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, 2000 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 8180, 1 Information Way,
Little Rock, Arkansas 72203
(Address of Principal Executive Offices) (Zip Code)
(501) 342-1000
(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 7, 2000 was 88,229,129.
<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>
Form 10-Q
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
June 30, March 31,
2000 2000
------- -------
Assets
Current assets:
Cash and cash equivalents $ 5,003 23,924
Trade accounts receivable, net 195,378 198,818
Deferred income taxes 18,432 18,432
Other current assets 123,392 98,872
--------- ---------
Total current assets 342,205 340,046
--------- ---------
Property and equipment 395,665 381,942
Less - Accumulated depreciation and amortization 157,349 132,266
--------- ---------
Property and equipment, net 238,316 249,676
--------- ---------
Software, net of accumulated amortization 55,214 58,964
Excess of cost over fair value of net assets
acquired, net 161,827 145,082
Other assets 325,620 311,528
--------- ---------
$ 1,123,182 1,105,296
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt 23,122 23,156
Trade accounts payable 30,109 54,016
Accrued merger and integration costs 1,111 15,106
Accrued payroll and related expenses 15,965 26,483
Other accrued expenses 42,240 31,779
Deferred revenue 6,842 19,995
Income taxes 23,302 9,473
--------- ---------
Total current liabilities 142,691 180,008
--------- ---------
Long-term debt, excluding current installments 322,767 289,234
Deferred income taxes 48,324 48,324
Stockholders' equity:
Common stock 8,846 8,831
Additional paid-in capital 323,914 325,729
Retained earnings 281,799 257,376
Accumulated other comprehensive loss (2,422) (1,448)
Treasury stock, at cost (2,737) (2,758)
--------- ---------
Total stockholders' equity 609,400 587,730
--------- ---------
Commitments and contingencies $ 1,123,182 1,105,296
========= =========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Form 10-Q
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
For the Three Months Ended
June 30
2000 1999
------- -------
Revenue $ 245,557 211,506
Operating costs and expenses:
Salaries and benefits 91,248 83,709
Computer, communications and other equipment 42,074 34,174
Data costs 25,675 25,116
Other operating costs and expenses 53,338 38,261
Gains, losses and nonrecurring items (3,064) -
------- -------
Total operating costs and expenses 209,271 181,260
------- -------
Income from operations 36,286 30,246
------- -------
Other income (expense):
Interest expense (5,469) (5,819)
Other, net 8,895 769
Other, net ------- -------
3,426 (5,050)
------- -------
Earnings before income taxes 39,712 25,196
Income taxes 15,289 9,447
------- -------
Net earnings $ 24,423 15,749
======= =======
Earnings per share:
Basic $ .28 .19
======= =======
Diluted
$ .26 .18
======= =======
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Form 10-Q
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the Three Months Ended
June 30
2000 1999
------- -------
Cash flows from operating activities:
Net earnings $ 24,423 15,749
Non-cash operating activities:
Depreciation and amortization 28,521 18,266
Loss (gain) on disposal or impairment of assets (16,828) 34
Provision for returns and doubtful accounts 610 288
Changes in operating assets and liabilities:
Accounts receivable (78) (29,822)
Other assets (26,622) 9,669
Accounts payable and other liabilities (35,909) (38,713)
Merger and integration costs (13,995) (583)
------- -------
Net cash used by operating activities (39,878) (25,112)
------- -------
Cash flows from investing activities:
Disposition of assets 34,121 783
Development of software (10,224) (12,777)
Capital expenditures (15,898) (35,645)
Investments in joint ventures (4,315) (1,130)
Net cash paid in acquisitions (14,133) (15,330)
------- -------
Net cash used by investing activities (10,449) (64,099)
------- -------
Cash flows from financing activities:
Proceeds from debt 36,402 75,149
Payments of debt (3,101) (7,234)
Sale of common stock 4,340 9,143
Acquisition of treasury stock (6,119) -
------- -------
Net cash provided by financing activities 31,522 77,058
------- -------
Effect of exchange rate changes on cash (116) (58)
------- -------
Net decrease in cash and cash equivalents (18,921) (12,211)
Cash and cash equivalents at beginning of period 23,924 12,604
------- -------
Cash and cash equivalents at end of period $ 5,003 393
======= =======
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 4,767 12,405
Income taxes 1,513 1,382
======= =======
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
Consolidated Financial Statements filed as a part of Item 14 of the Registrant's
2000 Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission on June 26, 2000.
