 73,851 55,160
Other assets 87,072 45,236
------- -------
$ 673,150 411,629
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt (note 5) 10,466 9,411
Trade accounts payable 21,946 19,036
Accrued expenses:
Payroll 18,293 9,255
Other 20,846 10,951
Deferred revenue 11,197 3,537
------- -------
Total current liabilities 82,748 52,190
Long-term debt, excluding current installments (note 5) 254,240 109,371
Deferred income taxes (note 8) 34,968 18,240
Stockholders' equity (notes 2, 5, 7 and 8):
Common stock 7,405 7,268
Additional paid-in capital 121,130 106,546
Retained earnings 175,946 125,597
Foreign currency translation adjustment 676 278
Unearned ESOP compensation (1,782) (5,346)
Treasury stock, at cost (2,181) (2,515)
------- -------
Total stockholders' equity 301,194 231,828
Commitments and contingencies (notes 5, 6, 9, 10 and 13)
------- -------
$ 673,150 411,629
======= =======
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended March 31, 1998, 1997 and 1996
(Dollars in thousands, except per share amounts)
1998 1997 1996
------- ------- -------
Revenue (notes 2 and 11) $ 569,020 479,239 331,543
Operating costs and expenses (notes 3, 6,
9 and 10):
Salaries and benefits 210,327 171,364 121,470
Computer, communications and other
equipment 86,338 76,366 54,850
Data costs 88,246 77,874 64,945
Other operating costs and expenses 100,272 87,283 45,689
Severance cost 4,700 - -
------- ------- -------
Total operating costs and expenses 489,883 412,887 286,954
------- ------- -------
Income from operations 79,137 66,352 44,589
------- ------- -------
Other income (expense):
Interest expense (10,044) (5,746) (3,227)
Other, net (note 14) 4,294 (71) 560
------- ------- -------
(5,750) (5,817) (2,667)
------- ------- -------
Earnings before income taxes 73,387 60,535 41,922
Income taxes (note 8) 27,332 22,800 15,838
------- ------- -------
Net earnings $ 46,055 37,735 26,084
======= ======= =======
Earnings per share:
Basic $ .64 .54 .41
======= ======= =======
Diluted $ .57 .49 .38
======= ======= =======
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
ACXIOM CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1998, 1997 and 1996
(Dollars in thousands)
Common stock
-------------------- Additional
Number paid-in
of shares Amount capital
---------- ------ -------
Balances at March 31, 1995 62,525,172 $ 6,252 44,280
DataQuick merger (note 2) 1,969,678 197 5,113
Retirement of DataQuick common stock prior
to merger - - (1,010)
Sale of DataQuick common stock prior to
merger - - 190
DataQuick dividends prior to merger - - -
May & Speh dividends - - -
Tax benefit of dividends paid on unallocated
shares of ESOP - - -
Sale of common stock 562,794 56 2,063
Tax benefit of stock options exercised
(note 8) - - 656
Purchase and retirement of May & Speh common
stock (82,464) (8) 7
Employee stock awards and shares issued to
employee benefit plans, net of treasury
shares repurchased 13,356 2 881
ESOP compensation earned - - -
Translation adjustment - - -
Net earnings - - -
---------- ----- -------
Balances at March 31, 1996 64,988,536 6,499 52,180
Pro CD merger (note 2) 3,313,324 331 2,647
Sale of common stock 4,381,362 438 46,828
Tax benefit of stock options exercised
(note 8) - - 2,232
Issuance of common stock warrants - - 1,300
Employee stock awards and shares issued to
employee benefit plans, net of treasury
shares repurchased - - 1,359
ESOP compensation earned - - -
Translation adjustment - - -
Net earnings - - -
---------- ----- -------
Balances at March 31, 1997 72,683,222 7,268 106,546
May & Speh merger (note 2) 72,160 7 115
Sale of common stock 1,235,971 124 9,158
Tax benefit of stock options exercised
(note 8) - - 2,763
Employee stock awards and shares issued to
employee benefit plans, net of treasury
shares repurchased 57,529 6 2,548
ESOP compensation earned - - -
Translation adjustment - - -
Net earnings - - -
---------- ----- -------
Balances at March 31, 1998 74,048,882 $ 7,405 121,130
========== ===== =======
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
Foreign Treasury stock Total
currency Unearned ---------------------- stockholders'
Retained translation ESOP Number equity
earnings adjustment compensation of shares Amount (note 7)
- -------- ----------- ------------ --------- ------ -------------
69,108 7 (11,363) (1,311,570) $ (2,407) 105,877
447 - - - - 5,757
- - - - - (1,010)
- - - - - 190
(468) - - - - (468)
(2,545) - 1,230 - - (1,315)
247 - - - - 247
- - - - - 2,119
- - - - - 656
(259) - - - - (260)
- - - 69,328 84 967
- - 2,411 - - 2,411
- (870) - - - (870)
26,084 - - - - 26,084
------- ----- ----- --------- ----- -------
92,614 (863) (7,722) (1,242,242) (2,323) 140,385
