Results of Operations
A summary of selected financial information for each of the years in the three-year period ended March 31, 2013 is presented below (dollars in millions, except per share amounts):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
% Change
2013-2012
|
|
|
% Change
2012-2011
|
|
Revenues
|
|
$
|
1,099.4
|
|
|
$
|
1,130.6
|
|
|
$
|
1,113.8
|
|
|
|
(3
|
)%
|
|
|
2
|
%
|
Total operating costs and expenses
|
|
|
996.7
|
|
|
|
1,045.0
|
|
|
|
1,088.6
|
|
|
|
(5
|
)
|
|
|
(4
|
)
|
Income from operations
|
|
$
|
102.7
|
|
|
$
|
85.6
|
|
|
$
|
25.2
|
|
|
|
20
|
%
|
|
|
240
|
%
|
Diluted earnings (loss) per share from continuing operations
|
|
$
|
0.75
|
|
|
$
|
0.47
|
|
|
$
|
(0.40
|
)
|
|
|
60
|
%
|
|
|
118
|
%
|
Revenues
The following table presents the Company’s revenue for each of the years in the three-year period ended March 31, 2013 (dollars in millions):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
% Change
2013-2012
|
|
|
% Change
2012-2011
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and data services
|
|
$
|
767.7
|
|
|
$
|
771.7
|
|
|
$
|
736.1
|
|
|
|
(1
|
)%
|
|
|
5
|
%
|
IT Infrastructure management services
|
|
|
275.5
|
|
|
|
291.5
|
|
|
|
302.7
|
|
|
|
(6
|
)
|
|
|
(4
|
)
|
Other services
|
|
|
56.2
|
|
|
|
67.4
|
|
|
|
75.0
|
|
|
|
(17
|
)
|
|
|
(10
|
)
|
Total revenues
|
|
$
|
1,099.4
|
|
|
$
|
1,130.6
|
|
|
$
|
1,113.8
|
|
|
|
(3
|
)%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue decreased 2.8%, or $31.3 million, to $1,099.4 million in fiscal 2013. Revenue in fiscal 2012 included $1.3 million related to the disposed MENA operations. Excluding the impact of the disposed operation and the unfavorable impact of foreign currency translation of $4.1 million, revenue decreased 2.3% in fiscal 2013.
Total revenue increased 1.5%, or $16.9 million, to $1,130.6 million in fiscal 2012. Revenue in fiscal 2011 included $9.9 million related to the disposed Portugal, Netherlands, and MENA operations. Excluding the impact of the disposed operations and the favorable impact of foreign currency translation of $6.3 million, revenue increased 1.7% in fiscal 2012.
Marketing and data services (MDS) revenue decreased $4.0 million, or 0.5%, to $767.7 million in fiscal 2013. On a geographic basis, International MDS revenue decreased $16.5 million, or 12.7%, and U.S. MDS revenue increased $12.5 million, or 2.0%. Excluding the impact of unfavorable foreign currency translation, International MDS revenue decreased $12.9 million primarily due to decreased revenue volumes from existing customers and lost business in Europe and Australia. The increase in U.S. MDS revenue primarily resulted from new business and one-time project revenues in the Retail, Technology, and Insurance industries offset by a $10.1 million revenue decrease in the Healthcare industry resulting from the termination of a contract.
By lines of business, the MDS revenue increase in Marketing Management ($6.4 million, or 2.0%) was offset by decreases in CDI and Consumer Insights Services ($10.4 million, or 2.9%). The CDI Services revenue decrease resulted from the expiration of a Healthcare industry contract. The Consumer Insights Services revenue decline resulted from decreases in Europe and Australia.
MDS revenue increased $35.6 million, or 4.8%, to $771.7 million in fiscal 2012. On a geographic basis, International MDS revenue increased $3.7 million, or 2.9%, and U.S. MDS revenue increased $31.9 million, or 5.2%. Excluding the impact of the disposed Portugal and Netherlands operations of $4.2 million and the favorable impact of foreign currency translation, International MDS revenue increased $1.6 million. A $1.2 million revenue decline in Brazil was offset by revenue increases in Australia and China. The increase in U.S. MDS revenue was broad-based, with increases in business activity in most industry verticals, in particular, the Retail, Financial Services, Technology and Automotive vertical markets.
MDS revenue increased in all lines of business in fiscal 2012. The largest increases were in Consulting and Agency Services ($14.1 million, or 14.1%) and Marketing Management ($12.1 million or 4.1%). Increases in the Consumer Insight Products ($4.5 million or 3.1%) and the CDI Services ($4.8 million or 2.3%) lines of business were impacted by a prior year one-time project with a large customer ($4.1 million) and the revenue decline in Brazil.
IT Infrastructure management services (IM) revenue decreased $16.0 million, or 5.5%, to $275.5 million in fiscal 2013. IM revenue decreased $15.6 million as a result of the loss of a large contract during the third quarter of fiscal 2012. IM revenue also decreased from a contract renegotiation and lower project work with existing customers during the fourth quarter of fiscal 2013.
IM revenue decreased $11.2 million, or 3.7%, to $291.5 million in fiscal 2012. IM revenue decreased $23.5 million primarily as a result of contract losses during the fourth quarter of fiscal 2011 and the fourth quarter of fiscal 2012, partially offset by one-time projects and revenue growth with existing clients.
The Company has recently received notices of termination from three existing customers in the IM segment. These customers represented approximately $38 million in revenue in fiscal 2013. Because the customers will continue for a portion of fiscal 2014 and may be required to pay the Company certain penalties upon termination, the Company does not expect a material impact on income from operations during fiscal 2014. However, these contract terminations will have an impact on revenue and income from operations in future years.
Other services (OS) revenue decreased $11.2 million, or 16.7%, to $56.2 million in fiscal 2013. Excluding the impact of the MENA disposal in fiscal 2012, OS revenue decreased approximately $9.9 million. Revenue in the U.S. E-mail fulfillment operation decreased $6.1 million from lower project revenue with existing customers and the wind-down of an E-mail contract. In addition, the Company transitioned Risk customers to a third-party partner as part of the plan to exit that line of business, resulting in a $5.9 million revenue decrease. The decreases were partially offset by a $2.1 million increase in UK fulfillment operation revenue from new business.
OS revenue decreased $7.6 million, or 10.2%, to $67.4 million in fiscal 2012. Excluding the impact of the MENA disposal of $4.4 million, OS revenue decreased $3.3 million during the year. OS revenue from U.S. Risk operations decreased $3.9 million, or 2.8%, during the year due to lower project volume from existing customers. The decrease was partially offset by modest increases in other operations.
Operating Costs and Expenses
The following table presents the Company’s operating costs and expenses for each of the years in the three-year period ended March 31, 2013 (dollars in millions):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
% Change
2013-2012
|
|
|
% Change
2012-2011
|
|
Cost of revenue
|
|
$
|
841.9
|
|
|
$
|
863.5
|
|
|
$
|
848.4
|
|
|
|
(3
|
)%
|
|
|
2
|
%
|
Selling, general and administrative
|
|
|
152.8
|
|
|
|
151.1
|
|
|
|
155.9
|
|
|
|
1
|
|
|
|
(3
|
)
|
Impairment of goodwill and other intangibles
|
|
|
-
|
|
|
|
17.8
|
|
|
|
79.7
|
|
|
|
(100
|
)
|
|
|
(78
|
)
|
Gains, losses and other items, net
|
|
|
2.0
|
|
|
|
12.6
|
|
|
|
4.6
|
|
|
|
(84
|
)
|
|
|
175
|
|
Total operating costs and expenses
|
|
$
|
996.7
|
|
|
$
|
1,045.0
|
|
|
$
|
1,088.6
|
|
|
|
(5
|
)%
|
|
|
(4
|
)%
|
Cost of revenue decreased 2.5%, or $21.7 million, to $841.9 million in fiscal 2013. Gross margins decreased slightly from 23.6% in fiscal 2012 to 23.4% in fiscal 2013. Decreased gross margins from higher costs of delivery and investments in data in the U.S. MDS business were partially offset by improving IM gross margins and the impact of International cost reduction actions taken in the fourth quarter of fiscal 2012. U.S. gross margins decreased from 25.0% to 24.3%, and International gross margins increased from 15.3% to 17.4% despite decreased revenue due to the cost reduction actions in International markets.
Cost of revenue increased 1.8%, or $15.1 million, to $863.5 million in fiscal 2012. Gross margins decreased from 23.8% in fiscal 2011 to 23.6% in fiscal 2012. US gross margins decreased from 25.2% to 25.0% primarily due to increasing compensation and delivery costs. International gross margins decreased from 15.5% to 15.3% in fiscal 2012 primarily due to increasing losses in Brazil. International gross margin benefited in fiscal 2012 from the MENA disposal in the second quarter of the year.
Selling, general and administrative expense was $152.8 million for the year ended March 31, 2013 representing a $1.7 million, or 1.1%, increase over the prior year. As a percent of total revenue, these expenses are 13.9% compared to 13.4% a year earlier. Lower selling expense in the U.S. from cost reductions and lower commissions, as well as International costs reductions, were offset by increased incentive and non-cash compensation and legal expenses.
Selling, general and administrative expense was $151.1 million for the year ended March 31, 2012 representing a $4.8 million, or 3.1%, decrease from the prior year. As a percent of total revenue, these expenses were 13.4% in fiscal 2012
compared to 14.0% in fiscal 2011. Decreases in 2012 selling, general, and administrative expense resulted primarily from lower non-cash stock compensation costs of $4.1 million due to executive changes as well as lower marketing and legal expenditures during the period.