<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 remaining balances which were accrued as of
March 31, 2000 and the changes in those balances during the three months
ended June 30, 2000 (dollars in thousands):
March 31, Less June 30,
2000 Payments 2000
------ -------- -----
Associate-related reserves $ 1,052 318 734
Contract termination costs 13,500 13,500 -
Other accruals 554 177 377
------ ------ -----
$ 15,106 13,995 1,111
====== ====== =====
The remaining associate-related reserves and other accruals will be paid
out over remaining periods ranging up to four years.
Effective May 15, 2000 the Company acquired certain assets and assumed
certain liabilities of MCRB Service Bureau, Inc. for cash of $5.8 million.
MCRB provides information technology outsourcing services. The acquisition
has been accounted for as a purchase and, accordingly, the results of
operations of MCRB are included in the consolidated results from the date
of acquisition. The excess of purchase price over the fair value of net
assets acquired of $11.8 million is being amortized over 20 years. The pro
forma effect of the acquisition is not material to the Company's
consolidated results for the periods reported.
Effective February 1, 2000, the Company sold certain assets and a 51%
interest in a newly formed Limited Liability Company ("LLC") to certain
management of its Acxiom/Direct Media, Inc. business unit ("DMI"). The LLC
was formed by the contribution of net assets used in the DMI operations. As
consideration, the Company received a 6% note in the approximate amount of
$22.5 million payable over 7 years. The Company also retained a 49%
interest in the LLC. During the quarter ended June 30, 2000, the Company
agreed to sell its remaining 49% interest in the LLC and certain other
assets to DMI management for an additional note of $1.0 million. The
Company also committed to complete the development of a computer system for
the LLC. As a result of this sale agreement, the Company has written down
its investment in the assets of DMI by $20.0 million. This amount is
included in gains, losses and nonrecurring items. The sale is a divestiture
for legal and tax purposes, but not for accounting purposes under
applicable accounting rules because the collection of the sales price is
primarily dependent on the buyer's ability to repay the note through
operations of the business. Accordingly, any losses of the LLC will
continue to be included in the Company's financial statements until such
time as a sufficient portion of the note balance has been collected, at
which time the Company will account for the transaction as a sale. The note
receivable is included in other assets.
<PAGE>
Effective April 25, 2000, the Company sold a portion of its DataQuick
business group, which is based in San Diego, California, to MacDonald
Dettwiler & Associates, Ltd., a publicly-traded Canadian information
products company, for $55.5 million. The Company retained the real property
data sourcing and compiling portion of DataQuick. Of the total sale price,
$30.0 million was received in cash as of the effective date and the
remainder is payable on October 25, 2000. The gain on sale of these assets,
which is included in gains, losses and nonrecurring items, was $39.7
million. The receivable for the remaining $25.5 million is included in
other current assets.
Effective April 10, 2000, the Company sold its investment in Ceres, Inc. to
NCR Corporation. The Company received cash, a note, and NCR stock totaling
$14.8 million, and recorded investment income of $6.2 million on the
disposal, which is included in other income.
Effective April 1, 2000, the Company sold its CIMS business unit for
preferred stock and options in Sedona Corp., a publicly-traded company. The
preferred stock and options received had an aggregate fair value of $3.1
million. The Company recorded a loss on the disposal of $3.2 million, which
is included in gains, losses and nonrecurring items.
In addition to the DataQuick gain, DMI write-down and CIMS loss noted
above, gains, losses and nonrecurring items also includes the write-off of
$7.2 million of certain campaign management software which management
decided to discontinue support of during the quarter as a result of the
Company's strategy to utilize external application software tools rather
than building such tools internally. The Company performed an analysis to
determine whether and to what extent these assets had been impaired. These
assets were completely written off as their fair value was estimated to be
zero.
During the quarter ended June 30, 2000, the compensation committee of the
Company committed to pay in cash $6.3 million of "over-attainment"
incentive which was related to results of operations in prior years. Under
the normal policy of the Company's compensation plan, such over-attainment
would have been distributed in the form of stock options with an exercise
price equal to the market price at date of grant. Therefore, under
applicable accounting rules, there would have been no compensation expense.
The one-time decision to pay this amount in cash is an accruable event, and
resulted in a charge that has been recorded in gains, losses and
nonrecurring items. In accordance with the Company's existing
over-attainment plan, the amount accrued will be paid over the next three
fiscal years beginning in May 2001, assuming continued performance.
