<PAGE>
CUSTOMER INFORMATION MANAGEMENT SYSTEMS
A Business Unit of Acxiom Corporation
Financial Statements
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors
Acxiom Corporation:
We have audited the accompanying statements of assets acquired and liabilities
assumed of Customer Information Management Systems (CIMS), a business unit of
Acxiom Corporation (Acxiom), as of December 31, 1999 and 1998, and the
accompanying statements of revenues less direct expenses before income taxes for
the years then ended. These financial statements are the responsibility of
Acxiom's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying financial statements were prepared on the basis of presentation
as described in note 1. The accompanying financial statements present the
assets, current liabilities and net assets acquired and the related revenues
less direct expenses before income taxes of CIMS and are not intended to be a
complete presentation of CIMS' financial position, results of operations or cash
flows. The results of revenues less direct expenses before income taxes are not
necessarily indicative of the results of operations before income taxes that
would have resulted if CIMS had been operated on a stand-alone basis.
In our opinion the financial statements referred to above present fairly, in all
material respects, the assets acquired and liabilities assumed of CIMS as of
December 31, 1999 and 1998, and its revenues less direct expenses before income
taxes for the years then ended, on the basis described in note 1, in conformity
with accounting principles generally accepted in the United States of America.
As discussed in note 1, CIMS was acquired by Acxiom Corporation effective
January 1, 1999 in a business combination accounted for as a purchase. As a
result of the application of purchase accounting, the financial statements of
CIMS as of and for the year ended December 31, 1999 are presented on a different
cost basis than the 1998 financial statements, and, accordingly, are not
directly comparable.
KPMG LLP
Dallas, Texas
May 19, 2000
<PAGE>
CUSTOMER INFORMATION MANAGEMENT SYSTEMS
A Business Unit of Acxiom Corporation
Statement of Assets Acquired and Liabilities Assumed
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Successor Predecessor
(note 1a) (note 1a)
---------------- | --------------
1999 | 1998
---------------- | --------------
Assets Acquired |
<S> <C> | <C>
Current assets: |
Accounts receivable $ 464,513 | 481,160
Unbilled revenue 610,491 | 499,355
------------- | -----------
Total current assets 1,075,004 | 980,515
------------- | -----------
Property and equipment, net (note 3) 338,104 | 516,579
Software, net 2,077,414 | --
Goodwill, net 933,333 | --
------------- | -----------
Total assets 4,423,855 | 1,497,094
------------- | -----------
|
Liabilities Assumed |
|
Current liabilities: |
Customer refunds 65,369 | 74,589
Deferred revenue 264,901 | 552,440
------------- | -----------
Total current liabilities 330,270 | 627,029
------------- | -----------
|
Commitments and contingencies (note 5) |
------------- | -----------
Net assets acquired $ 4,093,585 | 870,065
============= | ===========
</TABLE>
See accompanying notes to financial statements.
2
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CUSTOMER INFORMATION MANAGEMENT SYSTEMS
A Business Unit of Acxiom Corporation
Statement of Revenues Less Direct Expenses Before Income Taxes
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Successor | Predecessor
(note 1a) | (note 1a)
------------ | -----------
1999 | 1998
------------ | -----------
<S> <C> | <C>
Revenues $ 2,405,193 | 1,932,910
|
Cost of revenues 1,138,180 | 948,461
------------ | -----------
Gross margin 1,267,013 | 984,449
|
Selling and marketing expenses 785,785 | 625,059
General and administrative expenses 1,286,322 | 1,169,686
Depreciation and amortization 458,432 | 1,175,927
------------ | -----------
2,530,539 | 2,970,672
------------ | -----------
Excess of direct expenses over revenues before income taxes $ (1,263,526) | (1,986,223)
============ | ===========
</TABLE>
See accompanying notes to financial statements.
3
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CUSTOMER INFORMATION MANAGEMENT SYSTEMS
A Business Unit of Acxiom Corporation
Financial Statements
December 31, 1999 and 1998
(1) Basis of Presentation
(a) Background and Acquisition by Acxiom
Customer Information Management Systems (CIMS) is a business unit
of Acxiom Corporation (Acxiom). Acxiom provides information
management solutions using customer, consumer and business data,
primarily for marketing applications. CIMS provides customer
information management systems to mid-sized financial institutions
located in the United States. CIMS operations are located
primarily in Minneapolis, Minnesota.
