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, 1999 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 9, 1999 was 84,812,412.
<PAGE>
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.
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
June 30, March 31,
1999 1999
------- -------
Assets
Current assets:
Cash and cash equivalents $ 393 12,604
Trade accounts receivable, net 215,944 184,799
Refundable income taxes 4,578 12,651
Deferred income taxes 30,643 30,643
Other current assets 79,980 61,302
------- -------
Total current assets 331,538 301,999
------- -------
Property and equipment 374,380 341,841
Less - Accumulated depreciation
and amortization 127,063 115,460
------- -------
Property and equipment, net 247,317 226,381
------- -------
Software, net of accumulated amortization 48,859 37,400
Excess of cost over fair value of net
assets acquired 134,666 122,483
Other assets 193,078 201,537
------- -------
$ 955,458 889,800
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt 21,325 23,355
Trade accounts payable 44,804 60,216
Accrued merger and integration costs 32,598 33,181
Accrued payroll and related expenses 9,591 18,224
Other accrued expenses 9,424 25,744
Deferred revenue 6,216 7,195
------- -------
Total current liabilities 123,958 167,915
------- -------
Long-term debt, excluding current installments 377,900 325,223
Deferred income taxes 38,889 38,889
Stockholders' equity:
Common stock 8,390 8,106
Additional paid-in capital 227,206 186,011
Retained earnings 182,762 167,013
Accumulated other comprehensive income (loss) (459) (324)
Treasury stock, at cost (3,188) (3,033)
------- -------
Total stockholders' equity 414,711 357,773
------- -------
Commitments and contingencies $ 955,458 889,800
======= =======
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
For the Three Months Ended
June 30
1999 1998
------- -------
Revenue $ 211,506 164,512
Operating costs and expenses:
Salaries and benefits 83,709 63,717
Computer, communications and other equipment 34,174 24,956
Data costs 25,116 26,407
Other operating costs and expenses 38,261 29,111
------- -------
Total operating costs and expenses 181,260 144,191
------- -------
Income from operations 30,246 20,321
------- -------
Other income (expense):
Interest expense (5,819) (4,076)
Other, net 769 2,514
------- -------
(5,050) (1,562)
------- -------
Earnings before income taxes 25,196 18,759
Income taxes 9,447 7,022
------- -------
Net earnings $ 15,749 11,737
======= =======
Earnings per share:
Basic $ .19 $ .16
======= =======
Diluted $ .18 $ .14
======= =======
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the Three Months Ended
June 30
1999 1998
------ ------
Cash flows from operating activities:
Net earnings $ 15,749 11,737
Non-cash operating activities:
Depreciation and amortization 18,266 14,954
Loss (gain) on disposal of assets 34 (21)
Provision for returns and doubtful accounts 288 1,462
ESOP compensation - 794
Changes in operating assets and liabilities:
Accounts receivable (29,822) (12,828)
Other assets 9,669 (14,690)
Accounts payable and other liabilities (38,713) (2,725)
Merger and integration costs (583) -
------ ------
Net cash used by operating activities (25,112) (1,317)
------ ------
Cash flows from investing activities:
Disposition of assets 783 35
Development of software (12,777) (11,728)
Capital expenditures (35,645) (17,441)
Sales of marketable securities - 2,757
Investments in joint ventures (1,130) (8,034)
Net cash paid in acquisitions (15,330) (20,513)
------ ------
Net cash used by investing activities (64,099) (54,924)
------ ------
Cash flows from financing activities:
Proceeds from debt 75,149 39,372
Payments of debt (7,234) (4,387)
Sale of common stock 9,143 1,947
------ ------
Net cash provided by financing activities 77,058 36,932
------ ------
Effect of exchange rate changes on cash (58) (6)
------ ------
Net decrease in cash and cash equivalents (12,211) 19,315
Cash and cash equivalents at beginning of period 12,604 117,652
------ -------
Cash and cash equivalents at end of period $ 393 98,337
====== ======
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 12,405 3,527
Income taxes 1,382 2,812
====== ======
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Form 10-Q
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Certain note information has been omitted because it has not changed
significantly from that reflected in Notes 1 through 18 of the Notes to
Supplemental Consolidated Financial Statements filed as a part of the
Registrant's restated consolidated financial statements as a result of the
Registrant's merger with Computer Graphics of Arizona, Inc. and all of its
affiliated companies, as filed with the Securities and Exchange Commission
on a Form 8-K dated June 21, 1999.