<PAGE>
2. Other assets consist of the following (dollars in thousands):
June 30, March 31,
2000 2000
Purchased software licenses $120,724 123,846
Deferred contract costs 69,977 63,173
Notes receivable from software and data licenses
and sales of equipment, net of current portion 65,742 55,804
Assets transferred under contractual arrangement 23,575 34,291
Investments in joint ventures and other companies 35,773 22,890
Other 9,829 11,524
------- -------
$325,620 311,528
======= =======
The decrease in assets transferred under contractual arrangement is due to
the DMI write-down noted above. The increase in joint ventures and other
companies includes an additional $4.0 million investment in an Australian
joint venture, as well as the NCR and Sedona stock noted above.
Other current assets includes the current portion of the notes receivable
from software and data licenses and equipment sales of $40.1 million and
$42.4 million as of June 30, 2000 and March 31, 2000, respectively. Other
current assets also includes prepaid expenses, nontrade receivables and
other miscellaneous assets of $83.3 million and $56.5 million as of June
30, 2000 and March 31, 2000, respectively. The June 30, 2000 balance
includes the remaining receivable from MacDonald Dettwiler of $25.5
million.
<PAGE>
3. Long-term debt consists of the following
(dollars in thousands):
June 30, March 31,
2000 2000
5.25% Convertible subordinated notes due $115,000 115,000
2003; 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 on or after
April 3, 2001
Software license liabilities payable over terms 67,054 67,545
of from five to seven years; effective interest
rates at approximately 6%
Unsecured revolving credit agreement 95,197 61,500
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 semiannually
Capital leases on land, buildings and equipment 17,864 18,051
payable in monthly payments of $357 of principal
and interest; remaining terms of from five to
twenty years; interest rates at approximately 8%
8.5% Unsecured term loan; quarterly principal 8,000 8,200
payments of $200 plus interest with the balance
due in 2003
Other capital leases, debt and long-term liabilities 12,774 12,094
------- -------
Total long-term debt 345,889 312,390
Less current installments 23,122 23,156
------- -------
Long-term debt, excluding current installments $322,767 289,234
======= =======
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 loans
for the buildings. The aggregate amount of the guarantees at June 30, 2000
was approximately $4.5 million.
<PAGE>
4. Below is the 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,
--------
2000 1999
------ ------
Basic earnings per share:
Numerator - net earnings $ 24,423 15,749
====== ======
Denominator:
Weighted-average shares
outstanding 87,968 82,787
====== ======
Earnings per share $ .28 .19
====== ======
Diluted earnings per share:
Numerator:
Net earnings $ 24,423 15,749
Interest expense on
convertible debt
(net of tax effect) 928 943
------ ------
$ 25,351 16,692
====== ======
Denominator:
Weighted-average shares
outstanding 87,968 82,787
Effect of common stock
options and warrants 3,737 4,129
Convertible debt 5,783 5,783
------ ------
97,488 92,699
====== ======
Earnings per share $ .26 .18
====== ======
<PAGE>
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
-------
2000 1999
---- ----
Number of shares under
option (in thousands) 1,273 1,366
Range of exercise prices $26.08 - 54.00 $26.08 - 52.05
============= =============
As of June 30, 2000 the Company has entered into two equity forward
purchase agreements to purchase 3.3 million shares of stock. The effects of
settling these equity forward contracts are not reflected in the
computation of diluted earnings per share, because the effect is
anti-dilutive since the market price of the Company's common stock is
greater than the prices under the equity forward agreements.
5. Trade accounts receivable are presented net of allowances for doubtful
accounts, returns, and credits of $5.4 million at both June 30, 2000 and
March 31, 2000.
6. The following tables present information by business segment (dollars in
thousands):
For the Quarter Ended
June 30
-------
2000 1999
------- -------
Services $ 176,394 146,161
Data Products 25,582 32,056
Information Technology
(I. T.) Management 57,469 45,338
Intercompany eliminations (13,888) (12,049)
------- --------
Total revenue $ 245,557 211,506
======= =======
Services 35,367 23,546
Data Products (6,103) 2,642
Information Technology
(I. T.) Management 10,969 9,961
Intercompany eliminations (8,414) (5,936)
Corporate and other 4,467 33
------- -------
Income from operations $ 36,286 30,246
======= =======
<PAGE>
The Company has reorganized its segments for the current year. The primary
change was to reclassify the business units associated with Direct Media
from the Data Products segment to the Services Segment. Also, the
International Division, which was exclusively in the Services segment, has
been reorganized with the appropriate revenues and expenses being allocated
to Services, Data Products and Information Technology Management. The prior
year segment information has been restated to conform to the current year
presentation.
7. The accumulated balance of other comprehensive loss, which consists of
foreign currency translation adjustments and unrealized depreciation on
marketable securities, was $2.4 million and $1.4 million as of June 30,
2000 and March 31, 2000, respectively. Comprehensive income was $23.4
million and $25.8 million for the quarter ended June 30, 2000 and 1999,
respectively.