(4,752) - - - - (1,774)
- - - - - 47,266
- - - - - 2,232
- - - - - 1,300
- - - 145,912 (192) 1,167
- - 2,376 - - 2,376
- 1,141 - - - 1,141
37,735 - - - - 37,735
------- ----- ----- --------- ----- -------
125,597 278 (5,346) (1,096,330) (2,515) 231,828
4,294 - 1,188 - - 5,604
- - - - - 9,282
- - - - - 2,763
- - - 259,410 334 2,888
- - 2,376 - - 2,376
- 398 - - - 398
46,055 - - - - 46,055
------- ----- ----- --------- ----- -------
175,946 676 (1,782) (836,920) $ (2,181) 301,194
======= ===== ===== ========= ===== =======
-6-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1998, 1997 and 1996
(Dollars in thousands)
1998 1997 1996
------- ------- -------
Cash flows from operating activities:
Net earnings $ 46,055 37,735 26,084
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 49,658 35,400 22,832
Loss (gain) on disposal or impairment
of assets (960) 2,412 49
Provision for returns and doubtful accounts 3,094 4,462 149
Deferred income taxes 12,143 8,163 3,926
Tax benefit of stock options exercised 2,763 2,232 656
ESOP principal payments 2,376 2,376 2,411
Changes in operating assets and liabilities:
Accounts receivable (29,453) (24,034) (4,971)
Other assets (42,258) (16,107) (4,816)
Accounts payable and other liabilities 21,025 (8,649) 6,417
------- ------- ------
Net cash provided by operating
activities 64,443 43,990 52,737
------- ------- ------
Cash flows from investing activities:
Disposition of assets 15,340 2,385 402
Proceeds from sale of marketable securities 19,021 12,919 1,575
Purchases of marketable securities (5,778) (31,366) (648)
Cash received in merger - 21 1,624
Development of software (21,411) (10,715) (5,172)
Capital expenditures (67,865) (64,973) (45,939)
Investments in joint ventures (6,072) - -
Net cash paid in acquisitions (note 2) (19,841) (16,223) (6,020)
------- ------- ------
Net cash used in investing activities (86,606) (107,952) (54,178)
------- ------- ------
Cash flows from financing activities:
Proceeds from debt 125,820 39,459 23,995
Payments of debt (10,015) (20,994) (16,414)
Sale of common stock 12,171 48,433 2,309
DataQuick pre-merger retirement of common
stock - - (1,010)
DataQuick pre-merger dividends - - (468)
Dividends paid, net of related ESOP remittance - - (1,315)
Repurchases of common stock - - (202)
------- ------- ------
Net cash provided by financing
activities 127,976 66,898 6,895
------- ------- ------
(Continued)
-7-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Years ended March 31, 1998, 1997 and 1996
(Dollars in thousands)
1998 1997 1996
------- ------ ------
Effect of exchange rate changes on cash $ 2 - (63)
------- ------ ------
Net increase (decrease) in cash and cash
equivalents 105,815 2,936 5,391
Cash and cash equivalents at beginning of year 9,695 10,183 4,792
------- ------ ------
Cash and cash equivalents at end of year $ 115,510 13,119 10,183
======= ====== ======
Supplemental cash flow information:
Convertible debt issued in acquisition
(note 2) $ - 25,000 -
Cash paid during the year for:
Interest 9,303 5,053 3,879
Income taxes 12,627 15,131 13,815
Acquisition of property and equipment
under capital lease 14,939 11,373 342
======= ====== ======
See accompanying notes to consolidated financial statements.
-8-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
The Company provides information management technology and other
related services, primarily for marketing applications. Operating
units of the Company provide list services, data warehouse services,
data and information products, fulfillment services, computerized
list, postal and database services, and outsourcing and facilities
management services primarily in the United States (U.S.) and United
Kingdom (U.K.), along with limited activities in Canada, Netherlands
and Asia.
(b) Consolidation Policy
The consolidated financial statements include the accounts of Acxiom
Corporation and its subsidiaries ("Company"). 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.
(c) 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 generally
accepted accounting principles. Actual results could differ from those
estimates.
(d) Marketable Securities
Investments are stated at cost which approximates fair market value;
gains and losses are recognized in the period realized. The Company
has classified its securities as available for sale.
(e) Accounts Receivable
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts
receivables. 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.
Trade accounts receivable are presented net of allowances for doubtful
accounts and credits of $3.6 million and $4.7 million in 1998 and
1997, respectively.