<PAGE>
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. During the year ended March 31, 1999, the Company recorded special charges
totaling $118.7 million related to merger and integration charges
associated with the May & Speh merger and the write down of other impaired
assets.
The following table shows the balances which were accrued as of March
31,1999 and the changes in those balances during the quarter ended June 30,
1999 (dollars in thousands):
March 31, June 30,
1999 Payments 1999
---- -------- ----
Associate-related reserves $ 4,354 455 3,899
Contract termination costs 27,000 - 27,000
Other accruals 1,827 128 1,699
------ --- ------
$ 33,181 583 32,598
====== === ======
The associate-related reserves and contract termination costs will be paid
during the current fiscal year. The other accruals will be paid out over
periods ranging up to five years.
On May 28,1999, the Company completed the acquisition of Computer Graphics
of Arizona, Inc. ("Computer Graphics") and all of its affiliated companies
in a stock-for-stock merger. The Company issued 1,871,343 shares of its
common stock in exchange for all the outstanding common stock of Computer
Graphics. Computer Graphics, a privately held enterprise headquartered in
Phoenix, Arizona, is a computer service bureau principally serving
financial services direct marketers. This acquisition was 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 Computer Graphics.
Effective April 1, 1999, the Company acquired the assets of Horizon
Systems, Inc. ("Horizon") for $16.5 million in cash and common stock and
the assumption of certain liabilities of Horizon, and other cash and stock
consideration based on the future performance of Horizon. The acquisition
has been accounted for as a purchase and, accordingly, the results of
operations of Horizon are included in the consolidated results of
operations from the date of the acquisition. The excess of the purchase
price over the net assets acquired of $14.1 million is being amortized over
20 years.
2. Included in other assets are unamortized outsourcing capital expenditure
costs in the amount of $30.1 million and $28.4 million at June 30, 1999 and
March 31, 1999, respectively. These costs are amortized over the life of
the outsourcing contract. Noncurrent receivables from software license,
data, and equipment sales are also included in other assets in the amount
of $17.4 million and $24.9 million at June 30, 1999 and March 31, 1999,
respectively. The current portion of such receivables is included in other
current assets in the amount of $24.7 million and $24.6 million as of June
<PAGE>
30, 1999 and March 31, 1999, respectively. Other assets also included
$105.3 million and $103.5 million in capitalized software license
agreements at June 30, 1999 and March 31, 1999, respectively. These
licenses are enterprise-wide agreements for systems software from several
vendors with terms of from five to seven years. The agreements provide for
substantial Company growth which reflects considerable discounts from
standard list prices. The offsetting liabilities for the present value of
the future payments are included in long-term debt. Also included in other
assets are investments in joint ventures in the amount of $20.8 million and
$16.9 million at June 30, 1999 and March 31, 1999 respectively.