<PAGE>
Form 10-Q
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
For the quarter ended June 30, 2000, consolidated revenue was $245.6 million, up
16% from the same quarter a year ago. Excluding the impact of the dispositions
of DMI and DataQuick, revenue increased 26% compared to the prior year's first
quarter. Further adjusting for the impact of the Waste Management outsourcing
contract terminated in July of the prior year, revenue grew 31%.
The following table shows the Company's revenue by business segment for the
quarters ended June 30, 2000 and 1999 (dollars in millions):
June 30, June 30, % Change
2000 1999
Services $176.4 $146.2 +21%
Data Products 25.6 32.1 -20
I. T. Management 57.5 45.3 +27
Intercompany eliminations (13.9) (12.1) +15
----- ----- --
$245.6 $211.5 +16%
===== ===== ==
Services segment revenue of $176.4 million grew 21% over the prior year. Despite
Allstate revenue declining 8%, the financial services division grew 40%.
Allstate revenue continues to be impacted by lower volume of underwriting by
Allstate compared to the prior year. Excluding the impact of Allstate, the
Services segment would have grown 25% over the first quarter in the prior year.
The Services segment has been further impacted by the DMI disposition. DMI had
previously been recorded in the Data Products segment, but since the Company has
retained the data processing (services) for the DMI business, these results have
been reclassified to the Services segment. If the combined impact of Allstate
and DMI were removed, the Services segment would have increased 36% compared to
the prior year. Aside from the strong increase in financial services, the retail
group also contributed to the increase in year-over-year performance of the
Services segment.
Data Products segment revenue of $25.6 million decreased 20% from the prior
year. Excluding DataQuick, which was disposed of during the quarter, the segment
revenue would have been 1% higher than the revenue for the previous year. The
major factor contributing to the lack of growth in Data Products was the lack of
large InfoBase data licenses in the current year's first quarter. Revenue in the
second quarter is expected to return to a more normal growth rate due to the
sale of data licenses in addition to expected AbiliTec revenue.
<PAGE>
Information Technology ("I. T.") Management segment revenue of $57.5 million
reflects a 27% increase over the prior year. Excluding the impact of the Waste
Management contract, which terminated last year, I. T. Management revenue
increased 54% over the year-earlier period. This strong increase reflects new
outsourcing contracts with Deluxe, AGL Resources, and the City of Chicago
coupled with the impact from customers of the LES acquisition in December 1999
including Borden's, Hilton Hotels, and Brooks Brothers.
The following table presents operating expenses for the quarters ended June
30, 2000 and 1999 2000 (dollars in millions):
June 30, June 30, % Change
2000 1999
Salaries and benefits $ 91.3 $ 83.7 + 9%
Computer, communications and
other equipment 42.1 34.2 + 23
Data costs 25.7 25.1 + 2
Other operating costs and
expenses 53.3 38.3 + 39
Gains, losses and nonrecurring
items (3.1) - NA
----- ----- --
$ 209.3 $181.3 + 15%
===== ===== ==
Salaries and benefits for the quarter increased 9% from the prior year's first
quarter. The increase reflects headcount and average salary growth, offset by
reductions in units which were disposed of, as noted above. Excluding the impact
of the dispositions would have resulted in salaries and benefits growing 25%
compared to a year ago, which is roughly in line with the 26% increase in
revenue on the same basis.
Computer, communications and other equipment costs increased 23% over the prior
year. Adjusting for the impact of the dispositions noted earlier would result in
computer, communications and other equipment costs increasing 28% over the prior
year. This growth is principally due to the increased level of hardware and
software expenditures made over the last year to support the growth of the
business, particularly in the I. T. Management segment.
Data costs grew 2% over the prior year. Increases in data costs have been
substantially mitigated by a reduction in the cost of data associated with lower
revenue under the Allstate data management contract. As noted above, Allstate
revenue decreased 8% from the same quarter a year ago.
Other operating costs and expenses increased by 39% compared to a year ago.
Adjusting for the impact of the dispositions, other operating costs and expenses
grew 51%. This increase reflects the impact from growth in the business on
office and operating expenses, supplies, travel, temporary staffing, and
administrative costs. In addition, increases in advertising and marketing costs
<PAGE>
of $3.0 million to support the roll-out of AbiliTec and higher cost of sales of
$8.4 million for server equipment sold in data warehousing solutions contributed
to the increase.