(Continued)
-9-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
(f) 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
with long-term debt. Property and equipment taken out of service and
held for sale is recorded at net realizable value and depreciation is
ceased.
(g) Software and Research and Development Costs
Capitalized and purchased software costs are amortized on a
straight-line basis over the remaining estimated economic life of the
product, 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.
The American Institute of Certified Public Accountants has issued
Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1") which is
effective for financial statements for fiscal years beginning after
December 14, 1998. SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use.
This pronouncement identifies the characteristics of internal use
software and provides guidance on new cost recognition principles. The
Company does not believe the adoption of SOP 98-1 will have a material
impact on the manner in which the Company has been accounting for such
costs.
(h) Excess of Cost Over Fair Value of Net Assets Acquired
The excess of acquisition costs over the fair values of net assets
acquired in business combinations treated as purchase transactions
("goodwill") is being amortized on a straight-line basis over 15 to 25
years from acquisition dates. The Company periodically evaluates the
existence of goodwill impairment on the basis of whether the goodwill
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.
(i) Revenue Recognition
Revenue from direct marketing services, including the production and
delivery of marketing lists and enhancement data, and from information
technology outsourcing services, including facilities management
contracts, are recognized as services are performed. Services
performed are generally determined based upon records processed or
computer time used. In the case of long-term outsourcing contracts,
capital expenditures incurred in connection with the contract are
capitalized and amortized over the term of the contract whereby profit
is recognized under the contracts at a consistent rate of margin as
services are performed under the contract. In
(Continued)
-10-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
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 it is determinable that such benchmarks
have been met.
Revenue from sales and licensing of software and data are recognized
when the software and data are delivered; the fee for such data is
fixed or determinable; and collectibility of such fee is probable.
Software and data file maintenance is recognized over the term of the
agreements. In the case of multiple-element software and data
arrangements, revenue is allocated to the respective elements based
upon their relative fair value. Billed but unearned portions of
revenue are deferred.
Included in other assets are unamortized outsourcing capital
expenditure costs in the amount of $25.0 million and $18.1 million as
of March 31, 1998 and 1997, respectively. Noncurrent receivables from
software license, data, and equipment sales are also included in other
assets in the amount of $20.3 million and $9.6 million as of March 31,
1998 and 1997, respectively. The current portion of such receivables
is included in other current assets in the amount of $9.5 million and
$2.9 million as of March 31, 1998 and 1997, respectively. Certain of
the noncurrent receivables have no stated interest rate. In such
cases, such receivables have been discounted using an appropriate
imputed interest rate based upon the customer, type of agreement,
collateral and payment terms. This discount is being recognized into
income using the interest method.
(j) 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.
(k) 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 accumulated in a separate component of
stockholders' equity.
(Continued)
-11-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
(l) Earnings Per Share
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share" during the year ended March 31,
1998. Below is the calculation and reconciliation of the numerator and
denominator of basic and diluted earnings per share (in thousands,
except per share amounts):
1998 1997 1996
------ ------ ------
Basic earnings per share:
Numerator (net earnings) $ 46,055 37,735 26,084
====== ====== ======
Denominator (weighted
average shares outstanding) 72,199 69,279 63,398
====== ====== ======
Earnings per share $ .64 .54 .41
====== ====== ======
Diluted earnings per share:
Numerator:
Net earnings $ 46,055 37,735 26,084
Interest expense on
convertible debt
(net of tax effect) 465 445 -
------ ------ ------
$ 46,520 38,180 26,084
====== ====== ======
Denominator:
Weighted average shares
outstanding 72,199 69,279 63,398
Effect of common stock options 3,593 3,782 2,874
Effect of common stock warrant 3,015 3,004 2,295
Convertible debt 2,102 2,000 -
------ ------ ------
80,909 78,065 68,567
====== ====== ======
Earnings per share $ .57 .49 .38
====== ====== ======
Options to purchase shares of common stock that were outstanding
during 1998, 1997 and 1996 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.
1998 1997 1996
--------------- --------------- ---------------
Number of shares
under option 2,176,043 1,431,992 568,287
Range of exercise
prices $15.94 - $35.92 $18.61 - $35.00 $12.25 - $24.81
(Continued)
-12-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
(m) 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 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.
(n) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(o) Reclassifications
To conform to the 1998 presentation, certain accounts for 1997 and
1996 have been reclassified. The reclassifications had no effect on
net earnings.
(2) Acquisitions
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 currently
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.
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying consolidated
financial statements are summarized below.