3. Long-term debt consists of the following (dollars in thousands):
June 30, March 31,
1999 1999
5.25% Convertible subordinated notes due 2003; $ 115,000 115,000
convertible at the option of the holder into
shares of common stock at a conversion price
of $19.89 per share; redeemable at the option
of the Company at any time after April 3, 2001
Unsecured revolving credit agreement 130,532 55,384
6.92% Senior notes due March 30, 2007, payable 30,000 30,000
in annual installments of $4,286 commencing
March 30, 2001; interest is payable semi-annually
3.12% Convertible note, interest and principal - 25,000
due April 30, 1999; convertible at maturity into
two million shares of common stock
Capital leases on land, buildings and equipment 20,381 20,587
payable in monthly payments of $357 of principal
and interest; remaining terms of from five to
twenty years; interest rates at approximately 8%
Software license liabilities payable over terms 82,380 76,748
of from five to seven years; effective interest
rates at approximately 6%
8.5% Unsecured term loan; quarterly principal 8,800 9,000
payments of $200 plus interest with the balance
due in 2003
<PAGE>
9.75% Senior notes, due May 1, 2000, payable in 2,143 4,286
annual installments of $2,143 each May 1; interest
is payable semi-annually
Other capital leases, debt and long-term 9,989 12,573
liabilities ------- -------
Total long-term debt 399,225 348,578
Less current installments 21,325 23,355
------- -------
Long-term debt, excluding current $ 377,900 325,223
installments ======= =======
In April 1999, the holder of the 3.12% convertible note elected to receive
the two million shares of the Company's common stock. Accordingly, the
balance of the debt and related accrued interest of $2.1 million has been
reclassified into equity.
At June 30, 1999, due to the merger with May & Speh and the special charges
booked during the previous year, the Company was in violation of certain
restrictive covenants under the unsecured revolving credit agreement and
the 9.75% senior notes. The violations of each of these agreements has been
waived by the respective lenders. The violations occurred as a result of
the net loss reported by the Company for the quarter ended September 30,
1998. Since these calculations are performed using the latest four
quarters' statements of operations and cash flows, the violation was waived
through the June 30, 1999 quarter. After this date, the violations are not
expected to recur since the bulk of the special charges will no longer be
included in the twelve month period of the applicable calculations.
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 with local real estate
developers. In each case, the Company is guaranteeing portions of the
construction loans for the buildings. The aggregate amount of the
guarantees at June 30, 1999 was approximately $10 million. The total cost
of the two building projects is expected to be approximately $19.5 million.
In May of 1999, the Company arranged a $25 million temporary increase in
the revolving credit facility, which increased the total available facility
to $150 million. This temporary increase expired July 31, 1999, but has
been extended until October 15, 1999.
<PAGE>
4. Below is a calculation and reconciliation of the numerator and denominator
of basic and diluted earnings per share (dollars in thousands, except per
share amounts):
For the Quarter Ended
June 30, June 30,
1999 1998
Basic earnings per share:
Numerator - net earnings $15,749 11,737
====== ======
Denominator
Weighted average shares outstanding 82,787 75,155
====== ======
Earnings per share $.19 .16
==== ===
Diluted earnings per share:
Numerator:
Net earnings $15,749 11,737
Interest expense on convertible
debt (net of tax effect) 943 1,057
--- -----
$16,692 12,794
====== ======
Denominator
Weighted average shares outstanding 82,787 75,155
Effect of common stock options
and warrants 4,129 7,135
Convertible debt 5,783 7,782
----- -----
92,699 90,072
====== ======
Earnings per share $.18 .14
=== ===
Options to purchase shares of common stock that were outstanding during the
periods reported, 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, June 30,
1999 1998
Number of shares under
option (in thousands) 1,366 1,278
Range of exercise prices $26.08 - 52.05 $23.55 - 48.48
============== ==============
5. Trade accounts receivable are presented net of allowances for doubtful
accounts, returns, and credits of $5.2 million and $5.6 million at June 30,
1999 and March 31, 1999, respectively.
<PAGE>
6. The following tables present information by business segment (dollars in
thousands):
For the Quarter Ended
June 30, June 30,
1999 1998
Services $130,092 97,165
Data Products 47,945 43,788
Information Technology (I. T.) Management 45,338 31,471
Intercompany eliminations (11,869) (7,912)
------- -------
Total revenue $211,506 164,512
======= =======
Services 26,101 17,738
Data Products 1,386 4,692
Information Technology (I. T.) Management 11,297 5,566
Intercompany eliminations (5,936) (3,981)
Corporate and other (2,602) (3,694)
------- -------
Income from operations $ 30,246 20,321
======= =======
<PAGE>
Form 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
On May 28, 1999, the Company completed the acquisition of Computer Graphics of
Arizona, Inc. ("Computer Graphics") and all of its affiliated companies in a
stock-for-stock merger. The acquisition was 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 Computer Graphics.