Gains, losses and nonrecurring items of $3.1 million for the current quarter
reflect the $39.7 million gain on the sale of the DataQuick operation in April,
the $3.2 million loss on the sale of the CIMS business unit, a $20.0 million
write-down of the remaining 49% interest in the DMI operation, a $7.2 million
write-down of campaign management software, and a $6.3 million accrual
established to fund over-attainment incentives.
The Company's operations for the quarter ended June 30, 2000 were heavily
impacted by investment in the new AbiliTec product. This investment of $18.6
million included capitalized software development of $7.5 million along with
marketing, education, and other non capitalizable expenses of $11.1 million.
Income from operations for the quarter of $36.3 million represents an increase
of 20% over the prior year. Excluding the net gain noted above, operating income
of $33.2 million increased 10% compared to a year ago. Operating margins on this
basis decreased from 14.3% for the prior year's first quarter to 13.5% this
year.
Interest expense for the quarter of $5.5 million decreased from $5.8 million
last year reflecting slightly lower average debt levels this year. Other, net
increased from $0.8 million in last year's first quarter to $8.9 million income
this year largely due to a $6.2 million gain on the sale of the Company's
investment in Ceres. Other, net also includes investment income, principally on
the exchange of the Company's investment in Customer Analytics for stock in
Exchange Applications, Inc., a publicly-traded company, and interest income from
notes receivable.
Earnings before income taxes of $39.7 million for the quarter increased 58% over
the same quarter a year ago. Excluding the $3.1 million included in gains,
losses and nonrecurring items and the Ceres gain included in other, net,
adjusted pretax income of $30.4 million reflects a 21% increase compared to a
year ago.
The Company's effective tax rate was 38.5% in the current quarter compared to
37.5% in the prior year. The Company currently expects its effective tax rate to
remain in the 38-39% range for fiscal 2001. This estimate is based on current
tax law and current estimates of earnings, and is subject to change.
Basic earnings per share were $0.28 compared to $0.19 a year ago. Diluted
earnings per share were $0.26 compared to $0.18 a year ago. Excluding the gains,
losses and nonrecurring items of $3.1 million noted above, as well as the Ceres
gain of $6.2 million, diluted earnings per share would have been $0.20 for the
quarter.
Capital Resources and Liquidity
Working capital at June 30, 2000 totaled $199.5 million compared to $160.0
million at March 31, 2000. At June 30, 2000, the Company had available credit
lines of $296.5 million of which $96.7 million was outstanding. The Company's
debt-to-capital ratio (capital defined as long-term debt plus stockholders'
<PAGE>
equity) was 35% at June 30, 2000 compared to 33% at March 31, 2000. Included in
long-term debt at both June 30, 2000 and March 31, 2000 is a convertible note in
the amount of $115.0 million. The conversion price for the convertible debt is
$19.89 per share. If the price of the Company's common stock stays above the
conversion price, management expects this debt to be converted to equity.
Assuming the convertible debt had converted to equity, the Company's
debt-to-capital ratio would have been reduced to 22% at June 30, 2000. Total
stockholders' equity increased 4% to $609.4 million at June 30, 2000.
Cash used by operating activities was $39.9 million for the quarter ended June
30, 2000 compared to $25.1 million for the same quarter in the prior year.
Earnings before interest expense, taxes, depreciation, and amortization
("EBITDA"), increased 50%. EBITDA excluding the gains on disposal of assets
increased by 31% compared to the previous year. EBITDA is not intended to
represent cash flows for the period, is not presented as an alternative to
operating income as an indicator of operating performance, may not be comparable
to other similarly titled measures of other companies, and should not be
considered in isolation or as a substitute for measures of performance prepared
in accordance with generally accepted accounting principles. However, EBITDA is
a relevant measure of the Company's operations and cash flows and is used
internally as a surrogate measure of cash provided by operating activities.
Operating cash flow was reduced by $76.6 million in the current quarter, and
$59.4 million in the prior year due to the net change in operating assets and
liabilities.
The increase in other assets of $26.6 million in the current quarter is
primarily due to increases in notes receivable, prepaid expenses, and deferred
costs. The decrease in accounts payable and other liabilities of $35.9 million
in the current quarter is largely due to the timing of payments of accounts
payable and accrued expenses. The change in operating assets and liabilities
also includes payment of $14.0 million in merger and integration costs related
to the Company's merger with May & Speh. The bulk of these costs have now been
paid, with only $1.1 million still remaining to be paid out. Accounts receivable
days sales outstanding ("DSO") has improved from 67 days at March 31, 2000 to 66
days at June 30, 2000. Excluding receivables from DataQuick, which was sold in
April, DSO at March 31 would have been 71 days, resulting in a five day
improvement on a comparable basis.