1998 1997 1996
------- ------- -------
Revenue:
Acxiom Corporation $ 465,065 402,016 269,902
May & Speh 103,955 77,223 61,641
------- ------- -------
Combined $ 569,020 479,239 331,543
======= ======= =======
Net earnings:
Acxiom Corporation 35,597 27,512 18,223
May & Speh 10,458 10,223 7,861
------- ------- -------
Combined $ 46,055 37,735 26,084
======= ======= =======
(Continued)
-13-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
Prior to the combination, May & Speh's fiscal year ended September 30. In
recording the pooling-of-interests combination, May & Speh's consolidated
financial statements as of and for the year ended March 31, 1998 were
combined with Acxiom's consolidated financial statements for the same
period and May & Speh's consolidated financial statements as of September
30, 1996 and for each of the two years ended September 30, 1996 were
combined with Acxiom's consolidated financial statements as of March 31,
1997 and for each of the two years ended March 31, 1997, respectively. May
& Speh's unaudited consolidated results of operations for the six months
ended March 31, 1997 included revenue of $42.9 million and net earnings of
$4.3 million. An adjustment has been made to retained earnings as of March
31, 1997 to record the net earnings of May & Speh for the six months ended
March 31, 1997.
Effective October 1, 1997, the Company acquired 100% ownership of
MultiNational Concepts, Ltd. ("MultiNational") and Catalog Marketing
Services, Inc. (d/b/a Shop the World by Mail), entities under common
control (collectively "STW"). Total consideration was $4.6 million (net of
cash acquired) and other cash consideration based on the future performance
of STW. MultiNational, headquartered in Hoboken, New Jersey, is an
international mailing list and database maintenance provider for consumer
catalogers interested in developing foreign markets. Shop the World by
Mail, headquartered in Sarasota, Florida, provides cooperative customer
acquisition programs, and also produces an international catalog of
catalogs whereby end-customers in over 60 countries can order catalogs from
around the world.
Also effective October 1, 1997, the Company acquired Buckley Dement, L.P.
and its affiliated company, KM Lists, Incorporated (collectively "Buckley
Dement"). Buckley Dement, headquartered in Skokie, Illinois, provides list
brokerage, list management, promotional mailing and fulfillment, and
merchandise order processing to pharmaceutical, health care, and other
commercial customers. Total consideration was $14.2 million (net of cash
acquired) and other cash consideration based on the future performance of
Buckley Dement.
Both the Buckley Dement and STW acquisitions are accounted for as purchases
and their operating results are included with the Company's results
beginning October 1, 1997. The purchase price for the two acquisitions
exceeded the fair value of net assets acquired by $12.6 million and $5.2
million for Buckley Dement and STW, respectively. The resulting excess of
cost over net assets acquired is being amortized over its estimated
economic life of 20 years. The pro forma combined results of operations,
assuming the acquisitions occurred at the beginning of the fiscal year, are
not materially different than the historical results of operations
reported.
On April 9, 1996, the Company issued 3,313,324 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 reference software on CD-ROM. The business combination was
accounted for as a pooling-of-interests. The stockholders' equity and
operations of Pro CD were not material in relation to those of the Company.
As such, the Company recorded the combination by restating stockholders'
equity as of April 1, 1996, without restating prior years' financial
statements to reflect the pooling-of-interests. At April 1, 1996 Pro CD's
liabilities exceeded its assets by $1.8 million.
(Continued)
-14-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
Also in April, 1996, the Company acquired the assets of Direct Media/DMI,
Inc. ("DMI") for $25 million and the assumption of certain liabilities of
DMI. The $25 million purchase price is payable in three years, is partially
collateralized by a letter of credit (see note 5), 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 net
assets acquired from DMI by approximately $1.0 million. The resulting
excess of purchase price over fair value of net assets acquired is being
amortized over its estimated economic life of 20 years. The acquisition has
been accounted for as a purchase, and accordingly, the results of
operations of DMI are included in the consolidated results of operations
from the date of its acquisition.
The purchase price for DMI has been allocated as follows (dollars in
thousands):
Trade accounts receivable $ 7,558
Property and equipment 2,010
Software 3,500
Excess of cost over fair value of net assets acquired 25,993
Other assets 840
Short-term note payable to bank (11,594)
Accounts payable and other liabilities (3,020)
Long-term debt (287)
------
$ 25,000
======
On August 25, 1995, the Company acquired all of the outstanding capital
stock of DataQuick Information Systems (formerly an "S" Corporation) and DQ
Investment Corporation (collectively, "DataQuick"). The Company exchanged
1,969,678 shares of its common stock for all of the outstanding shares of
capital stock of DataQuick. Additionally, the Company assumed all of the
currently outstanding options granted under DataQuick's stock option plans,
with the result that 1,616,740 shares of the Company's common stock became
subject to issuance upon exercise of such options (see note 7). The
acquisition was accounted for as a pooling-of-interests.
DataQuick, headquartered in San Diego, California, provides real property
information to support a broad range of applications including marketing,
appraisal, real estate, banking, mortgage and insurance. This information
is distributed on-line and via CD-ROM, list services, and microfiche.