Results of Operations
For the quarter ended June 30, 1999, consolidated revenue was a record $211.5
million, up 29% from the same quarter a year ago.
The following table shows the Company's revenue by business segment for the
quarters ended June 30. 1999 and 1998
(dollars in millions):
June 30, June 30, %
1999 1998 Change
Services $130.1 $ 97.1 +34%
Data Products 48.0 43.8 + 9
I. T. Management 45.3 31.5 +44
Intercompany eliminations (11.9) (7.9) +50
----- ----- ---
$211.5 $164.5 +29%
===== ===== ===
Services segment revenues grew 34% when compared to the first quarter in the
prior year. Allstate, the Company's largest customer generated revenues of $19.7
million, a 5% decrease from the prior year, principally due to the revised
pricing under the recently signed five-year contract under which pricing has
been "unbundled" which resulted in lower pricing for the traditional services
performed by the Company in support of the underwriting area. The Company has
been designated the preferred data provider under the new contract and expects
that additional revenue from Allstate will ramp up over the next few quarters.
The Financial Services division reported strong results with revenues of $65.7
million increasing 58% over the prior year principally due to continued success
in implementing large scale data warehouse solutions for credit card marketers.
Other business units with strong year-over-year revenue increases included
Retail, Technology, Pharmaceutical, Media, and Sigma Marketing.
Revenues for the Data Products segment of $48.0 million grew 9% over the
previous year. Strong year-over-year growth of the InfoBase products of 25%,
with particular strength from enhancement and telephone products was mitigated
by flat revenue from the Direct Media and DataQuick groups. The Direct Media
results reflect some of the distractions in the quarter from the Company's
announcement of a possible combination with American List Counsel together with
flat revenues from the SmartBase operation following the Abacus alliance
announcement. Traditional DataQuick product lines are suffering from
cannibalization from Internet products and the late release of Property Pro CD.
Also, prior year file license revenues were higher than the current quarter.
<PAGE>
Revenues from I. T. Management grew a strong 44% over the same period a year
ago. Revenue increases included revenues from the recently migrated Montgomery
Wards data center, revenue from Waste Management which did not begin until
August 1998 and a 21% increase in revenues from the Trans Union data center
relating to an upgrade of processors.
Salaries and benefits grew 31% for the quarter. The increase was partially
offset by accrual adjustments related to changes in certain employee benefit
plans. Excluding the effect of these adjustments, the increase in salaries and
benefits would have been 35%, which generally reflects headcount and merit
increases to support the revenue increase. The headcount increases were
partially driven by acquisitions and new outsourcing contracts signed since the
comparable period in the prior year. Computer, communications and other
equipment costs increased 37%, reflecting costs associated with the increased
revenue volume, especially the strong growth in the I. T. Management segment.
The acquisitions noted above also contributed to the increase. Data costs
decreased 5% due primarily to the lower volume of Allstate revenue referred to
above. Other operating costs and expenses increased 31%, primarily as a result
of higher volume-related expenses including costs related to advertising,
travel, and supplies, along with higher costs of client/server platforms sold in
connection with data warehouse implementations. Acquisitions also impacted this
category, including incremental amortization of goodwill.
Income from operations was $30.2 million, an increase of 49% over the prior
year, with operating margins improving from 12.4% to 14.3%.
Interest expense increased by $1.7 million in the current quarter compared to
the same quarter a year ago, as a result of higher debt levels. Other income
decreased $1.7 million from the previous year due to lower interest income from
invested cash related to the $115 million May & Speh convertible debt offering
which was completed in March of 1998. The Company's effective tax rate for the
quarter was 37.5% compared to 37.4% in the previous year. Net income and diluted
earnings per share increased 34% and 29%, respectively.