Investing activities used $10.5 million for the quarter ended June 30, 2000,
compared to $64.1 million a year previously. Investing activities in the current
year included $34.1 million in cash proceeds from the disposition of assets,
primarily the $30.0 million from the sale of the DataQuick operation to
MacDonald Dettwiler & Associates, Ltd., a Canadian public company. The remaining
$25.5 million receivable from this sale is scheduled to be collected in October,
2000. The remainder of the proceeds from the disposition of assets relates to
cash received from the disposal of the Ceres investment. Investing activities in
the current year also include capitalized software development costs of $10.2
million and capital expenditures of $15.9 million. Capital expenditures are down
compared to the previous year, due to much of the Company's hardware needs being
funded through a synthetic lease which was entered into in the prior year. The
Company leases these assets rather than purchasing them. The Company funded
$10.2 million in equipment under the synthetic lease facility during the quarter
and has $24.3 million remaining under the original $100 million commitment. The
effect of the synthetic lease is to reduce operating cash flow, since payments
under the lease are a cash expense, while depreciation is not.
<PAGE>
Investing activities during the current year also include investments in joint
ventures of $4.3 million, which is principally due to an additional advance of
$4.0 million to the Company's joint venture in Australia to fund an acquisition.
Net cash paid in acquisitions in the current year of $14.1 million includes the
acquisition of MCRB, Inc. in April for $5.8 million. The remainder of the cash
paid in acquisitions relates to earn-out payments made during the current year
for acquisitions initially recorded in prior years. Note 1 to the consolidated
financial statements discusses the acquisitions and dispositions in more detail.
Financing activities in the current year provided $31.5 million, most of which
relates to debt proceeds from the Company's revolving credit arrangement. The
Company also has purchased $6.1 million of common stock in the open market and
may continue to purchase stock in the open market from time to time.
During the quarter ended June 30, 2000, the Company occupied a new customer
service facility in Conway, Arkansas, and anticipates beginning construction in
fiscal 2001 on another customer service facility in Little Rock, as well as a
new customer service and data center facility in Phoenix. The Little Rock
building is expected to cost approximately $30.0 to $35.0 million and
construction is expected to last from approximately September 2000 to June 2002.
The Phoenix project is expected to cost approximately $25.0 million, including
land, and construction is expected to last from approximately September 2000 to
August 2001. The City of Little Rock has committed to issue revenue bonds for
the Little Rock project. The Company is working to finalize off balance sheet
financing which will cover both the Little Rock and Phoenix projects.
While the Company does not have any other material contractual commitments for
capital expenditures, additional investments in facilities and computer
equipment continue to be necessary to support the growth of the business. In
addition, new outsourcing or facilities management contracts frequently require
substantial up-front capital expenditures in order to acquire or replace
existing assets. In some cases, the Company also sells software and hardware to
customers under extended payment terms or notes receivable collectible generally
over three years. These arrangements also require up-front expenditures of cash,
which are repaid over the life of the agreement. The Company also evaluates
acquisitions from time to time which may require up-front payments of cash.
Depending on the size of the acquisition it may be necessary to raise additional
capital. If additional capital becomes necessary, the Company would first use
available borrowing capacity under its revolving credit agreement, followed by
the issuance of other debt or equity securities.
In fiscal 2000, the Company entered into two equity forward purchase agreements
with a commercial bank under which the Company will purchase 3.1 million and 0.2
million shares of its common stock at an average total cost of $20.81 and $26.51
per share, respectively, for a total notional amount of $69.4 million. In
accordance with the terms of the forward contracts, the shares remain issued and
outstanding until the forward purchase contracts are settled. The agreements may
be settled in cash, shares of common stock, or in net shares of common stock.
The Company has the option to settle the contracts at any time prior to March
31, 2002,and has accounted for these forward contracts as permanent equity. The
fair value of the equity forward contracts as of June 30, 2000 was $18.8
million, based on a stock price of $27.25. An increase or decrease in the stock
price of $1.00 per share increases or decreases the market value by
approximately $3.3 million. The Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board has recently reached a consensus in EITF
00-7 that requires such contracts entered into after March 15, 2000 to be
<PAGE>
recorded as assets and liabilities, with adjustments to the market value of the
common stock to be recorded on the income statement, in situations in which the
counterparty can force the contracts to be settled in cash. The effective date
of the new consensus was delayed until December 31, 2000 to allow such contracts
to be amended. The EITF has subsequently reached tentative conclusions in EITF
00-19 that also require asset and liability treatment in certain circumstances,
including when an agency agreement is in place. This tentative conclusion, which
is expected to be finalized in September 2000, is expected to extend the
effective date until June 30, 2001 to bring existing contracts into compliance
with the consensus. The Company is working with the financial institution to
amend the forward agreements to remove those provisions, prior to the effective
date of the new consensus. Alternatively, the Company could settle the
agreements prior to the effective date. If the Company does not settle the
agreements or amend the contracts in compliance with these EITF conclusions, the
Company would be required to record the current market value of the shares
purchased as an asset and record the notional amount as a liability, and the
difference would be recorded through the income statement.