Impairment of goodwill and other intangibles was $17.8 million for the year ended March 31, 2012. During the third quarter of fiscal 2012, management determined that results for the Brazil operation were likely to be significantly lower than had been projected in the goodwill test that was performed as of April 1, 2011. Management further determined that the failure of the Brazil operation to meet expectations, combined with the expectation that future budget projections would also be lowered, constituted a triggering event requiring an interim goodwill impairment test. In conjunction with the interim goodwill impairment test, management also tested for impairment all other intangible assets other than goodwill associated with the Brazil operation. This test was performed during the third quarter of fiscal 2012, resulting in a total impairment charge of $17.8 million, of which $13.8 million was recorded as impairment of goodwill and $4.0 million was recorded as impairment of other intangible assets. In addition, the $2.6 million earn-out liability relating to the Brazil acquisition was reduced to zero as there was no future expectation of an earn-out payment. The reduction of the earn-out liability is reflected as a credit to gains, losses and other items, net.
Gains, losses and other items for each of the years presented are as follows (dollars in thousands):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Restructuring plan charges and adjustments
|
|
$
|
2,894
|
|
|
$
|
12,778
|
|
|
$
|
4,435
|
|
Earnout liability adjustment
|
|
|
-
|
|
|
|
(2,598
|
)
|
|
|
(1,058
|
)
|
Other
|
|
|
(884
|
)
|
|
|
2,458
|
|
|
|
1,223
|
|
|
|
$
|
2,010
|
|
|
$
|
12,638
|
|
|
$
|
4,600
|
|
Gains, losses and other items, net was $2.0 million in fiscal 2013. The Company recorded a total of $2.9 million in restructuring charges and adjustments which included severance and other associate-related costs of $2.8 million and lease accruals of $0.1 million.
Gains, losses and other items, net was $12.6 million in fiscal 2012. The Company recorded a total of $12.8 million in restructuring charges and adjustments which included severance and other associate-related costs of $9.9 million, lease accruals of $2.6 million, and adjustments to the fiscal 2011 restructuring plan of $0.3 million. On July 12, 2011, the Company entered into a transaction with MENA’s minority partners to fully dispose of the Company’s interest in its MENA subsidiary. The Company recorded a loss on the MENA disposal of $3.4 million in the statement of operations. Of the $3.4 million loss, $2.5 million is recorded in gains, losses and other items, net and $0.9 million is recorded in net loss attributable to noncontrolling interest. During fiscal 2012, the Company adjusted the value of the earnout related to the Brazil acquisition from $2.6 million to zero through gains, losses and other items, since there is no expectation of an earnout payment.
Gains, losses and other items, net was $4.6 million in fiscal 2011. The Company recorded $4.4 million in restructuring charges and adjustments which included severance and other associate-related charges of $3.4 million and executive leadership transition charges of $2.7 million. These were offset by adjustments to previous restructuring plans of $1.7 million.
The following table summarizes the balances that were accrued for restructuring plans discussed above, as well as the changes in those balances during the years ended March 31, 2011, 2012 and 2013 (dollars in thousands):
|
|
Associate-related reserves
|
|
|
Ongoing
contract costs
|
|
|
Total
|
|
March 31, 2010
|
|
$
|
2,870
|
|
|
$
|
12,904
|
|
|
$
|
15,774
|
|
Restructuring charges and adjustments
|
|
|
5,773
|
|
|
|
(1,338
|
)
|
|
|
4,435
|
|
Payments
|
|
|
(3,081
|
)
|
|
|
(2,024
|
)
|
|
|
(5,105
|
)
|
March 31, 2011
|
|
$
|
5,562
|
|
|
$
|
9,542
|
|
|
$
|
15,104
|
|
Restructuring charges and adjustments
|
|
|
10,126
|
|
|
|
2,652
|
|
|
|
12,778
|
|
Payments
|
|
|
(6,091
|
)
|
|
|
(1,145
|
)
|
|
|
(7,236
|
)
|
March 31, 2012
|
|
$
|
9,597
|
|
|
$
|
11,049
|
|
|
$
|
20,646
|
|
Restructuring charges and adjustments
|
|
|
2,836
|
|
|
|
58
|
|
|
|
2,894
|
|
Payments
|
|
|
(8,744
|
)
|
|
|
(2,086
|
)
|
|
|
(10,830
|
)
|
March 31, 2013
|
|
$
|
3,689
|
|
|
$
|
9,021
|
|
|
$
|
12,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit and Profit Margins
The following table presents the Company’s operating profit margin by segment for each of the years in the three-year period ended March 31, 2013 (dollars in thousands):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Operating profit and profit margin:
|
|
|
|
|
|
|
|
|
|
Marketing and data services
|
|
$
|
80,513
|
|
|
$
|
95,820
|
|
|
$
|
87,254
|
|
|
|
|
10.5
|
%
|
|
|
12.4
|
%
|
|
|
11.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IT Infrastructure management services
|
|
$
|
29,330
|
|
|
$
|
24,988
|
|
|
$
|
24,467
|
|
|
|
|
10.6
|
%
|
|
|
8.6
|
%
|
|
|
8.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other services
|
|
$
|
(5,114
|
)
|
|
$
|
(4,804
|
)
|
|
$
|
(2,270
|
)
|
|
|
|
(9.1
|
)%
|
|
|
(7.1
|
)%
|
|
|
(3.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
(2,010
|
)
|
|
$
|
(30,441
|
)
|
|
$
|
(84,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
$
|
102,719
|
|
|
$
|
85,563
|
|
|
$
|
25,177
|
|
Total operating profit margin
|
|
|
9.3
|
%
|
|
|
7.6
|
%
|
|
|
2.3
|
%
|
Fiscal 2013 operating margins were 9.3% compared to 7.6% in fiscal 2012. Fiscal 2013 operating margin improvement primarily results from the $28.4 million decrease in impairment of goodwill and other intangibles and gains, losses and other items, net.
Fiscal 2012 operating margins were 7.6% compared to 2.3% in fiscal 2011. In fiscal 2012, operating margins were impacted less by the $17.8 million impairment of Brazil goodwill and other intangibles than the $79.7 million impairment of Europe and MENA goodwill and other intangibles in the prior year. Operating margins were also impacted by restructuring charges of $12.8 million in fiscal 2012, compared to $4.4 million in fiscal 2011.
By segment, MDS margins declined to 10.5% in fiscal 2013 compared to 12.4% in 2012 and 11.9% in 2011, primarily due to investment initiatives both in client relationships and products. IM margins increased to 10.6% in fiscal 2013 compared to 8.6% in 2012 and 8.1% in 2011 due to ongoing efficiency improvements. In OS, operating losses were $5.1 million in 2013 compared to $4.8 million in 2012 and $2.3 million in 2011. The disposal of the MENA business in 2012 improved 2013 by $1.0 million. Additionally, increased profit from the UK fulfillment business in 2013 was offset by a $2.7 million increased loss in the U.S. risk business.
Other Income (Expense), Income Taxes and Other Items
Interest expense was $12.7 million in fiscal 2013, a decrease of $4.8 million from $17.4 million in fiscal 2012. The decrease primarily relates to the reduction in outstanding borrowing under the Company’s term loan described below. In addition, approximately $1.3 million in fiscal 2012 related to accelerated amortization of deferred debt costs due to loan prepayments. The term loan average balance declined approximately $50 million and the average interest rate decreased approximately 12 basis points. Interest on other debt, such as capital leases, also declined.
Interest expense was $17.4 million in fiscal 2012, a decrease of $6.4 million from $23.8 million in fiscal 2011. The decrease primarily related to a reduction in outstanding borrowing under the Company’s term loan described below. The Company pre-paid $125 million of the term loan during the year and, as a result, the term loan average balance declined approximately $130 million. The average interest rate remained relatively flat in fiscal 2012 compared to fiscal 2011. Interest on other debt, such as capital leases, also decreased slightly.
Other income was $0.2 million in fiscal 2013 compared to other expense of $1.4 million in fiscal 2012 and $1.5 million in fiscal 2011. Other, net primarily consists of foreign currency transaction gains and losses, and interest and investment income.
The effective tax rate was 36.7% for 2013, compared to 43.6% in 2012. The rate for 2013 benefitted from higher U.S. research and development tax credits and a lower impact from foreign losses. The U.S. research and development tax credit was reenacted in January 2013 retroactive to the beginning of 2012. During fiscal 2012, the Company’s tax expense was reduced by $12.3 million due to utilization of capital losses. This was offset by an increase in the valuation allowance for foreign deferred tax assets of $5.2 million. Removing the impact of the impairment charges, gains, losses and other items, and the impact of the capital losses and valuation allowance increase from the fiscal 2012 tax rate calculation would have resulted in a tax rate of approximately 42 %.
Excluding the impact of the goodwill and intangible impairment charges, which were all non-deductible for tax purposes, the fiscal 2011 effective tax rate on continuing operations was 39.9%. During fiscal 2011, the Company reduced a reserve for unrecognized tax benefits of approximately $3.5 million due to the expiration of the related statute of limitations. Additionally, there was no tax benefit recorded related to the impairment of an investment in fiscal 2011.
All three fiscal period tax rates were impacted by losses in foreign jurisdictions. The Company does not record the tax benefit of certain of those losses due to uncertainty of future benefit.
Capital Resources and Liquidity
Working Capital and Cash Flow
Working capital increased $20.9 million to $236.5 million at March 31, 2013 compared to $215.6 million at March 31, 2012. Total current assets decreased $10.9 million, resulting primarily from decreases in cash ($6.7 million) and trade accounts receivable, net ($9.6 million), offset by an increase in refundable income taxes ($5.8 million). Current liabilities decreased $31.8 million, primarily resulting from decreases in current installments of long-term debt ($10.2 million), deferred revenue ($18.6 million), and income taxes payable ($15.8 million), partially offset by increases in trade accounts payable ($4.8 million) and accrued payroll and related expenses ($7.6 million).