Capital Resources and Liquidity
Working capital at June 30, 1999 totaled $207.6 million compared to $134.1
million at March 31, 1999. At June 30, 1999, the Company had available credit
lines of $151.5 million of which $132.0 million was outstanding. The available
credit lines included a temporary increase in the Company's $125.0 million
revolving credit facility to $150.0 million until July 31, 1999. The temporary
increase in the line was repaid with proceeds from an offering of 1.5 million
shares of the Company's stock which was completed July 28, 1999. The temporary
increase in the revolving credit facility was subsequently renewed, and now
expires October 15, 1999. The Company's debt-to-capital ratio (capital defined
as long-term debt plus stockholders' equity) was 48% at both June 30, 1999 and
March 31, 1999. Included in long-term debt at March 31, 1999 were two
convertible debt facilities totaling $140 million, of which $25 million was
converted to equity in April, 1999. Since the market price of the Company's
common stock is in excess of the conversion price under the remaining
convertible debt, management expects this debt to be converted as well. Assuming
that the remaining $115 million does convert to equity, the Company's
debt-to-capital ratio would be reduced to 33%. From March 31, 1999 to June 30,
1999, total stockholders equity increased 16% to $414.7 million.
<PAGE>
Cash used by operating activities was $25.1 million for the quarter ended June
30, 1999 compared with $1.3 million used by operating activities for the same
period in the prior year. Over the past three fiscal first quarters the Company
has reported a negative cash flow from operations as the first quarter of the
fiscal year seasonally generates lower income and consequently less cash flow.
Earnings before interest, taxes, depreciation, and amortization ("EBITDA"),
increased by 30% compared to a year ago. 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. The resulting
operating cash flow was reduced, however, by the change in operating assets and
liabilities, particularly accounts receivable and accounts payable and other
liabilities. The increase in accounts receivable is due to an increase in the
days sales outstanding from 80 days at March 31, 1999 to 89 days at June 30,
1999. The days sales outstanding calculation reflects the impact of adjusting
revenue and receivables for long-term receivables included in other assets and
pass-through amounts receivable associated with the outsourcing contracts and
VAT taxes in the United Kingdom. These adjustments are made to properly reflect
receivables and revenues on a comparable basis. The Company has set a target of
60 to 65 days sales outstanding and expects to make significant progress towards
that goal this fiscal year. The Company has designated 10% of its leadership
bonus plans toward making an improvement in days sales outstanding this fiscal
year. It is also important to note that there has been no substantial
deterioration in the aging since March 31, 1999, with 18% of trade receivables
over 60 days at June 30, 1999, compared with 16% at March 31, 1999. Management
does not believe the increase in the days sales outstanding represents a
collectibility problem, but rather is due to the shift in the Company's business
toward longer-term contracts and projects, with the result that a larger amount
of the Company's accounts receivable are unbilled at any point in time. The
decrease in accounts payable and other liabilities relates primarily to the
timing of payments at March 31, 1999 and June 30, 1999.
Investing activities used $64.1 million in the first quarter of 1999, compared
to $54.9 million in the prior year. Investing activities included $35.6 million
in capital expenditures, compared to $17.4 million in the prior year. Capital
expenditures are principally due to purchases of data center equipment to
support the Company's outsourcing agreements, as well as the purchase of
additional data center equipment in the Company's core data centers. Investing
activities also include cash paid for acquisitions, including the purchase of
Horizon Systems, Inc. in April 1999.
Financing activities provided $77.1 million for the quarter ended June 30, 1999,
compared to $36.9 million a year previously. Most of the amount provided through
financing activities represents borrowing under the revolving credit agreement.
Financing activities also include sales of common stock under existing option
and warrant agreements and payments on debt.