The stockholders' equity and operations of DataQuick were not material in
relation to those of the Company. As such, the Company recorded the
combination by restating stockholders' equity as of April 1, 1995, without
restating prior years' financial statements to reflect the
pooling-of-interests combination. DataQuick's net assets as of April 1,
1995 totaled $5.8 million. The statements of earnings for the years ended
March 31, 1998, 1997 and 1996 include the results of DataQuick for the
entire periods presented. Included in the statement of earnings for 1996
are revenues of $8.0 million and earnings before income taxes of $79,000
for DataQuick for the period from April 1, 1995 to August 25, 1995.
(Continued)
-15-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
(3) Software and Research and Development Costs
The Company recorded amortization expense related to internally developed
computer software of $5.9 million, $5.4 million and $3.1 million in 1998,
1997 and 1996, respectively. Additionally, research and development costs
of $13.7 million, $13.0 million and $8.3 million were charged to operations
during 1998, 1997 and 1996, respectively.
(4) Property and Equipment
Property and equipment is summarized as follows (dollars in thousands):
1998 1997
------- -------
Land $ 8,344 8,441
Buildings and improvements 74,634 68,122
Office furniture and equipment 24,456 17,036
Data processing equipment 193,959 141,766
------- -------
301,393 235,365
Less accumulated depreciation and amortization 115,709 92,446
------- -------
$ 185,684 142,919
======= =======
(5) Long-Term Debt
Long-term debt consists of the following (dollars in thousands):
1998 1997
------- -------
5.25% convertible subordinated notes due 2003 $ 115,000 -
Unsecured revolving credit agreement 36,445 21,454
6.92% Senior notes due March 30, 2007, payable
in annual installments of $4,286 commencing
March 30, 2001; interest is payable
semi-annually 30,000 30,000
3.12% Convertible note, interest and principal
due April 30, 1999; partially collateralized
by letter of credit; convertible at maturity
into two million shares of common stock
(note 2) 25,000 25,000
Capital leases on land, buildings and equipment
payable in monthly payments of $359 of
principal and interest; remaining terms of
from five to twenty years; interest rates
approximately 8% 22,818 9,975
Obligation payable under software license
agreement 10,949 -
(Continued)
-16-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
1998 1997
------- -------
8.5% unsecured term loan; quarterly principal
payments of $200 plus interest with the
balance due in 2005 $ 9,800 11,200
9.75% Senior notes, due May 1, 2000, payable
in annual installments of $2,143 each May 1;
interest is payable semi-annually 6,429 8,571
ESOP loan (note 10) 1,782 5,346
Other capital leases, debt and long-term
liabilities 6,483 7,236
------- -------
Total long-term debt 264,706 118,782
Less current installments 10,466 9,411
------- -------
Long-term debt, excluding current
installments $ 254,240 109,371
======= =======
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. The total net proceeds to the Company were approximately
$110.8 million after deducting underwriting discounts and commissions and
estimated offering expenses.
The unsecured revolving credit agreement, which expires January 31, 2003
provides for revolving loans and letters of credit in amounts of up to $125
million. The terms of the credit agreement provide for interest at the
prime rate (or, at other alternative market rates at the Company's option).
At March 31, 1998, the effective rate was 7.175%. The agreement requires a
commitment fee equal to 3/16 of 1% on the average unused portion of the
loan. A letter of credit in the amount of $6.6 million is outstanding in
connection with an acquisition (see note 2), leaving $118.4 million
available for revolving loans. The Company also has another unsecured line
of credit amounting to $1.5 million of which none was outstanding at March
31, 1998 or 1997. The other unsecured line expires July 30, 1998 and bears
interest at the prime rate less 1/2 of 1%.
Under the terms of certain of the above borrowings, the Company is required
to maintain certain tangible net worth levels and working capital,
debt-to-equity and debt service coverage ratios. At March 31, 1998, the
Company was in compliance with all such financial requirements. The
aggregate maturities of long-term debt for the five years ending March 31,
2003 are as follows: 1999, $9.5 million; 2000, $31.4 million; 2001, $10.7
million; 2002, $7.3 million; and 2003, $44.2 million.
(Continued)
-17-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
In June 1997, May & Speh entered into a sale-leaseback agreement with a
third party selling its existing office building and land, including 10.4
acres located adjacent to the existing building that will be used to build
a new 200,000 square foot building. May & Speh has entered into a 20-year
lease with the third party on the existing building, and it has also
entered into a 20-year lease for the new 200,000 square foot building
currently under construction on the property adjacent to May & Speh's
executive offices. The lease commences upon completion of the building
which is expected to be completed in September 1998 and is classified as a
capital lease. The existing building and land were sold at its book value
of approximately $12.2 million. The interest rate implicit in the capital
lease approximates 8%.