The Company’s cash is primarily located in the United States. Approximately $14.1 million of the total cash balance of $223.0 million, or approximately 6.3%, is located outside of the United States. The Company has no current plans to repatriate this cash to the United States.
Cash provided by operating activities was $150.1 million in fiscal 2013 compared to $229.5 million and $166.2 million in fiscal 2012 and 2011, respectively. The $79.3 million decrease in fiscal 2013 operating cash flow primarily results from a $36.7 million increase in income tax payments, a decrease in customer prepayments (deferred revenue) of $22.7 million, and other changes in operating assets and liabilities. In fiscal 2012, cost additions were approximately $27.1 million lower than fiscal 2011 due to decreased IT Infrastructure management contract migration activity. Fiscal 2012 operating cash flows also benefited from positive operating assets and liability movements, primarily in trade and tax payables, accrued payroll, and deferred revenue.
Accounts receivable days sales outstanding (“DSO”) was 52 and 54 days at March 31, 2013 and March 31, 2012, respectively, and is calculated as follows (dollars in thousands):
|
|
March 31,
2013
|
|
|
March 31,
2012
|
|
Numerator – trade accounts receivable, net
|
|
$
|
159,882
|
|
|
$
|
169,446
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Quarter revenue
|
|
|
277,131
|
|
|
|
287,255
|
|
Number of days in quarter
|
|
|
90
|
|
|
|
91
|
|
Average daily revenue
|
|
$
|
3,079
|
|
|
$
|
3,157
|
|
Days sales outstanding
|
|
|
52
|
|
|
|
54
|
|
Investing activities used $66.9 million of cash in fiscal 2013 compared to cash provided of $3.4 million in fiscal 2012 and cash used of $90.8 million in fiscal 2011. Fiscal 2013 investing activities include $8.6 million of deferred data acquisition costs, $19.9 million of capitalized software costs, and $38.5 million of capital expenditures. Fiscal 2012 investing activities reflected net cash received for disposal of operations of $72.4 million. The cash received results from $73.5 million received for disposal of AISS operations, net of $1.1 million cash paid for disposal of MENA operations. The cash inflow from the disposition of operations in fiscal 2012 was offset by other investing activity of $69.2 million. Investing activities in fiscal 2011 included $1.1 million in payments made for the disposal of the Portugal and Netherlands operations. Other investing activities included capitalized software development costs of $5.3 million and $4.6 million in fiscal 2012 and 2011, respectively; capital expenditures of $51.6 million and $59.0 million in fiscal 2012 and 2011, respectively; and data acquisition costs of $12.3 million and $13.4 million in fiscal 2012 and 2011, respectively.
Investing activities also reflected net cash paid for acquisitions of $0.3 million and $12.9 million fiscal 2012 and 2011, respectively. In fiscal 2011 the Company paid $10.9 million for the purchase of a 70% interest in GoDigital, a Brazilian marketing services business, and paid $1.8 million to acquire 100% of the outstanding shares of XYZ, a digital marketing business operating in Australia and New Zealand. The remainder of the cash paid for acquisitions each year relates to fees and earnout payments paid on acquisitions made in previous years.
With respect to certain of its investments in joint ventures and other companies, the Company may provide cash advances to fund losses and cash flow deficits. The Company may, at its discretion, decide not to provide financing to these investments during future periods. In the event that it does not provide funding and these investments have not achieved profitable operations, the Company may be required to record an impairment charge up to the amount of the carrying value of these investments ($1.2 million at March 31, 2013). In fiscal 2011, the Company determined that one of its investments was impaired and recorded an impairment charge of $1.6 million in other, net in the consolidated statement of operations. In the event that declines in the value of its investments occur and continue, the Company may be required to record further impairment charges related to its investments.
Under the Company’s common stock repurchase program, the Company may purchase up to $200.0 million of its common stock through the period ending February 5, 2014. During the fiscal year ended March 31, 2013, the Company repurchased 4.6 million shares of its common stock for $71.7 million. During the fiscal year ended March 31, 2012, the Company repurchased 5.8 million shares of its common stock for $68.2 million. Through March 31, 2013, the Company has repurchased 10.4 million shares of its stock for $139.9 million, leaving remaining capacity of $60.1 million under the stock repurchase program. Cash paid for acquisition of treasury stock in the consolidated statement of cash flows differs from the aggregate purchase price due to trades made during one fiscal period that settle in a different fiscal period.
Financing activities used $89.2 million of cash in fiscal 2013, compared to $209.8 million and $92.6 million in fiscal 2012 and 2011, respectively. Fiscal 2013 financing activities include payments of debt of $26.9 million and acquisition of treasury stock as previously described of $74.4 million, offset by $12.0 million in proceeds from the sale of common stock. Fiscal 2012 financing activities included payments of debt of $154.9 million and acquisition of treasury stock of $65.5 million, offset by $12.2 million in proceeds from the sale of common stock. Financing activities in fiscal 2011 included $102.1 million in payments of debt offset by $9.3 million in proceeds from the sale of common stock. Debt payments include prepayments on the Company’s term loan of $125.0 million in fiscal 2012 and $66.0 million in fiscal 2011.
In each of the fiscal years 2013, 2012 and 2011, the Company has incurred debt to finance the acquisition of property and equipment. The incurrence of this debt appears on the consolidated statements of cash flows under “supplemental cash flow information.” Acquisitions under capital leases and installment payment arrangements were $2.2 million in fiscal 2013 compared to $11.2 million in 2012 and $23.8 million in 2011. Payment of this debt in future periods will be reflected as a financing activity. The Company has also included details of its debt payments within the “supplemental cash flow” information.
Credit and Debt Facilities
The Company’s amended and restated credit agreement provides for (1) term loans up to an aggregate principal amount of $600 million and (2) revolving credit facility borrowings consisting of revolving loans, letter of credit participations and swing-line loans up to an aggregate amount of $120 million.
The term loan is payable in quarterly installments of approximately $1.5 million, through December 31, 2014, with a final payment of approximately $207.5 million due March 15, 2015. The revolving loan commitment expires March 15, 2014.
Revolving credit facility borrowings currently bear interest at LIBOR plus a credit spread, or at an alternative base rate or at the Federal Funds rate plus a credit spread, depending on the type of borrowing. The LIBOR credit spread is 2.75%. There were no revolving credit borrowings outstanding at March 31, 2013 or March 31, 2012. Term loan borrowings bear interest at LIBOR plus a credit spread of 3.00%. The weighted-average interest rate on term loan borrowings at March 31, 2013 was 3.7%. Outstanding letters of credit at March 31, 2013 were $2.2 million.
The term loan allows prepayments before maturity. The credit agreement is secured by the accounts receivable of Acxiom and its domestic subsidiaries, as well as by the outstanding stock of certain Acxiom subsidiaries.
Under the terms of the term loan, the Company is required to maintain certain debt-to-cash flow and debt service coverage ratios, among other restrictions. At March 31, 2013, the Company was in compliance with these covenants and restrictions. In addition, if certain financial ratios and other conditions are not satisfied, the revolving credit facility limits the Company’s ability to pay dividends in excess of $30 million in any fiscal year (plus additional amounts in certain circumstances). The principal factor that could cause the Company to not be able to maintain compliance with its debt covenants would be if the level of operating income (as adjusted for certain non-cash charges, rent expense, and gains, losses, and other items) were to decline, without a corresponding decrease in the Company’s debt levels. The most likely scenario that could cause such a decrease in operating income would be a significant decrease in revenue, without a decrease in operating expenses. Management, however, maintains a focus on operating income to mitigate any such risk. Failure to maintain compliance with debt covenants could lead to the lender declaring the debt to be due and payable immediately, or the Company could be required to renegotiate the debt at terms less favorable than the current terms, and the Company could be required to incur fees and expenses to renegotiate or refinance the debt. There can be no assurance that if such a failure were to occur, the Company would be able to renegotiate or refinance the debt.
On July 25, 2011, the Company entered into an interest rate swap agreement. The agreement provides for the Company to pay interest through January 27, 2014 at a fixed rate of 0.94% plus the applicable credit spread on $150.0 million notional amount, while receiving interest for the same period at the LIBOR rate on the same notional amount. The LIBOR rate as of March 31, 2013 was 0.30%. The swap was entered into as a cash flow hedge against LIBOR interest rate movements on the term loan. As of March 31, 2013, the hedge relationship qualified as an effective hedge under applicable accounting standards. Consequently, all changes in fair value of the derivative are deferred and recorded in other comprehensive income (loss) until the related forecasted transaction is recognized in the consolidated statement of operations. The fair market value of the derivative was zero at inception and an unrealized loss of $0.8 million since inception is recorded in other comprehensive income (loss) with the offset recorded to other noncurrent liabilities. The fair value of the interest rate swap agreement recorded in accumulated other comprehensive income (loss) may be recognized in the statement of operations if certain terms of the floating-rate debt change, if the floating-rate debt is extinguished or if the interest rate swap agreement is terminated prior to maturity. The Company has assessed the creditworthiness of the counterparty of the swap and concludes that no substantial risk of default exists as of March 31, 2013.
Based on our current expectations, we believe our liquidity and capital resources will be sufficient to operate our business. However, we may take advantage of opportunities to generate additional liquidity or refinance existing debt through capital market transactions. The amount, nature and timing of any capital market transactions will depend on: our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
Off-Balance Sheet Items and Commitments
In connection with a certain building, the Company has entered into a 50/50 joint venture with a local real estate developer. The Company is guaranteeing a portion of the loan for the building. In addition, in connection with the disposal of certain assets, the Company has guaranteed a lease for the buyer of the assets. These guarantees were made by the Company primarily to facilitate favorable financing terms for those third parties. Should the third parties default, the Company would be required to perform under these guarantees. A portion of the guaranteed amount is collateralized by real property. At March 31, 2013 the Company’s maximum potential future payments under these guarantees were $3.1 million.