Effective January 1, 1999, Acxiom acquired assets and liabilities
of Deluxe Data Resources, Deluxe MarketWise (CIMS business unit)
and Fusion Marketing from Deluxe Corporation. As a result of this
acquisition, Acxiom has applied purchase accounting in the
preparation of the accompanying financial statements. Accordingly,
Acxiom has allocated the purchase amount to assets acquired and
liabilities assumed of the CIMS business unit based on their
relative fair values. The excess of the purchase price, over the
fair value of CIMS's tangible and separately identifiable
intangible assets less liabilities was allocated as goodwill.
The total transaction for the CIMS business unit was valued at
$3,015,805 and was allocated as follows:
Accounts receivable $ 519,711
Unbilled revenue 556,155
Property and equipment 516,579
Software 1,000,000
Goodwill 1,000,000
Deferred revenue (576,640)
------------
Total $ 3,015,805
============
As a result of the acquisition and the application of purchase
accounting, financial information in the accompanying financial
statements and notes thereto as of December 31, 1999 and for the
year then ended (the Successor Period) are presented on a
different cost basis than the financial information as of December
31, 1998 and for the year then ended (the Predecessor Period) and
therefore such information is not comparable.
(b) Financial Statement Presentation and Transactions with Acxiom
The accompanying statements of assets acquired and liabilities
assumed includes only assets and liabilities specifically
identifiable to CIMS. Acxiom performs certain cash management on a
centralized basis and processes certain payables, payroll and
other activities for CIMS. These central systems are not designed
to track liabilities and payments on a business-specific basis.
Accordingly, assets and liabilities managed on a centralized basis
by Acxiom have not been
4
<PAGE>
CUSTOMER INFORMATION MANAGEMENT SYSTEMS
A Business Unit of Acxiom Corporation
Financial Statements
December 31, 1999 and 1998
included in the statements of assets acquired and liabilities
assumed. Intercompany balances with Acxiom have also not been
presented in the statements of assets acquired and liabilities
assumed. Assets and liabilities not specifically identifiable to
CIMS and recorded through the intercompany account with Acxiom
include:
o Cash and cash equivalents.
o Accounts payable related to trade purchases that are
made centrally by Acxiom.
o Certain accrued liabilities for allocated costs.
The statements of revenue less direct expenses before income taxes
include all revenues and costs attributable to CIMS. Corporate
overhead expenses of Acxiom which are not distributed to
individual business units, includes the cost of corporate and
division administrative personnel and offices, shared financial
and human resource systems, plans and support and shared marketing
services and support.
The operations of CIMS are included within Acxiom's consolidated
income tax returns. As the accompanying financial statements are
not intended to be a complete presentation of CIMS' financial
position, results of operations or cash flows, income taxes have
not been allocated to CIMS.
(2) Summary of Significant Accounting Policies
(a) Revenue Recognition
Revenue from sales and licensing of software are recognized when
software licenses or agreements are executed, the software is
installed, the fee for such software is fixed or determinable, and
collectibility of such fee is probable. Software maintenance is
recognized over the term of the agreements. Billed but unearned
portions of maintenance or license revenue are deferred.
(b) Financial Instruments
Financial instruments which potentially subject CIMS to
concentrations of credit risk consist primarily of accounts
receivable. CIMS' receivables are from a large number of
customers. Accordingly, CIMS' credit risk is affected by general
economic conditions. Although CIMS has several large individual
customers, concentrations of credit risk are limited because of
the diversity of CIMS' customers.
(c) Property and Equipment
Property and equipment directly identified with CIMS have been
reflected on the accompanying statements of assets acquired and
liabilities assumed at cost, less accumulated depreciation.
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CUSTOMER INFORMATION MANAGEMENT SYSTEMS
A Business Unit of Acxiom Corporation
Financial Statements
December 31, 1999 and 1998
Depreciation and amortization are calculated on the straight-line
method and is recorded over the following estimated useful lives:
Leasehold improvements 5-10 years
Office furniture and equipment 3-12 years
Data processing equipment 2-10 years
(d) Software
Internally developed and purchased software costs are capitalized
and amortized on a straight-line basis over the estimated economic
life of the product, or the amortization that would be recorded by
using the ratio of gross revenues for a product to total current
and anticipated future gross revenues for that product, whichever
is greater. Generally, software costs are amortized over a period
of 3 to 5 years. Research and development costs incurred prior to
establishing technological feasibility of software products are
charged to operations as incurred.