(6) Leases
The Company leases data processing equipment, office furniture and
equipment, land and office space under noncancellable operating leases.
Future minimum lease payments under noncancellable operating leases for the
five years ending March 31, 2003 are as follows: 1999, $12.5 million; 2000,
$10.2 million; 2001, $7.2 million; 2002, $3.7 million; and 2003, $2.5
million.
Total rental expense on operating leases was $15.2 million, $18.4 million
and $12.3 million for the years ended March 31, 1998, 1997 and 1996,
respectively.
(7) Stockholders' Equity
The Company has authorized 200 million shares of $.10 par value common
stock and 1 million shares of authorized but unissued $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 March 29, 1996, May & Speh completed an initial public offering of
3,350,000 shares of its common stock (2,680,000 shares as adjusted for
merger with Acxiom) and on April 24, 1996 completed the offering of an
additional 1,005,000 shares of common stock (804,000 shares as adjusted)
that were subject to an over-allotment granted to the underwriters of the
offering. Total net proceeds from the offering were approximately $43.5
million.
On March 30, 1998, May & Speh also completed an offering of 325,000 shares
of its common stock (260,000 shares as adjusted). Total net proceeds were
approximately $3.5 million.
In connection with its data center management agreement ("Agreement")
entered into in August, 1992 with Trans Union Corporation ("Trans Union"),
the Company issued a warrant, which expires on August 31, 2000 and entitles
Trans Union to acquire up to 4 million additional shares of newly-issued
common stock. The exercise price for the warrant stock is $3.06 per share
through August 31, 1998 and increases $.25 per share in each of the two
years subsequent to August 31, 1998. The warrant was exercised for 4
million shares on August 31, 1998.
(Continued)
-18-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
The Company has for its U.S. employees a Key Employee Stock Option Plan
("Plan") for which 15.2 million shares of the Company's common stock have
been reserved. 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 by the Board of Directors. Incentive options granted under the
plans must be exercised within 10 years after the date of the option. At
March 31, 1998, 2,161,461 shares and 824,163 shares are available for
future grants under the Plan and the Scheme, respectively.
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 10
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 become subject to issuance upon exercise of such
options.
Activity in stock options was as follows:
Weighted
Number average Number of
of price shares
shares per share exercisable
---------- --------- -----------
Outstanding at March 31, 1995 4,928,696 $ 4.68 1,715,966
Granted 3,821,356 9.42
DataQuick acquisition (note 2) 1,616,740 2.93
Exercised (371,046) 2.49
Terminated (486,000) 2.59
----------
Outstanding at March 31, 1996 9,509,746 7.18 3,467,728
Granted 1,300,811 17.29
Pro CD acquisition (note 2) 294,132 1.76
Exercised (835,369) 2.41
Terminated (93,255) 7.29
----------
Outstanding at March 31, 1997 10,176,065 8.31 3,974,265
May & Speh acquisition (note 2) 217,440 16.89
Granted 2,143,176 14.88
Exercised (977,511) 3.86
Terminated (157,190) 11.89
==========
Outstanding at March 31, 1998 11,401,980 9.63 5,316,861
========== =========
The per share weighted-average fair value of stock options granted during
fiscal 1998, 1997 and 1996 was $9.91, $8.61 and $4.14, respectively, on the
date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions: Dividend yield of 0% for 1998, 1997
and 1996; risk-free interest rate of 6.79% in 1998, 6.71% in 1997 and 6.16%
in 1996; expected option life of 10 years for 1998, 1997 and 1996; and
expected volatility of 38.69% in 1998, 34.85% in 1997 and 28.53% in 1996.
(Continued)
-19-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
Following is a summary of stock options outstanding as of March 31, 1998:
Options outstanding Options exercisable
------------------------------------ ----------------------
Weighted Weighted Weighted
average average average
Range of remaining exercise exercise
exercise Options contractual per Options per
prices outstanding life share exercisable share
-------------- ----------- ----------- -------- ----------- --------
$ 1.38 - 2.54 1,413,970 6.72 years $ 2.13 1,270,298 $ 2.17
2.56 - 4.69 2,602,553 3.77 years 3.39 1,704,543 3.41
5.38 - 6.25 1,500,635 5.12 years 6.11 891,683 6.04
7.43 - 15.70 3,296,022 4.15 years 12.49 1,071,475 13.32
15.75 - 24.85 2,318,924 5.39 years 20.43 352,267 22.05
25.34 - 35.92 269,876 12.82 years 31.00 26,595 30.96
---------- ----------- ----- ---------- -----
11,401,980 4.96 years $ 9.63 5,316,861 $ 6.92
========== =========== ===== ========== =====
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 earnings 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 would have been reduced to the following pro
forma amounts for the years ended March 31 (dollars in thousands, except
per share amounts):
1998 1997 1996
------ ------ ------
Net earnings As reported $ 46,055 37,735 26,084
Pro forma 39,625 36,672 25,902
Basic earnings per share As reported $ .64 .54 .41
Pro forma .55 .53 .41
Diluted earnings per share As reported $ .57 .49 .38
Pro forma .50 .48 .38
Pro forma net earnings 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 8-9 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 125,151, 110,332 and 190,470 shares purchased under the plan during
the years ended March 31, 1998, 1997 and 1996, respectively.