Outstanding letters of credit, which reduce the borrowing capacity under the Company’s revolving credit facility, were $2.2 million at March 31, 2013 and $2.5 million at March 31, 2012.
Contractual Commitments
The following table presents Acxiom’s contractual cash obligations, exclusive of interest, and purchase commitments at March 31, 2013 (dollars in thousands). The table does not include the future payment of gross unrealized tax benefit liabilities of $3.6 million or the future payment against the Company’s non-current interest rate swap liability of $0.8 million, as future payment of these liabilities is uncertain and the Company is not able to predict the periods in which these payments, if any, will be made (dollars in thousands):
|
|
For the years ending March 31
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
Thereafter
|
|
|
Total
|
|
Term loan
|
|
$
|
6,000
|
|
|
$
|
212,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
218,000
|
|
Capital lease and installment payment obligations
|
|
|
8,405
|
|
|
|
3,944
|
|
|
|
926
|
|
|
|
1,001
|
|
|
|
1,157
|
|
|
|
5,935
|
|
|
|
21,368
|
|
Other long-term debt
|
|
|
1,700
|
|
|
|
5,677
|
|
|
|
6,760
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,137
|
|
Total long-term debt
|
|
|
16,105
|
|
|
|
221,621
|
|
|
|
7,686
|
|
|
|
1,001
|
|
|
|
1,157
|
|
|
|
5,935
|
|
|
|
253,505
|
|
Operating lease payments
|
|
|
21,972
|
|
|
|
17,144
|
|
|
|
13,885
|
|
|
|
13,388
|
|
|
|
11,535
|
|
|
|
32,145
|
|
|
|
110,069
|
|
Total contractual cash obligations
|
|
$
|
38,077
|
|
|
$
|
238,765
|
|
|
$
|
21,571
|
|
|
$
|
14,389
|
|
|
$
|
12,692
|
|
|
$
|
38,080
|
|
|
$
|
363,574
|
|
|
|
For the years ending March 31
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
Thereafter
|
|
|
Total
|
|
Total purchase commitments
|
|
$
|
74,502
|
|
|
$
|
50,738
|
|
|
$
|
33,242
|
|
|
$
|
18,844
|
|
|
$
|
1,232
|
|
|
$
|
1,257
|
|
|
$
|
179,815
|
|
Purchase commitments include contractual commitments for the purchase of data and open purchase orders for equipment, paper, office supplies, construction and other items. Purchase commitments in some cases will be satisfied by entering into future operating leases, capital leases, or other financing arrangements, rather than payment of cash. The above commitments relating to long-term obligations do not include future payments of interest. The Company estimates interest payments on debt and capital leases for fiscal 2014 of $12.4 million.
The following table shows contingencies or guarantees under which the Company could be required, in certain circumstances, to make cash payments as of March 31, 2013 (dollars in thousands):
Loan guarantee
|
|
$
|
1,050
|
|
Lease guarantee
|
|
|
2,014
|
|
Outstanding letters of credit
|
|
|
2,238
|
|
Surety bonds
|
|
|
388
|
|
While the Company does not have any other material contractual commitments for capital expenditures, certain levels of investments in facilities and computer equipment continue to be necessary to support the growth of the business. In some cases, the Company also sells software and hardware to clients. In addition, new IT Infrastructure management contracts frequently require substantial up-front capital expenditures to acquire or replace existing assets. Management believes that the Company’s existing available debt and cash flow from operations will be sufficient to meet the Company’s working capital and capital expenditure requirements for the foreseeable future. The Company also evaluates acquisitions from time to time, which may require up-front payments of cash.
To help accelerate the pace of product development, the Company has significantly increased the level of product investment. Total engineering investment (research and development expense plus capitalization of software) was $31.6 million in fiscal 2013, compared to $10.8 million in 2012 and $16.2 million in 2011. Management expects to maintain an increased emphasis on product development during fiscal 2014.
For a description of certain risks that could have an impact on results of operations or financial condition, including liquidity and capital resources, see “Risk Factors” contained in Part I, Item 1A, of this Annual Report.
Acquisitions
On July 1, 2010, the Company completed the acquisition of a 70% interest in GoDigital Tecnologia E Participacoes, Ltda. (“GoDigital”), a Brazilian marketing services business. The Company paid $10.9 million, net of cash acquired, and not including amounts, if any, to be paid under an earnout agreement in which the Company could have paid up to an additional $9.3 million based on the results of the acquired business over approximately the next two years. The acquired business had annual revenue of approximately $8 million. The Company has omitted pro forma disclosures related to this acquisition as the pro forma effect of the acquisition is not material. The results of operations for GoDigital are included in the Company’s consolidated results beginning July 1, 2010.
The value of the earnout was originally estimated at $3.6 million. During fiscal 2011, the Company estimated the value of the earnout to have decreased by $1.1 million and recorded the adjustment in gains, losses and other items, net on the consolidated statement of operations. During fiscal 2012, the Company adjusted the value of the earnout to zero through gains, losses and other items, since there was no expectation of an earnout payment. During the quarter ended September 30, 2012, a final determination was made that no liability for earnout payment existed under the acquisition agreement.
Also during fiscal 2012, triggering events occurred which required the Company to test the goodwill and other intangible assets of GoDigital for impairment. A total impairment charge of $17.8 million was recorded of which $13.8 million was related to goodwill and $4.0 million was related to other intangible assets. Approximately 30% of this charge is attributable to the noncontrolling interest.
On April 1, 2010, the Company acquired 100% of the outstanding shares of a digital marketing business (“XYZ”) operating in Australia and New Zealand. The acquisition provided the Company additional market opportunities in this region. The Company paid $1.8 million in cash, net of cash acquired, and not including amounts to be paid under an earnout agreement. As of March 31, 2013, the Company has paid approximately $0.6 million and has no remaining liability under that agreement. The acquired business had annual revenue of less than $2 million. The Company has omitted pro forma disclosures related to this acquisition as the pro forma effect of this acquisition is not material. The results of operation for the acquisition are included in the Company’s consolidated results beginning April 1, 2010.
Divestitures
On July 12, 2011, the Company entered into a transaction with minority partners to fully dispose of its interest in its MENA subsidiary. The terms of the disposal included a $1.0 million cash payment to MENA and the release of any claims that the acquirer may have against the Company and an agreement to hold the Company harmless from any future liabilities. Following the transaction, the Company will have continued involvement primarily related to providing transaction support for a period not longer than two years.
The Company recorded a loss on the MENA disposal of $3.4 million in the statement of operations. Of the $3.4 million loss, $2.5 million is recorded in gains, losses and other items, net and $0.9 million is recorded in net loss attributable to noncontrolling interest. The deconsolidation of MENA in July 2011 resulted in the elimination of the accumulated deficit attributed to MENA from the Company’s consolidated statement of equity and comprehensive income of $0.9 million. All goodwill associated with the MENA operations was impaired in the fourth quarter of fiscal 2011, therefore there was no goodwill allocated to the disposed operations. The revenue associated with the MENA operations for fiscal 2011 was approximately $5.7 million.
On February 1, 2011, the Company entered into an agreement to dispose of the Company’s operations in Portugal. The Company made a cash payment of $0.9 million to the acquirer as part of the disposal and recorded a loss in the statement of operations of $0.8 million. There was no goodwill allocated to the disposed operations. The revenue associated with the Portugal operations was approximately $0.7 million in fiscal 2011.
On March 31, 2011 the Company entered into an agreement to dispose of the Company’s operations in The Netherlands. The Company transferred $0.2 million in cash as part of the sale and recorded a loss in the statement of operations of $2.5 million. There was no goodwill allocated to the disposed operations. Included in the loss calculation was a $1.1 million accrual for exit activities. The revenue associated with The Netherlands operations was approximately $3.5 million in fiscal 2011.
Discontinued Operation
On February 1, 2012 the Company completed the sale of its background screening unit, Acxiom Information Security Services (AISS), to Sterling Infosystems, a New York-based technology firm for $74 million. The sale qualified for treatment as discontinued operations during fiscal 2012. The results of operations pertaining to the AISS business have been classified as discontinued operations in the consolidated financial statements.
Key Trends and Uncertainties
The following is a summary of selected
trends, events or
uncertainties that the Company believes may have a significant impact on its future performance.
·
|
The macroeconomic environment has a direct impact on overall marketing and advertising expenditures in the U.S. and abroad. As marketing budgets are often more discretionary in nature, they are easier to reduce in the short term as compared to other corporate expenses. Future widespread economic slowdowns in any of the industries or markets our clients serve, particularly in the United States, could reduce the marketing expenditures of our clients and prospective customers.
|
·
|
As online advertising and e-commerce continue to grow and mature, businesses and marketers are increasingly challenged to manage large amounts of structured and unstructured data and transform such data into insights for operational decision making. This challenge continues to drive t
echnological and cost efficiencies, strategies and competition in the “big data” marketplace.
|
·
|
With the growth of online advertising and e-commerce, there is increasing awareness and concern among the general public, governmental bodies and others regarding marketing and privacy matters, particularly as they relate to individual privacy interests and global reach of the online marketplace. The U.S. Congress continues to debate privacy legislation, and there are many different types of privacy legislation pending at the state level. In all of the non-U.S. locations in which we do business, laws and regulations governing the collection and use of personal data either exist or are being contemplated. We expect the trend of enacting and revising data protection laws to continue and that new and expanded privacy legislation in various forms will be implemented in the U.S. and in other countries around the globe. Increased restrictions on the collection, management, aggregation and use of information could result in decreased availability of certain kinds of data and/or a material increase in the cost of collecting certain kinds of data.
|
·
|
In recent years, we have witnessed an ongoing shift from direct marketing to alternative marketing channels. We believe this trend will continue and that, in the long term, a substantial portion of overall marketing and advertising expenditures will be moved to alternative marketing channels.
|
·
|
Many
businesses are moving towards an outsourced model as an alternative to a traditional information technology infrastructure. As they do, we see demand increasing for cloud computing services.
|
Seasonality and Inflation
Although the Company cannot accurately determine the amounts attributable to inflation, the Company is affected by inflation through increased costs of compensation and other operating expenses. If inflation were to increase over the low levels of recent years, the impact in the short run would be to cause increases in costs, which the Company would attempt to pass on to clients, although there is no assurance that it would be able to do so. Generally, the effects of inflation in recent years have been offset by technological advances, economies of scale and other operational efficiencies.