During fiscal 1999, construction was substantially completed on the Company's
new headquarters building and a new customer service facility in Little Rock,
Arkansas. These two buildings were built pursuant to 50/50 joint ventures
between the Company and local real estate investors. The Company has now
occupied both of these two buildings. During the current fiscal year, the
<PAGE>
Company has begun construction on a new customer service facility in Conway,
Arkansas and expects to begin construction on another customer service facility
in Little Rock. The Conway project is expected to be completed in the spring of
2000 and to cost approximately $12.0 million. The Little Rock building is
expected to cost approximately $28.0 million and construction is expected to
last from January 2000 to September 2001. Financing plans for these two
buildings are not yet complete, although the City of Little Rock has committed
to issue revenue bonds for the Little Rock project.
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. The Company has also
been, and will likely continue to be, actively pursuing acquisitions. As a
result, management expects that it will be necessary to raise additional capital
during the next fiscal year. Management believes that capital could be raised by
negotiating an increase in the current revolving credit agreement, by incurring
other debt on either a secured or unsecured basis, or by the issuance of
additional equity securities in either public or private offerings. Management
also believes that the Company has significant unused capacity to raise capital
which could be used to support future growth. In May of 1999, the Company
arranged a $25 million increase in the current revolving credit facility. This
temporary increase expired July 31, 1999, but has subsequently been extended
through October 15, 1999. The Company also completed a secondary offering of
common stock July 28, 1999 under which 1.5 million shares of stock were sold,
generating $38.8 million. The Company has granted an option to the underwriters
under which they may purchase an additional 800,000 shares at a price of $25.85
per share. The Company is also actively pursuing additional capital sources,
including financing arrangements for the new buildings noted above, equipment
leasing, and a possible temporary or permanent increase in the revolving credit
line.
Year 2000
Many computer systems ("IT Systems') and equipment and instruments with embedded
microprocessors ("non-IT systems") were designed to only recognize the last two
digits of a calendar year. With the arrival of the Year 2000, these systems and
microprocessors may encounter operating problems due to their inability to
distinguish years after 1999 from years preceding 1999. This could manifest in a
system failure or miscalculations causing disruption of operations, including,
among other things, a temporary inability to process or transmit data, or engage
in normal business activities. As a result, the Company is engaged in an
extensive project to remediate or replace its date-sensitive IT systems and
non-IT systems.
The following discussion of the implications of the Year 2000 issue for the
Company contains numerous forward-looking statements based on inherently
uncertain information. The information presented is based on the Company's best
estimates, which were derived utilizing a number of assumptions of future
events, including the continued availability of internal and external resources,
third party modifications, and other factors. However, there can be no guarantee
that these estimates will be achieved and actual results could differ. Although
the Company believes it will be able to make the necessary modifications in
advance, there can be no guarantee that failure to correctly modify the systems
would not have a material adverse effect on the Company.
<PAGE>
Since 1996 the Company has been engaged in an enterprise-wide effort ("the
Project") to address the risks associated with the Year 2000 problem, both
internal and external. Under the Project, the Company has established a project
office comprised of representatives from each of the operating divisions of the
Company. A Company readiness champion and project leader are responsible for the
readiness process, which includes deliverables such as plans, reviews, and
appropriate sign-offs by the appropriate business unit leaders and the Company's
Year 2000 leadership. The Project also includes the dissemination of internal
communications and status reports on a regular basis to senior leadership.
The Company believes that it has identified and evaluated its internal Year 2000
issues and that sufficient resources have been devoted to renovating IT and
non-IT systems that were not already "Year 2000 ready." The Company set an
internal deadline of December 31, 1998 to achieve Year 2000 readiness status,
with any residual activity to conclude before March 31, 1999. Overall, this
objective was achieved as outlined in the Project and any exceptions are being
managed. The original timeline was developed to allow the Company to focus on
recent mergers and acquisitions as well as customer-driven dependencies. While
the core Project substantially ended on March 31, 1999, a transition strategy
was implemented moving the Company from a project mode to a standards-based
maintenance mode. On going activities based on the transition strategy include
reviewing or enhancing contingency plans, continuing vendor product analysis and
evaluation, establishing the Year 2000 readiness of acquisitions, and
maintaining the readiness standing of existing operations through purchasing and
quality processes.