(Continued)
-20-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
(8) Income Taxes
Total income tax expense was allocated as follows (dollars in thousands):
1998 1997 1996
------ ------ ------
Income from operations $ 27,332 22,800 15,838
Stockholders' equity, for compensation
expense for tax purposes in excess
of amounts recognized for financial
reporting purposes (2,763) (2,232) (656)
------ ------ ------
$ 24,569 20,568 15,182
====== ====== ======
Income tax expense attributable to earnings from operations consists of
(dollars in thousands):
1998 1997 1996
------ ------ ------
Current expense:
Federal $ 12,247 13,009 10,079
Foreign 1,206 83 -
State 1,736 1,545 1,833
------ ------ ------
15,189 14,637 11,912
------ ------ ------
Deferred expense:
Federal 9,792 5,979 3,105
Foreign 23 687 161
State 2,328 1,497 660
------ ------ ------
12,143 8,163 3,926
------ ------ ------
Total tax expense $ 27,332 22,800 15,838
====== ====== ======
The actual income tax expense attributable to earnings from operations
differs from the expected tax expense (computed by applying the U.S.
Federal corporate tax rate of 35% to earnings before income taxes) as
follows (dollars in thousands):
1998 1997 1996
------ ------ ------
Computed expected tax expense $ 25,685 21,187 14,673
Increase (reduction) in income taxes
resulting from:
State income taxes, net of Federal
income tax benefit 2,642 1,977 1,621
Research and experimentation credits (715) (683) (800)
Other (280) 319 344
------ ------ ------
$ 27,332 22,800 15,838
====== ====== ======
(Continued)
-21-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at March 31, 1998 and
1997 are presented below (dollars in thousands).
1998 1997
------ ------
Deferred tax assets:
Accrued expenses not currently deductible
for tax purposes $ 2,150 1,840
Investments, principally due to differences
in basis for tax and financial reporting
purposes 676 327
Net operating loss carryforwards - 1,208
Other 849 949
Valuation allowance - (1,208)
----- ------
Total deferred tax assets 3,675 3,116
----- ------
Deferred tax liabilities:
Property and equipment, principally due
to differences in depreciation (11,099) (7,494)
Intangible assets, principally due to
differences in amortization (2,212) (551)
Capitalized software and other costs
expensed as incurred for tax purposes (20,618) (12,554)
Installment sale gains for tax purposes (1,843) (259)
------ ------
Total deferred tax liabilities (35,722) (20,858)
------ ------
Net deferred tax liability $(32,097) (17,742)
====== ======
The valuation allowance for deferred tax assets as of March 31, 1996 was
$328,000. The net change in the total valuation allowance for the years
ended March 31, 1998 and 1997 was a decrease of $1.2 million and an
increase of $880,000, respectively. 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 substantial profitability and taxable income and its utilization of tax
planning strategies, management believes it is more likely than not the
Company will realize the benefits of these deductible differences, net of
any valuation allowances. Included in other current assets are deferred tax
assets of $2.9 million and $0.5 million at March 31, 1998 and 1997,
respectively.
(Continued)
-22-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
(9) Related Party Transactions
The Company leases certain equipment from a business partially owned by an
officer. Rent expense under these leases was approximately $797,000 during
the years ended March 31, 1998 and 1997, respectively, and $371,000 during
the year ended March 31, 1996. Under the terms of the lease in effect at
March 31, 1998 the Company will make monthly lease payments of $66,000
through December, 2001. 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 $5.4 million at March 31,
1998) should the Company elect to exercise its early termination rights or
not extend the lease beyond its initial five year term and the lessor sells
the equipment as a result thereof.
(10) Retirement Plans
The Company has a retirement savings plan which covers substantially all
domestic employees. The Company also offers a supplemental non-qualified
deferred compensation plan for certain management employees. The Company
matches 50% of the employee's salary deferred 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 $22,500,000 from a bank ("ESOP Loan")
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.
Company contributions for the above plans amounted to approximately $4.3
million, $3.9 million and $3.2 million in 1998, 1997 and 1996,
respectively.