The Company’s traditional direct marketing operations experience their lowest revenue in the first quarter of the fiscal year, with higher revenue in the second, third, and fourth quarters. In order to minimize the impact of these fluctuations, the Company continues to seek long-term arrangements with more predictable revenues.
Non-U.S. Operations
The Company has a presence in the United Kingdom, France, Germany, Poland, Australia, China and Brazil. Most of the Company’s exposure to exchange rate fluctuation is due to translation gains and losses as there are no material transactions that cause exchange rate impact. In general, each of the foreign locations is expected to fund its own operations and cash flows, although funds may be loaned or invested from the U.S. to the foreign subsidiaries subject to limitations in the Company’s revolving credit facility. These advances are considered to be long-term investments, and any gain or loss resulting from changes in exchange rates as well as gains or losses resulting from translating the foreign financial statements into U.S. dollars are included in accumulated other comprehensive income (loss). Exchange rate movements of foreign currencies may have an impact on the Company’s future costs or on future cash flows from foreign investments. The Company has not entered into any foreign currency forward exchange contracts or other derivative instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. These accounting principles require management to make certain judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Note 1 to the accompanying consolidated financial statements includes a summary of significant accounting policies used in the preparation of Acxiom’s consolidated financial statements. Of those policies, we have identified the following as the most critical because they require management’s use of complex and/or significant judgments:
Revenue Recognition
– The Company provides database management and IT management services under long-term arrangements. These arrangements may require the Company to perform setup activities such as the design and build of a database for the customer under the database management contracts and migration of the customer’s IT environment under IT management contracts. In some cases, the arrangements also contain provisions requiring customer acceptance of the setup activities prior to commencement of the ongoing services arrangement. Up-front fees billed during the setup phase for these arrangements are deferred and setup costs that are direct and incremental to the contract are capitalized. Revenue recognition does not begin until after customer acceptance in cases where contracts contain acceptance provisions. Once the setup phase is complete and customer acceptance occurs, the Company recognizes revenue and the related costs for each element as delivered. In situations where the arrangement does not require customer acceptance before the Company begins providing services, revenue is recognized for each element as delivered and no costs are deferred.
Sales of third-party software, hardware and certain other equipment are recognized when delivered. If such sales are part of a multiple-element arrangement, they are recognized as a separate element unless collection of the sales price is dependent upon delivery of other products or services. Additionally, the Company evaluates revenue from the sale of data, software, hardware and equipment in accordance with accounting standards to determine whether such revenue should be recognized on a gross or a net basis. All of the factors in the accounting standards are considered with the primary factor being whether the Company is the primary obligor in the arrangement. “Out-of-pocket” expenses incurred by, and reimbursed to, the Company in connection with customer contracts are recorded as gross revenue.
The Company evaluates its database management and IT management arrangements to determine whether the arrangement contains a lease. If the arrangement is determined to contain a lease, applicable accounting standards require the Company to account for the lease component separately from the remaining components of the arrangement. In cases where database management or IT management arrangements are determined to include a lease, the lease is evaluated to determine whether it is a capital lease or operating lease and accounted for accordingly. These lease revenues are not significant to the Company’s consolidated financial statements.
Revenues from the licensing of data are recognized upon delivery of the data to the customer. Revenue from the licensing of data to the customer in circumstances where the license agreement contains a volume cap is recognized in proportion to the total records to be delivered under the arrangement. Revenue from the sale of data on a per-record basis is recognized as the records are delivered.
The relative selling price for each unit of accounting in a multiple-element arrangement is established using vendor-specific objective evidence (VSOE), if available, third-party evidence (TPE), if available, or management’s best estimate of stand-alone selling price (BESP). In most cases, the Company has neither VSOE nor TPE and therefore uses BESP. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. Management’s BESP is determined by considering multiple factors including actual contractual selling prices when the item is sold on a stand-alone basis, as well as market conditions, competition, internal costs, profit objectives and pricing practices. The amount of revenue recognized for a delivered element is limited to an amount that is not contingent upon future delivery of additional products or services. As pricing and marketing strategies evolve, we may modify our pricing practices in the future, which could result in changes to BESP, or to the development of VSOE or TPE for individual products or services. As a result, future revenue recognition for multiple-element arrangements could differ from recognition in the current period. Our relative selling prices are analyzed on an annual basis, or more frequently if we experience significant changes in selling prices.
All taxes assessed on revenue-producing transactions described above are presented on a net basis, or excluded from revenues.
The Company also performs services on a project basis outside of, or in addition to, the scope of long-term arrangements. The Company recognizes revenue from these services as the services are performed.
Some contracts contain benchmarking provisions or provisions allowing the customer to request a future reduction in pricing under certain circumstances. Any resulting reduction in pricing is only implemented on a prospective basis. The Company’s contracts provide a warranty that the services or products will meet the agreed-upon criteria or any necessary modifications will be made. The Company ensures that services or products delivered meet the agreed-upon criteria prior to recognition of revenue.
Included in the Company’s consolidated balance sheets are deferred revenues resulting from billings and/or client payments in advance of revenue recognition. Deferred revenue at March 31, 2013 was $41.4 million compared to $59.9 million at March 31, 2012.
Accounts receivable include amounts billed to clients as well as unbilled amounts recognized in accordance with the Company’s revenue recognition policies. Unbilled amounts included in accounts receivable were $20.0 million and $19.8 million, respectively, at March 31, 2013 and 2012.
Software, Purchased Software Licenses, and Research and Development Costs
– Costs of internally developed software are amortized on a straight-line basis over the remaining estimated economic life of the software product, generally two to five years, 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. The Company capitalizes software development costs following accounting standards regarding the costs of computer software to be sold, leased or otherwise marketed or the costs of computer software developed or obtained for internal use. Although there are differences in the two accounting standards, depending on whether a product is intended for internal use or to be provided to customers, both accounting standards generally require that research and development costs incurred prior to establishing technological feasibility or the beginning of the application development stage of software products are charged to operations as such costs are incurred. Once technological feasibility is established or the application development stage has begun, costs are capitalized until the software is available for general release. The Company recorded amortization expense related to internally developed computer software of $8.6 million, $15.2 million, and $20.5 million for fiscal 2013, 2012, and 2011, respectively. Additionally, research and development costs of $11.7 million, $5.5 million and $11.6 million were charged to cost of revenue in the consolidated statement of operations during 2013, 2012 and 2011, respectively.
Costs of purchased software licenses are amortized using a units-of-production basis over the estimated economic life of the license, generally not to exceed ten years. The Company recorded amortization of purchased software licenses of $9.7 million, $13.5 million, and $15.6 million in fiscal 2013, 2012, and 2011, respectively. Some of these licenses are, in effect, volume purchase agreements for software licenses needed for internal use and to provide services to customers over the terms of the agreements. Therefore, amortization lives are periodically reevaluated and, if justified, adjusted to reflect current and future expected usage based on units-of-production
amortization. Factors considered in estimating remaining useful life include, but are not limited to, contract provisions of the underlying licenses, introduction of new mainframe hardware which is compatible with previous generation software, predictions of continuing viability of mainframe architecture, and customers’ continuing commitments to utilize mainframe architecture and the software under contract.
Capitalized software, including both purchased and internally developed, is reviewed each period and, if necessary, the Company reduces the carrying value of each product to its net realizable value. In performing the net realizable value evaluation of capitalized software, the Company’s projection of potential future cash flows from future gross revenues by product, reduced by the costs of completing and disposing of that product are compared to the carrying value of each product. A write-down of the carrying amount of a product is made to the extent that the carrying value of a product exceeds its net realizable value. No software impairment charges were recorded during the past three fiscal years. At March 31, 2013, the Company’s most recent impairment analysis of its purchased and internally developed software indicates that no impairment exists. However, no assurance can be given that future analysis of the Company’s capitalized software will not result in an impairment charge. Additionally, should future projected revenues not materialize and/or the cost of completing and disposing of software products significantly exceed the Company’s estimates, write-downs of purchased or internally developed software might be required up to and including the total carrying value of such software ($48.1 million at March 31, 2013).
Valuation of Long-Lived Assets
– Long-lived assets and certain identifiable intangibles as well as equity investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company considers factors such as operating losses, declining outlooks, and business conditions when evaluating the necessity for an impairment analysis. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of shall be classified as held for sale and are reported at the lower of the carrying amount or fair value less costs to sell.
During the quarters ended December 31, 2011 and March 31, 2011, in conjunction with the goodwill impairment tests noted below, the Company also tested certain intangible assets in the affected units for impairment. As a result of those reviews, the Company recorded impairment charges of $4.0 million in fiscal 2012 for intangible assets related to the Brazil operation and $2.4 million in fiscal 2011 for intangible assets related to the Middle East operations.