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 has previously engaged
in an extensive project to remediate or replace its date-sensitive IT systems
and non-IT systems.
From 1996 through 1999, the Company was engaged in an enterprise-wide effort
("the Project") to address the risks associated with the Year 2000 problem, both
internal and external. 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. The Company also monitored Year 2000
issues during the Year 2000 rollover event, from midnight December 30, 1999,
through midnight January 2, 2000, and exercised critical production systems and
equipment on Saturday January 1, 2000 to identify if they were operating
correctly. Like most well prepared companies, the Company did not experience any
significant Year 2000 related issues during the rollover period or thereafter.
The Company currently believes that with modifications to existing software and
conversions to new software, the Year 2000 issues have been mitigated. But a
vendor or customer may have failed to convert its software or may have
implemented a conversion that is incompatible with the Company's systems, which
could have a material adverse impact on the Company.
In an effort to mitigate any remaining risks associated with the Year 2000
problem, efforts to maintain and enhance our state of readiness will continue
throughout the year 2000. Some of the follow-on activities include ensuring that
existing operations remain Year 2000 ready, continuing vendor product analysis
and evaluation, establishing the Year 2000 readiness of acquisitions, and
reviewing or enhancing contingency plans. The Company will continue to maintain
<PAGE>
awareness and address the Year 2000 problem from both a leadership and
operational perspective throughout this year.
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.
While there remains some 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 does not believe at this time that the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition.
New Accounting Pronouncement
On December 3, 1999 the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes certain of the SEC staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements
and affects a broad range of industries. Subsequently, the SEC has issued Staff
Accounting Bulletins No. 101A and 101B which defer the effective date of SAB
101. The accounting and disclosure requirements of SAB 101 will now be effective
for Acxiom in the last quarter of fiscal 2001. The Company is currently
evaluating the effects of SAB 101 on its methods of recognizing revenue and has
not yet quantified the impact, if any, the application of SAB 101 will have on
the Company's results of operations or financial position.
Outlook
The overall worldwide Customer Relationship Management (CRM) market, according
to industry consultant IDC, is expected to grow from $57 billion in 2000 to $127
billion by 2004. Effective CRM efforts are putting new focus on the need to
aggregate customer information across the enterprise at real-time speed.
Acxiom's AbiliTec technology provides the customer data integration that can
accurately and quickly aggregate all records about an individual. Customer data
integration (or CDI) is the foundational data management process for every use
of customer information. Without a reliable, up-to-the-second view of the
customer's total relationship with the enterprise, even the best crafted
customer-centric strategy can fail.
The recently introduced AbiliTec technology is being well received in the
marketplace as major companies are including AbiliTec in their strategic
initiatives for enterprise-wide CRM solutions. In addition to AbiliTec licenses,
we expect this to result in significant demand for a broad array of our products
and services.
Acxiom's core strategy is to:
o Dominate the customer data integration space with AbiliTec
o Create additional value through database services, content and
outsourcing services
o Partner with software providers, consultants, system integrators and
others that can complete a company's CRM solution
<PAGE>
Early signs of the successful introduction of the AbiliTec technology include
the recent licensing by Lands' End, Conseco and Fortune 25 customer, Sears.
Acxiom is also deploying the technology in much of the Company's internal data
processing which is yielding significant savings in people and computer
resources. Also, Acxiom has created multiple alliances to facilitate the
adoption of AbiliTec technology in the United States and many other significant
markets. The alliances are with numerous companies including Oracle, AZ
Bertelsmann, Abacus, Dun and Bradstreet, E.piphany, Ogilvy One, Siebel, Hewlett
Packard, Lockheed Martin, and USADATA.com.
As a result of the events outlined above, we will significantly increase our
investment in the technology in order to maximize this opportunity. As we go
forward with this investment, earnings per share growth for the next 15 to 21
months may be impacted and could be in the 15 - 20% range as a result of these
investments which include incremental spending in marketing and branding, global
development, education, training and implementation. We expect the investment
period to be approximately 2 to 2 1/2 years. As the more efficient AbiliTec
delivered products become a predominant part of our total revenue, we anticipate
the results of our investment will produce margins well above current levels.