(11) Major Customers
In 1998, 1997 and 1996, the Company had two major customers who accounted
for more than 10% of revenue. Allstate Insurance Company accounted for
revenue of $74.7 million (13.1%), $67.7 million (14.1%), and $55.8 million
(16.8%) in 1998, 1997 and 1996, respectively, and Trans Union accounted for
revenue of $54.9 million (9.6%), $56.6 million (11.8%) and $42.0 million
(12.7%) in 1998, 1997 and 1996, respectively. At March 31, 1998, accounts
receivable from these customers was $7.6 million and $10.1 million,
respectively.
(Continued)
-23-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
(12) Foreign Operations
The following table shows financial information by geographic area for the
years 1998, 1997 and 1996 (dollars in thousands).
United United
States Kingdom Consolidated
------- ------- ------------
1998:
Revenue $ 534,374 34,646 569,020
Earnings before income taxes 70,945 2,442 73,387
Net earnings 44,517 1,538 46,055
Total assets 643,694 29,456 673,150
Total tangible assets 577,551 21,748 599,299
Total liabilities 360,441 11,515 371,956
Total equity 283,253 17,941 301,194
======= ====== =======
1997:
Revenue 450,819 28,420 479,239
Earnings before income taxes 58,862 1,673 60,535
Net earnings 36,689 1,046 37,735
Total assets 388,793 22,836 411,629
Total tangible assets 341,360 15,109 356,469
Total liabilities 171,269 8,532 179,801
Total equity 217,524 14,304 231,828
======= ====== =======
1996:
Revenue 313,831 17,712 331,543
Earnings (loss) before income
taxes 42,230 (238) 41,992
Net earnings (loss) 26,483 (399) 26,084
Total assets 223,125 17,728 240,853
Total tangible assets 216,775 10,096 226,871
Total liabilities 94,332 6,136 100,468
Total equity 128,793 11,592 140,385
======= ====== =======
(13) Contingencies
The Company is involved in various 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.
(Continued)
-24-
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
(14) Dispositions
Effective August 22, 1997, the Company sold certain assets of its Pro CD
subsidiary to a wholly-owned subsidiary of American Business Information,
Inc. ("ABI"). ABI acquired the retail and direct marketing operations of
Pro CD, along with compiled telephone book data for aggregate cash proceeds
of $18.0 million, which included consideration for a compiled telephone
book data license. The Company also entered into a data license agreement
with ABI under which the Company will pay ABI $8.0 million over a two-year
period, and a technology and data license agreement under which ABI will
pay the Company $8.0 million over a two-year period. In conjunction with
the sale to ABI, the Company also recorded certain valuation and
contingency reserves. Included in other income is the gain on disposal
related to this transaction of $855,000.
(15) 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, marketable securities, trade receivables,
short-term borrowings, and trade payables - The carrying amount
approximates fair value because of the short maturity of these
instruments.
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, 1998 the
estimated fair value of long-term debt approximates its carrying
value.
(16) Selected Quarterly Financial Data (Unaudited)
The table below sets forth selected financial information for each quarter
of the last two years (dollars in thousands, except per share amounts):
1st 2nd 3rd 4th
quarter quarter quarter quarter
------- ------- ------- -------
1998:
Revenue $ 123,952 135,876 147,043 162,149
Income from operations 14,852 20,072 20,329 23,884
Net earnings 8,186 11,995 11,766 14,108
Basic earnings per share .11 .17 .16 .19
Diluted earnings per share .10 .15 .15 .18
1997:
Revenue 109,997 116,679 124,531 128,032
Income from operations 11,688 15,908 20,093 18,663
Net earnings 5,906 8,632 11,930 11,267
Basic earnings per share .09 .13 .17 .16
Diluted earnings per share .08 .11 .15 .14
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<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
Schedule of Valuation and Qualifying Accounts
Years ended March 31, 1998, 1997 and 1996
(In thousands)
Additions Bad Balance
Balance at charged to Other debts Bad at
beginning costs and additions written debts end of
of period expenses (note) off recovered period
---------- ---------- --------- ------- --------- -------
1998:
Allowance for
doubtful
accounts,
returns and
credits $ 4,692 3,094 224 4,777 397 3,630
===== ===== ===== ===== === =====
1997:
Allowance for
doubtful
accounts,
returns and
credits $ 2,230 4,402 4,800 7,044 298 4,686
===== ===== ===== ===== === =====
1996:
Allowance for
doubtful
accounts,
returns and
credits $ 2,493 150 131 726 182 2,230
===== ====== ===== ===== === =====
Note - Other additions in 1998 represent the valuation accounts acquired in the
Multinational and STW acquisitions. Other additions in 1997 represent the
valuation accounts acquired in the Pro CD and DMI acquisitions. Other
additions in 1996 represent the valuation accounts acquired in the
Generator and DataQuick acquisitions.
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