Valuation of Goodwill
– Goodwill is measured and tested for impairment on an annual basis in the first quarter of the Company’s fiscal year in accordance with applicable accounting standards, or more frequently if indicators of impairment exist. Triggering events for interim impairment testing include indicators such as adverse industry or economic trends, restructuring actions, downward revisions to projections of financial performance, or a sustained decline in market capitalization. The performance of the impairment test involves a two-step process. The first step requires comparing the estimated fair value of a reporting unit to its net book value, including goodwill. A potential impairment exists if the estimated fair value of the reporting unit is lower than its net book value. The second step of the impairment test involves assigning the estimated fair value of the reporting unit to its identifiable assets, with any residual fair value being assigned to goodwill. If the carrying value of an individual indefinite-lived intangible asset (including goodwill) exceeds its estimated fair value, such asset is written down by an amount equal to the excess, and a corresponding amount is recorded as a charge to operations for the period in which the impairment test is completed. Completion of the Company’s annual impairment test during the quarter ended June 30, 2012 indicated no potential impairment of its goodwill balances. During the quarter ended March 31, 2013, triggering events occurred which required the Company to test the goodwill in its European Marketing and data services unit for impairment. The triggering events included the revision of the Company’s long-term projections in conjunction with the fiscal 2014 budget. This test indicated a reduced fair value. However, the fair value is still substantially in excess of carrying value.
In order to estimate a valuation for each of the components, management uses an income approach based on a discounted cash flow model (income approach) together with valuations based on an analysis of public company market multiples and a similar transactions analysis.
The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined by using a weighted average cost of capital (“WACC”). The WACC considers market and industry data as well as company-specific risk factors for each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive
for investing in such a business. Management, considering industry and company-specific historical and projected data, develops growth rates and cash flow projections for each reporting unit. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates.
The public company market multiple method is used to estimate values for each of the components by looking at market value multiples to revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) for selected public companies that are believed to be representative of companies that marketplace participants would use to arrive at comparable multiples for the individual component being tested. These multiples are then used to develop an estimated value for each respective component.
The similar transactions method compares multiples based on acquisition prices of other companies believed to be those that marketplace participants would use to compare to the individual component being tested. Those multiples are then used to develop an estimated value for that component.
In order to arrive at an estimated value for each component, management uses a weighted-average approach to combine the results of each analysis. Management believes that using multiple valuation approaches and then weighting them appropriately is a technique that a marketplace participant would use.
As a final test of the valuation results, the total of the values of the components is reconciled to the actual market value of Acxiom common stock as of the valuation date. This reconciliation indicated an implied control premium. Management believes this control premium is reasonable compared to historical control premiums observed in actual transactions.
Goodwill is tested for impairment at the reporting unit level, which is defined as either an operating segment or one step below an operating segment, known as a component. Acxiom’s segments are the Marketing and data services segment, the IT Infrastructure management segment, and the Other services segment. Because the Marketing and data services segment and the Other services segment contain both U.S. and International components, and there are differences in economic characteristics between the components in the different geographic regions, management tested a total of eight components at the beginning of the year. The goodwill amounts as of April 1, 2012 included in each component tested were: U.S. Marketing and data services, $264.6 million; Europe Marketing and data services, $19.5 million; Australia Marketing and data services, $14.9 million; China Marketing and data services, $6.0 million; Brazil Marketing and data services, $1.1 million; U.S. Infrastructure management, $71.5 million; U.S. Other services, $1.8 million; and Europe Other services, $2.9 million.
As of April 1, 2012, each of the components had an estimated fair value in excess of its carrying value, indicating no impairment. All of the components had a substantial excess carrying value, except for the Brazil component, for which the excess was 11%.
Each quarter the Company considers whether indicators of impairment exist such that additional impairment testing may be necessary. During the quarter ended December 31, 2011, management determined that results for the Brazil operation were likely to be significantly lower than had been projected in the previous goodwill test. Management further determined that the failure of the Brazil operation to meet expectations, combined with the expectation that future budget projections would also be lowered, constituted a triggering event, requiring an interim goodwill impairment test. In conjunction with the interim goodwill impairment test, management also tested for impairment all other intangible assets other than goodwill associated with the Brazil operation. This test was performed during the quarter ended December 31, 2011, resulting in a total impairment charge of $17.8 million, of which $13.8 million was recorded as impairment of goodwill and $4.0 million was recorded as impairment of other intangible assets. In addition, the $2.6 million earn-out liability relating to the Brazil acquisition was reduced to zero as there is no future expectation of an earn-out payment. The reduction of the earn-out liability is reflected as a credit to gains, losses and other items, net.
The carrying value of the goodwill and other intangible assets associated with the Brazil operation prior to completion of the impairment test was $14.7 million for goodwill and $4.1 million for other intangible assets. The Brazil component was previously part of the Information Services segment and is now part of the Marketing and data services segment.
During the quarter ended March 31, 2011, triggering events occurred which required the Company to test the goodwill associated with its International operations for impairment. The triggering events were changes to the Company’s projected long-term revenue growth and margins in both Europe and the Middle East and North Africa (MENA) as well as the disposal of the Company’s Portugal and Netherlands operations. Results of the two-step test indicated impairment associated with these operations, and the Company recorded an impairment charge of $79.7 million, of which $77.3 million was related to goodwill and $2.4 million was related to other intangible assets.
Prior to the fourth quarter of fiscal 2011, the Company historically had concluded that its International Information Products operations, which includes operations in Europe and Asia/Pacific (APAC), were properly aggregated into a single International Information Products component for purposes of impairment testing and its International Information Services operations, which includes operations in Europe, APAC, MENA and Brazil, were properly aggregated into a single International Information Services component for purposes of impairment testing. These conclusions were based on management’s determinations that the operations included in each of these non-U.S. components shared economic characteristics, as well as similar products and services, types of customers, and services distribution methods. The primary economic characteristic that management concluded was similar for each of these units was expected long-term gross margins.
During the fourth quarter of fiscal 2011, as a result of the triggering events described above, and as management was developing revised projections for the Company’s International operations, management concluded that it was no longer appropriate to conclude that the respective operations previously included in the International Information Products component and the International Information Services component, respectively, all shared similar economic characteristics, due to management’s differing expectations for these operations over the long term. Therefore management did not aggregate these operations for testing as it had in the past, but instead performed step-one testing on the operations in the geographic regions described above individually (except for the Brazil operation, which was recently acquired and as to which management concluded the long-term expectations had not changed since the acquisition). The carrying value of the goodwill associated with these operations prior to performing the impairment tests performed in the fourth quarter of fiscal 2011 were: Europe Information Services, $28.8 million; APAC Information Services, $10.8 million; MENA Information Services, $4.8 million; Brazil Information Services, $16.9 million; Europe Information Products, $66.2 million; and APAC Information Products, $10.0 million. Based on the step-one testing, which utilized a weighted average of estimated values derived from a discounted cash flow model, similar transactions analysis, and public company market multiples analysis, the Company determined that there was indicated impairment for Europe Information Services, Europe Information Products, and MENA Information Services units. The estimated fair value for each of APAC Information Services and APAC Information Products exceeded its carrying value by a significant margin.
Step two of the goodwill test, which was required only for Europe Information Services, Europe Information Products, and MENA Information Services consisted of performing a hypothetical purchase price allocation, under which the estimated fair value was allocated to its tangible and intangible assets based on their estimated fair values. In the case of MENA Information Services, this process indicated that all of its existing goodwill and other intangibles were impaired, and management determined that it was not necessary to perform detailed step two calculations in order to conclude that all of the goodwill and other intangibles related to MENA Information Services should be written off. The total impairment charge for MENA Information Services was therefore $7.2 million, of which $4.8 million related to goodwill and $2.4 million related to other intangible assets.
For the European operations, there was no impairment for other intangible assets, but the hypothetical purchase price allocation indicated goodwill impairment of $72.5 million, of which $15.4 million was for European Information Services and $57.1 million was for European Information Products.
Management believes that the estimated valuations it arrived at are reasonable and consistent with what other marketplace participants would use in valuing the Company’s components. However, management cannot give any assurance that these market values will not change in the future. For example, if discount rates demanded by the market increase, this could lead to reduced valuations under the income approach. If the Company’s projections are not achieved in the future, this could lead management to reassess their assumptions and lead to reduced valuations under the income approach. If the market price of the Company’s stock decreases, this could cause the Company to reassess the reasonableness of the implied control premium, which might cause management to assume a higher discount rate under the income approach which could lead to reduced valuations. If future similar transactions exhibit lower multiples than those observed in the past, this could lead to reduced valuations under the similar transactions approach. And finally, if there is a general decline in the stock market and particularly in those companies selected as comparable to the Company’s components, this could lead to reduced valuations under the public company market multiple approach. The Company’s next annual impairment test will be performed during the first quarter of fiscal 2014. The fair value of the Company’s components could deteriorate which could result in the need to record impairment charges in future periods. The Company continues to monitor potential triggering events including changes in the business climate in which it operates, attrition of key personnel, the volatility in the capital markets, the Company’s market capitalization compared to its book value, the Company’s recent operating performance, and the Company’s financial projections. The occurrence of one or more triggering events could require additional impairment testing, which could result in impairment charges.
Deferred Costs and Data Acquisition Costs
– The Company defers certain costs, primarily salaries and benefits and other direct and incremental third party costs, in connection with client contracts and various other contracts and arrangements. Direct and incremental costs incurred during the setup phase under client contracts for database management or for IT management arrangements are deferred until such time as the database or the outsourcing services are operational and revenue recognition begins. These costs are directly related to the individual client, are to be used specifically for the individual client and have no other use or future benefit. In addition, revenue recognition of billings, if any, related to these setup activities are deferred during the setup phase. All deferred costs and billings are then amortized as contract revenue recognition occurs over the remaining term of the arrangement. During the period when costs are being deferred, the Company performs a net realizable value review on a quarterly basis to ensure that the deferred costs are recoverable through either 1) recognition of previously deferred revenue, 2) future minimum contractual billings or 3) billings in excess of contractual minimum billings that can be reasonably estimated and are deemed likely to occur. Once revenue recognition begins, these deferred costs are assessed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Some contracts contain provisions allowing the customer to request reductions in pricing if they can demonstrate that the Company charges lower prices for similar services to other customers, or if the prices charged are higher than certain benchmarks. If pricing is renegotiated, deferred costs are assessed for impairment.