Further, we also currently expect annual revenues to grow in excess of 25%
during the investment period.
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. The
forward-looking statements include: statements concerning the Company's need for
additional capital and the ability to raise additional capital; statements
concerning the Company's ability to remediate date sensitive IT-systems and
non-IT systems in conjunction with the arrival of the year 2000 and the impact
of those efforts, and their success or failure, on the Company's future results
of operations; statements concerning future earnings per share growth;
statements concerning the length and future impact of the Company's investment
in Acxiom Data Network and AbiliTec products on the Company's future revenue and
margins; statements concerning the benefits of AbiliTec for our customers;
statements concerning any competitive lead; statements concerning the impact of
implementation of Acxiom Data Network and AbiliTec technology in CRM
applications; statements concerning the momentum of CRM application and
e-commerce initiatives; statements concerning the future growth and size of the
CRM market; statements concerning AbiliTec becoming an industry standard;
statements concerning efficiency gains related to the implementation of
AbiliTec; and statements concerning potential growth of international markets.
The following factors may cause actual results to differ materially from those
in the forward-looking statements. With regard to all statements concerning
AbiliTec: the complexity and uncertainty regarding the development of new high
technologies; the loss of market share through competition or the acceptance of
<PAGE>
these or other Company offerings on a less rapid basis than expected; changes in
the length of sales cycles due to the nature of AbiliTec being an
enterprise-wide solution; the introduction of competent, competitive products or
technologies by other companies; changes in the consumer and/or business
information industries and markets; the Company's ability to protect proprietary
information and technology or to obtain necessary licenses on commercially
reasonable terms; the impact of changing legislative, regulatory and consumer
environments in the geography that AbiliTec will be deployed. With regard to the
statements that generally relate to the business of the Company: all of the
above factors; the possibility that economic or other conditions might lead to a
reduction in demand for the Company's products and services; the continued
ability to attract and retain qualified technical and leadership associates and
the possible loss of associates to other organizations; the ability to properly
motivate the sales force and other associates of the Company; the ability to
achieve cost reductions; changes in the legislative, regulatory and consumer
environments affecting the Company's business including but not limited to
legislation, regulations and customs relating to the Company's ability to
collect, manage, aggregate and use data; data suppliers might withdraw data from
the Company, leading to the Company's inability to provide certain products and
services; short-term contracts affect the predictability of the Company's
revenues; the potential loss of data center capacity or interruption of
telecommunication links; postal rate increases that could lead to reduced
volumes of business; customers that may cancel or modify their agreements with
the Company. With specific reference to all statements that relate to the
providing of products or services outside the Company's primary base of
operations in the United States: all of the above factors and the difficulty of
doing business in numerous sovereign jurisdictions due to differences in
culture, laws and regulations. Other factors are detailed from time to time in
the Company's periodic reports and registration statements. Acxiom believes that
it has the product and technology offerings, facilities, associates and
competitive and financial resources for continued business success, but future
revenues, costs, margins and profits are all influenced by a number of factors,
including those discussed above, all of which are inherently difficult to
forecast. The Company undertakes no obligation to publicly release any revision
to any forward-looking statement to reflect any future events or circumstances.
<PAGE>
Form 10-Q
ACXIOM CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On September 20, 1999 the Company and certain of its directors and
officers were sued by an individual shareholder in a purported class
action filed in the United States District Court for the Eastern
District of Arkansas. The action alleges that the defendants violated
Section 11 of the Securities Act of 1933 in connection with the July
23, 1999 public offering of 5,421,000 shares of the common stock of the
Company. In addition, the action seeks to assert liability against
Company Leader Charles Morgan pursuant to Section 15 of the Securities
Act of 1933. The action seeks to have a class certified of all
purchasers of the stock sold in the public offering. Two additional
suits were subsequently filed in the same venue against the same
defendants and asserting the same allegations. The plaintiffs have now
filed a consolidated complaint. The cases are still in the initial
phase of litigation, with the defendants having filed their initial
response to the lawsuit. The Company believes the allegations are
without merit and the defendants intend to vigorously contest the
cases, and at the appropriate time, seek their dismissal.
There are various other litigation matters that arise in the normal
course of the business of the Company. None of these, however, are
believed to be material in their nature or scope.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Forms 8-K.
None.
<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 11, 2000
By: /s/ Caroline Rook
------------------------------
(Signature)
Caroline Rook
Chief Financial Officer
(Chief Accounting Officer)