The Project involved four phases: (1) planning; (2) remediation; (3) testing;
and (4) certification. The planning phase involved developing a detailed
inventory of applications and systems, identifying the scope of necessary
remediation to each application or system, and establishing a conversion
schedule. During the remediation phase, source codes were actually converted,
date fields were expanded or windowed, and the remediated system was tested to
ensure it is functionally the same as the existing production version. In the
testing phase, test data was prepared and the application was tested using a
variety of Year 2000 scenarios. The certification phase validated that a system
could run successfully in a Year 2000 environment and appropriate internal
sign-offs were obtained.
The following chart indicates the estimated state of completion from each phase
of the Project. It is important to note that each phase of the Project was
required to be completed before moving to the next phase.
Current Planned Planned
August December December
1999 1998 1999
---- ---- ----
Planning 100% 100% 100%
Remediation 99% 90% 100%
Testing 96% 80% 100%
Certification 95% 75% 100%
<PAGE>
As previously indicated, any exceptions from the Project have been clearly
identified and are being managed. The source of the Company's remaining
exceptions is due primarily to customer driven dependencies and recent
acquisitions. The majority of these exceptions are targeted for conclusion on or
before September 30, 1999.
The financial impact of the Project to the Company has not been, and is not
expected to be, material to its financial position or results of operations in
any given fiscal year. The costs to date associated with the Year 2000 effort
primarily represent a reallocation of existing Company resources. Because of the
range of possible issues and the large number of variables involved (including
the Year 2000 readiness of any entities acquired by the Company), it is
impossible to accurately quantify the potential cost of problems if the
Company's remediation efforts or the efforts of those with whom it does business
are not successful. Such costs and any failure of such remediation efforts could
result in a loss of business, damage to the Company's reputation, and legal
liability.
The Company currently believes that with modifications to existing software and
conversions to new software, the Year 2000 issues can be mitigated. But the
systems of vendors on which the Company's systems rely may not be converted in a
timely fashion, or a vendor or customer may fail to convert its software or may
implement a conversion that is incompatible with the Company's systems, which
could have a material adverse impact on the Company.
In order to assess the readiness status of the Company's vendors, the Company
contacted each vendor, via written and/or telephone inquiries, regarding its
Year 2000 status and set up an internal database of this information. The
Company obtained, when possible, written commitments from each vendor that the
products supplied to the Company are or will be (by a date certain) Year 2000
ready. As of June 30, 1999, the Company had received responses to 89% of its
inquiries. The Company is also relying on representations made or contained in
its vendors' web sites. The responses received were analyzed and where
necessary, testing was undertaken. Year 2000 ready versions of vendor products
were obtained, as available, and moved onto production platforms. The Company
has also identified and is communicating with customers to determine if
customers have an effective plan in place to address their Year 2000 issues, and
to determine the extent of the Company's vulnerability to the failure of
customers to remediate their own Year 2000 issues.
The Company believes that the most likely risks of serious Year 2000 business
disruptions are external in nature, such as disruptions in telecommunications,
electric, or transportation services. In addition, the Company places a high
degree of reliance on computer systems of third parties, such as customers and
computer hardware and software suppliers. Although the Company is assessing the
readiness of these third parties and preparing contingency plans, there can be
no guarantee that the failure of these third parties to modify their systems in
advance of December 31, 1999 would not have a material adverse effect on the
Company. Of all the external risks, the Company believes the most reasonably
likely worst case scenario would be a business disruption resulting from an
extended and/or extensive communications failure.