The test of recoverability is performed by comparing the carrying value of the asset to its undiscounted expected future cash flows. If such review indicates that the carrying amount of an asset exceeds the sum of its expected future cash flows, the asset’s carrying amount is written down to its estimated fair value. Fair value is determined by an internally developed discounted projected cash flow analysis of the asset.
The total deferred costs at March 31, 2013 are $43.0 million. Of that amount, $36.7 million relates to two customers. If the Company were to determine that amounts from either of these two customers are unrecoverable, the resulting write-down in carrying value could be material.
In addition to client contract costs, the Company defers direct and incremental costs incurred in connection with obtaining other contracts, including debt facilities, lease facilities, and various other arrangements. Costs deferred in connection with obtaining scheduled debt facilities are amortized over the term of the arrangement using the interest method. Costs deferred in connection with lease facilities or revolving credit facilities are amortized over the term of the arrangement on a straight-line basis.
The Company also defers costs related to the acquisition or licensing of data for the Company’s proprietary databases which are used in providing data products and services to customers. These costs are amortized over the useful life of the data, which is from two to seven years. In order to estimate the useful life of any acquired data, the Company considers several factors including 1) the type of data acquired, 2) whether the data becomes stale over time, 3) to what extent the data will be replaced by updated data over time, 4) whether the stale data continues to have value as historical data, 5) whether a license places restrictions on the use of the data, and 6) the term of the license.
Restructuring
– The Company records costs associated with employee terminations and other exit activity in accordance with applicable accounting standards, depending on whether the costs relate to exit or disposal activities under the accounting standards, or whether they are other post-employment termination benefits. Under applicable accounting standards related to exit or disposal costs, the Company records employee termination benefits as an operating expense when the benefit arrangement is communicated to the employee and no significant future services are required. Under the accounting standards related to post employment termination benefits the Company records employee termination benefits when the termination benefits are probable and can be estimated. The Company recognizes the present value of facility lease termination obligations, net of estimated sublease income and other exit costs, when the Company has future payments with no future economic benefit or a commitment to pay the termination costs of a prior commitment. In future periods the Company will record accretion expense to increase the liability to an amount equal to the estimated future cash payments necessary to exit the leases. This requires a significant amount of judgment and management estimation in order to determine the expected time frame it will take to secure a subtenant, the amount of sublease income to be received and the appropriate discount rate to calculate the present value of the future cash flows. Should actual lease exit costs differ from estimates, the Company may be required to adjust the restructuring charge which will impact net income in the period any adjustment is recorded.
Income Taxes
– The Company makes estimates and judgments in determining the provision for income taxes for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties
related to uncertain tax positions. Significant changes in these estimates may result in an increase or decrease to the tax provision in a subsequent period. The Company assesses the likelihood that it will be able to recover its deferred tax assets. If recovery is not likely, the Company increases the provision for taxes by recording a valuation allowance against the deferred tax assets that it estimates will not ultimately be recoverable. The Company believes that the deferred tax assets recorded on the consolidated balance sheets will be ultimately recovered. However, should a change occur in the Company’s ability to recover its deferred tax assets, its tax provision would increase in the period in which the Company determined that the recovery was not likely.
The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. If the Company determines that a tax position will more likely than not be sustained on audit, the second step requires the Company to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as the Company has to determine the probability of various possible outcomes.
The Company re-evaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.
New Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (“FASB”) issued an update,
Testing Goodwill for Impairment
. The update provides an entity with the option to first assess qualitative factors in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. After assessing the qualitative factors, if an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test. Entities have the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step impairment test as well as resume performing the qualitative assessment in any subsequent period. The update is effective for the Company and has been adopted for fiscal 2013.
In June 2011, the FASB issued an update,
Presentation of Comprehensive Income
. The update gives companies the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in separate but consecutive statements. The amendments in the update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This amendment also required an entity to present on the face of the financial statements adjustments for items that are reclassified from accumulated other comprehensive income to net income, however, in December 2011 the FASB issued an update which defers the specific requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. As of March 31, 2013, the deferral remains in place. The Company adopted this guidance as of April 1, 2012 and now includes consolidated statements of comprehensive income as part of the consolidated financial statements.
In May 2011, the FASB issued an update,
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP
. The update revises the application of the valuation premise of highest and best use of an asset, the application of premiums and discounts for fair value determination, as well as the required disclosures for transfers between Level 1 and Level 2 fair value measures and the highest and best use of nonfinancial assets. The update provides additional disclosures regarding Level 3 fair value measurements and clarifies certain other existing disclosure requirements. The update is effective for the Company and has been adopted for fiscal 2013.
Management’s Report on Internal Control Over Financial Reporting
The management of Acxiom Corporation (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting.
The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
·
|
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
|
·
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
|
·
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2013. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework
.
Based on management’s assessment and those criteria, the Company’s management determined that the Company’s internal control over financial reporting was effective as of March 31, 2013.
KPMG LLP, the Company’s independent registered public accounting firm that audited the financial statements included in this annual report, has issued an attestation report, appearing on the following page, regarding its assessment of the Company’s internal control over financial reporting as of March 31, 2013.
ACXIOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2013 AND 2012
(Dollars in thousands)
|
|
2013
|
|
|
2012
|
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
|
$
|
222,974
|
|
|
$
|
229,648
|
|
Trade accounts receivable, net
|
|
|
159,882
|
|
|
|
169,446
|
|
Deferred income taxes
|
|
|
13,496
|
|
|
|
15,107
|
|
Refundable income taxes
|
|
|
5,809
|
|
|
|
-
|
|
Other current assets
|
|
|
58,935
|
|
|
|
57,804
|
|
Total current assets
|
|
|
461,096
|
|
|
|
472,005
|
|
Property and equipment, net of accumulated depreciation and amortization
|
|
|
230,752
|
|
|
|
253,373
|
|
Software, net of accumulated amortization of $235,491 in 2013 and $227,280 in 2012
|
|
|
24,471
|
|
|
|
13,211
|
|
Goodwill
|
|
|
381,129
|
|
|
|
382,285
|
|
Purchased software licenses, net of accumulated amortization of $262,169 in 2013 and $276,692 in 2012
|
|
|
23,604
|
|
|
|
25,294
|
|
Deferred costs, net
|
|
|
42,971
|
|
|
|
61,977
|
|
Data acquisition costs, net
|
|
|
10,631
|
|
|
|
15,009
|
|
Other assets, net
|
|
|
13,052
|
|
|
|
9,623
|
|
|
|
$
|
1,187,706
|
|
|
$
|
1,232,777
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current installments of long-term debt
|
|
$
|
16,105
|
|
|
$
|
26,336
|
|
Trade accounts payable
|
|
|
35,786
|
|
|
|
31,030
|
|
Accrued expenses
|
|
|
|
|
|
|
|
|
Payroll
|
|
|
62,390
|
|
|
|
54,839
|
|
Other
|
|
|
68,270
|
|
|
|
67,847
|
|
Deferred revenue
|
|
|
41,388
|
|
|
|
59,949
|
|
Income taxes payable
|
|
|
637
|
|
|
|
16,400
|
|
Total current liabilities
|
|
|
224,576
|
|
|
|
256,401
|
|
Long-term debt
|
|
|
237,400
|
|
|
|
251,886
|
|