(e) Impairment of Long-lived Assets and Assets to be Disposed
Long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
(f) Goodwill
The excess of acquisition costs over the fair values of net assets
acquired in business combinations treated as purchase transactions
(goodwill) is being amortized on a straight-line basis over 15
years from the acquisition date. Acxiom periodically evaluates the
existence of goodwill impairment on the basis of whether the
goodwill is fully recoverable from the projected, undiscounted net
cash flows of the related business unit. The amount of goodwill
impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting
Acxiom's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved. The CIMS business unit
recorded amortization expense of goodwill of $66,667 in 1999.
(g) Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
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<PAGE>
CUSTOMER INFORMATION MANAGEMENT SYSTEMS
A Business Unit of Acxiom Corporation
Financial Statements
December 31, 1999 and 1998
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(3) Property and Equipment
The components of property and equipment as of December 31, 1999 and 1998
are as follows:
1999 1998
---------- ----------
Leasehold improvements $ 41,959 41,959
Office furniture and equipment 211,712 288,726
Data processing equipment 636,014 625,768
---------- ----------
Total property and equipment 889,685 956,453
---------- ----------
Less accumulated depreciation and
amortization (551,581) (439,874)
---------- ----------
$ 338,104 516,579
========== ==========
(4) Employee Benefit Plans
Acxiom has a retirement savings plan which covers substantially all
domestic employees, including employees of CIMS. Acxiom also offers a
supplemental non-qualified deferred compensation plan for certain
management employees, including certain management employees of CIMS.
Acxiom matches 50% of the employee's salary deferred contributions under
both plans up to 6% annually and may contribute additional amounts to the
plans from Acxiom's earnings at the discretion of the Board of Directors.
Acxiom's contributions for the above plans relating to CIMS employees
amounted to approximately $26,000 for the year ended December 31, 1999.
Acxiom has for its U.S. employees, including CIMS employees, a Key
Employee Stock Option Plan for which 15.2 million shares of Acxiom's
common stock have been reserved. This plan provides that the option
price, as determined by the Board of Directors, will be at least the fair
market value at the time of the grant. The term of nonqualified options
is also determined by the Board of Directors. Incentive options granted
under the plan must be exercised within 10 years after the date of the
option.
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<PAGE>
CUSTOMER INFORMATION MANAGEMENT SYSTEMS
A Business Unit of Acxiom Corporation
Financial Statements
December 31, 1999 and 1998
Acxiom applies the provisions of Accounting Principles Board Opinion No.
25 and related interpretations in accounting for the stock based
compensation plans. Accordingly, no compensation cost has been recognized
by CIMS in the accompanying statements of revenues less direct expenses
before income taxes for any fixed stock options granted.
(5) Commitments and Contingencies
From time to time, Acxiom is involved in various claims and legal actions
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on CIMS' financial position or results of operations.
(6) Supplemental Cash Flow Information
As described in note 1, the Acxiom cash management system is not designed
to track centralized cash and related financing transactions to the
specific cash requirements of CIMS. In addition, Acxiom's transaction
systems are not designed to track certain liabilities and cash receipts
and payments on a business specific basis. Given these constraints, the
following data are presented to facilitate analysis of key components of
cash flow activity for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Operating activities:
Excess of direct expenses over revenues before income
taxes $ (1,263,526) (1,986,223)
Depreciation and amortization 458,432 1,175,927
Loss on disposition of assets 66,630 --
Changes in operating assets and liabilities:
Accounts receivable 55,198 (69,021)
Unbilled revenue (54,336) (499,355)
Customer refunds 65,369 74,589
Deferred revenue (311,739) 552,440
------------- ------------
Operating activities - cash basis of revenues less direct
expenses before income taxes (983,972) (751,643)
Investing activities:
Capital expenditures (1,357,334) (178,960)
Acquisition of CIMS business unit (3,015,805) --
------------- ------------
Net financing provided from Acxiom/predecessor $ (5,357,111) (930,603)
============= ============
</TABLE>
The difference between cash flow from operating activities and investing
activities does not necessarily represent the cash flows of CIMS, or the
timing of such cash flows, had it operated on a stand-alone basis.
8