In an effort to reduce the risks associated with the Year 2000 problem, the
Company has established and is currently continuing to develop Year 2000
contingency plans that build upon existing disaster recovery and contingency
plans. Examples of the Company's existing contingency plans include alternative
power supplies and communication lines. Contingency planning for possible Year
2000 disruptions will continue to be defined, improved and implemented
throughout 1999. To supplement existing disaster recovery and contingency
planning efforts, the Company has developed a Year 2000 response strategy to
specifically address the Year 2000 rollover event. Components of this strategy
<PAGE>
include establishing sound, on-site back-up and recovery approaches,
establishing triage procedures and response teams, establishing expedited
communications with key vendors, maintaining the processing capabilities for
mission critical systems, implementing a freeze or controlled reduction in
production system changes from December 1, 1999 to January 31, 2000, and
exercising production systems on January 1, 2000 to promote production systems
availability and usability.
Despite the best efforts of the Company, the failure to correct a material Year
2000 problem could result in an interruption in, or a failure of, certain normal
business activities or operations. Any failures could materially and adversely
affect the Company's results of operations, liquidity and financial condition.
Due to the general uncertainty inherent in the Year 2000 problem, resulting in
part from the uncertainty of the Year 2000 readiness of third party vendors and
customers, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition. The Project is expected
to significantly reduce the Company's level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of its
material third party vendors and customers. The Company believes that the
continued implementation of the Project will reduce the possibility of
significant interruptions to the Company's normal business operations.
Outlook
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 10K 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
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.
<PAGE>
Form 10-Q
ACXIOM CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Forms 8-K.
A report was filed on June 21, 1999, as amended by a Form 8-KA
filed on June 25, 1999, which reported the Registrant's restated
consolidated financial statements as a result of the Registrant's
merger with Computer Graphics of Arizona, Inc. and all of its
affiliated companies.
A report was filed on July 23, 1999, which reported the
Registrant's first quarter's financial results.
<PAGE>
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 13, 1999
By: /s/ Robert S. Bloom
------------------------------------
(Signature)
Robert S. Bloom
Chief Financial Officer
(Chief Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibits to Form 10-Q
Exhibit Number Exhibit
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 393
<SECURITIES> 0
<RECEIVABLES> 215,944
<ALLOWANCES> 5,200
<INVENTORY> 0
<CURRENT-ASSETS> 331,538
<PP&E> 374,380
<DEPRECIATION> 127,063
<TOTAL-ASSETS> 955,458
<CURRENT-LIABILITIES> 123,958
<BONDS> 377,900
0
0
<COMMON> 8,390
<OTHER-SE> 406,321
<TOTAL-LIABILITY-AND-EQUITY> 955,458
<SALES> 0
<TOTAL-REVENUES> 211,506
<CGS> 0
<TOTAL-COSTS> 181,260
<OTHER-EXPENSES> (769)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,819
<INCOME-PRETAX> 25,196
<INCOME-TAX> 9,447
<INCOME-CONTINUING> 15,749
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,749
<EPS-BASIC> .19
<EPS-DILUTED> .18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING IS A RESTATED FINANCIAL DATA SCHEDULE AS A RESULT OF THE POOLING
OF INTERESTS WITH COMPUTER GRAPHICS.
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 98,337
<SECURITIES> 0
<RECEIVABLES> 136,446
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 291,339
<PP&E> 318,765
<DEPRECIATION> 123,234
<TOTAL-ASSETS> 725,387
<CURRENT-LIABILITIES> 85,626
<BONDS> 281,465
0
0
<COMMON> 7,601
<OTHER-SE> 316,641
<TOTAL-LIABILITY-AND-EQUITY> 725,387
<SALES> 0
<TOTAL-REVENUES> 164,512
<CGS> 0
<TOTAL-COSTS> 144,191
<OTHER-EXPENSES> (2,514)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,076
<INCOME-PRETAX> 18,759
<INCOME-TAX> 7,022
<INCOME-CONTINUING> 11,737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,737
<EPS-BASIC> .16
<EPS-DILUTED> .14
</TABLE>