Deferred income taxes
|
|
|
94,918
|
|
|
|
98,965
|
|
Other liabilities
|
|
|
11,444
|
|
|
|
13,670
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.10 par value (authorized 200 million shares; issued 121.3 million and 120.0 million shares at March 31, 2013 and 2012, respectively)
|
|
|
12,134
|
|
|
|
12,003
|
|
Additional paid-in capital
|
|
|
885,184
|
|
|
|
860,165
|
|
Retained earnings
|
|
|
593,966
|
|
|
|
536,359
|
|
Accumulated other comprehensive income
|
|
|
11,423
|
|
|
|
13,601
|
|
Treasury stock, at cost (47.8 million and 43.2 million shares at March 31, 2013 and 2012, respectively)
|
|
|
(882,959
|
)
|
|
|
(810,381
|
)
|
Total Acxiom stockholders' equity
|
|
|
619,748
|
|
|
|
611,747
|
|
Noncontrolling interest
|
|
|
(380
|
)
|
|
|
108
|
|
Total equity
|
|
|
619,368
|
|
|
|
611,855
|
|
|
|
$
|
1,187,706
|
|
|
$
|
1,232,777
|
|
See accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
ACXIOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2013, 2012 AND 2011
(Dollars in thousands, except per share amounts)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,099,359
|
|
|
$
|
1,130,624
|
|
|
$
|
1,113,755
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
841,826
|
|
|
|
863,489
|
|
|
|
848,411
|
|
Selling, general and administrative
|
|
|
152,804
|
|
|
|
151,131
|
|
|
|
155,893
|
|
Impairment of goodwill and other intangibles
|
|
|
-
|
|
|
|
17,803
|
|
|
|
79,674
|
|
Gains, losses and other items, net
|
|
|
2,010
|
|
|
|
12,638
|
|
|
|
4,600
|
|
Total operating costs and expenses
|
|
|
996,640
|
|
|
|
1,045,061
|
|
|
|
1,088,578
|
|
Income from operations
|
|
|
102,719
|
|
|
|
85,563
|
|
|
|
25,177
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(12,694
|
)
|
|
|
(17,448
|
)
|
|
|
(23,823
|
)
|
Other, net
|
|
|
152
|
|
|
|
(1,369
|
)
|
|
|
(1,466
|
)
|
Total other expense
|
|
|
(12,542
|
)
|
|
|
(18,817
|
)
|
|
|
(25,289
|
)
|
Earnings (loss) from continuing operations before income taxes
|
|
|
90,177
|
|
|
|
66,746
|
|
|
|
(112
|
)
|
Income taxes
|
|
|
33,058
|
|
|
|
29,129
|
|
|
|
31,726
|
|
Net earnings (loss) from continuing operations
|
|
|
57,119
|
|
|
|
37,617
|
|
|
|
(31,838
|
)
|
Earnings from discontinued operations, net of tax
|
|
|
-
|
|
|
|
33,899
|
|
|
|
3,396
|
|
Net earnings (loss)
|
|
|
57,119
|
|
|
|
71,516
|
|
|
|
(28,442
|
)
|
Less: Net loss attributable to noncontrolling interest
|
|
|
(488
|
)
|
|
|
(5,747
|
)
|
|
|
(5,295
|
)
|
Net earnings (loss) attributable to Acxiom
|
|
$
|
57,607
|
|
|
$
|
77,263
|
|
|
$
|
(23,147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations
|
|
$
|
0.76
|
|
|
$
|
0.47
|
|
|
$
|
(0.40
|
)
|
Net earnings from discontinued operations
|
|
|
-
|
|
|
|
0.43
|
|
|
|
0.04
|
|
Net earnings (loss)
|
|
$
|
0.76
|
|
|
$
|
0.90
|
|
|
$
|
(0.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Acxiom stockholders
|
|
$
|
0.77
|
|
|
$
|
0.97
|
|
|
$
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations
|
|
$
|
0.75
|
|
|
$
|
0.47
|
|
|
$
|
(0.40
|
)
|
Net earnings from discontinued operations
|
|
|
-
|
|
|
|
0.42
|
|
|
|
0.04
|
|
Net earnings (loss)
|
|
$
|
0.75
|
|
|
$
|
0.89
|
|
|
$
|
(0.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Acxiom stockholders
|
|
$
|
0.75
|
|
|
$
|
0.96
|
|
|
$
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
ACXIOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED MARCH 31, 2013, 2012 AND 2011
(Dollars in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
57,119
|
|
|
$
|
71,516
|
|
|
$
|
(28,442
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustment
|
|
|
(2,489
|
)
|
|
|
(2,219
|
)
|
|
|
9,518
|
|
Unrealized gain (loss) on interest rate swap
|
|
|
311
|
|
|
|
(171
|
)
|
|
|
2,306
|
|
Other comprehensive income (loss)
|
|
|
(2,178
|
)
|
|
|
(2,390
|
)
|
|
|
11,824
|
|
Comprehensive income (loss)
|
|
|
54,941
|
|
|
|
69,126
|
|
|
|
(16,618
|
)
|
Less: comprehensive loss attributable to noncontrolling interest
|
|
|
(488
|
)
|
|
|
(5,747
|
)
|
|
|
(5,295
|
)
|
Comprehensive income (loss) attributable to Acxiom stockholders
|
|
$
|
55,429
|
|
|
$
|
74,873
|
|
|
$
|
(11,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
ACXIOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED MARCH 31, 2013, 2012 AND 2011
(Dollars in thousands)
|
Common Stock
|
|
Treasury stock
|
|
|
Number of shares
|
|
Amount
|
|
Additional paid-in capital
|
|
Retained earnings
|
|
Accumulated other comprehensive income (loss)
|
|
Number
of shares
|
|
Amount
|
|
Noncontrolling interest
|
|
Total equity
|
Balances at March 31, 2010
|
|
116,619,682
|
|
$11,662
|
|
$
814,929
|
|
$ 482,243
|
|
$ 4,167
|
|
(37,154,236)
|
|
$(738,601)
|
|
$ 4,097
|
|
$578,497
|
Employee stock awards, benefit plans and other issuances
|
|
662,988
|
|
66
|
|
9,778
|
|
-
|
|
-
|
|
(29,538)
|
|
(524)
|
|
-
|
|
9,320
|
Tax impact of stock options, warrants and restricted stock
|
|
-
|
|
-
|
|
(316)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(316)
|
Non-cash share-based compensation
|
|
-
|
|
-
|
|
13,097
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
13,097
|
Restricted stock units vested
|
|
484,865
|
|
49
|
|
(49)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Purchase of GoDigital
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
6,573
|
|
6,573
|
Noncontrolling interest equity contribution
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
480
|
|
480
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
-
|
|
-
|
|
-
|
|
-
|
|
9,518
|
|
-
|
|
-
|
|
-
|
|
9,518
|
Unrealized gain on interest rate swap
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,306
|
|
-
|
|
-
|
|
-
|
|
2,306
|
Net loss
|
|
-
|
|
-
|
|
-
|
|
(23,147)
|
|
|
|
-
|
|
-
|
|
(5,295)
|
|
(28,442)
|
Balances at March 31, 2011
|
|
117,767,535
|
|
$11,777
|
|
$
837,439
|
|
$ 459,096
|
|
$15,991
|
|
(37,183,774)
|
|
$(739,125)
|
|
$ 5,855
|
|
$591,033
|
Employee stock awards, benefit plans and other issuances
|
|
1,281,649
|
|
128
|
|
15,295
|
|
-
|
|
-
|
|
(239,171)
|
|
(3,218)
|
|
-
|
|
12,205
|
Tax impact of stock options, warrants and restricted stock
|
|
-
|
|
-
|
|
(1,310)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,310)
|
Non-cash share-based compensation
|
|
-
|
|
-
|
|
8,839
|
|
-
|
|
-
|
|
8,262
|
|
131
|
|
-
|
|
8,970
|
Restricted stock units vested
|
|
977,829
|
|
98
|
|
(98)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Acquisition of treasury stock
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(5,798,344)
|
|
(68,169)
|
|
-
|
|
(68,169)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(2,219)
|
|
-
|
|
-
|
|
-
|
|
(2,219)
|
Unrealized loss on interest rate swap
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(171)
|
|
-
|
|
-
|
|
-
|
|
(171)
|
Net earnings (loss)
|
|
-
|
|
-
|
|
-
|
|
77,263
|
|
-
|
|
-
|
|
-
|
|
(5,747)
|
|
71,516
|
Balances at March 31, 2012
|
|
120,027,013
|
|
$12,003
|
|
$
860,165
|
|
$ 536,359
|
|
$13,601
|
|
(43,213,027)
|
|
$(810,381)
|
|
$ 108
|
|
$611,855
|
Employee stock awards, benefit plans and other issuances
|
|
845,618
|
|
84
|
|
12,707
|
|
-
|
|
-
|
|
(58,966)
|
|
(834)
|
|
-
|
|
11,957
|
Tax impact of stock options, warrants and restricted stock
|
|
-
|
|
-
|
|
357
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
357
|
Non-cash share-based compensation
|
|
-
|
|
-
|
|
12,002
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
12,002
|
Restricted stock units vested
|
|
470,285
|
|
47
|
|
(47)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Acquisition of treasury stock
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(4,553,042)
|
|
(71,744)
|
|
-
|
|
(71,744)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(2,489)
|
|
-
|
|
-
|
|
-
|
|
(2,489)
|
Unrealized gain on interest rate swap
|
|
-
|
|
-
|
|
-
|
|
-
|
|
311
|
|
-
|
|
-
|
|
-
|
|
311
|
Net earnings (loss)
|
|
-
|
|
-
|
|
-
|
|
57,607
|
|
-
|
|
-
|
|
-
|
|
(488)
|
|
57,119
|
Balances at March 31, 2013
|
|
121,342,916
|
|
$12,134
|
|
$
885,184
|
|
$ 593,966
|
|
$11,423
|
|
(47,825,035)
|
|
$(882,959)
|
|
$ (380)
|
|
$619,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
|
ACXIOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2013, 2012 AND 2011
(Dollars in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
57,119
|
|
|
$
|
71,516
|
|
|
$
|
(28,442
|
)
|
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
116,208
|
|
|
|
134,662
|
|
|
|
146,355
|
|
Loss (gain) on disposal or impairment of assets
|
|
|
25
|
|
|
|
(48,197
|
)
|
|
|
3,883
|
|
Impairment of goodwill and other intangibles
|
|
|
-
|
|
|
|
17,803
|
|
|
|
79,674
|
|
Deferred income taxes
|
|
|
(3,578
|
)
|
|
|
2,228
|
|
|
|
18,579
|
|
Non-cash share-based compensation expense
|
|
|
12,002
|
|
|
|
8,970
|
|
|
|
13,097
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
6,678
|
|
|
|
(947
|
)
|
|
|
(13,024
|
)
|
Other assets
|
|
|
(9,185
|
)
|
|
|
(4,907
|
)
|
|
|
(2,394
|
)
|
Deferred costs
|
|
|
(1,564
|
)
|
|
|
(2,301
|
)
|
|
|
(29,385
|
)
|
Accounts payable and other liabilities
|
|
|
(8,888
|
)
|
|
|
46,624
|
|
|
|
(22,899
|
)
|
Deferred revenue
|
|
|
(18,685
|
)
|
|
|
4,000
|
|
|
|
775
|
|
Net cash provided by operating activities
|
|
|
150,132
|
|
|
|
229,451
|
|
|
|
166,219
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments from (for) the disposition of operations
|
|
|
-
|
|
|
|
72,425
|
|
|
|
(1,079
|
)
|
Capitalized software development costs
|
|
|
(19,879
|
)
|
|
|
(5,262
|
)
|
|
|
(4,555
|
)
|
Capital expenditures
|
|
|
(38,491
|
)
|
|
|
(51,591
|
)
|
|
|
(59,021
|
)
|
Payments received for investments
|
|
|
-
|
|
|
|
370
|
|
|
|
175
|
|
Data acquisition costs
|
|
|
(8,570
|
)
|
|
|
(12,312
|
)
|
|
|
(13,366
|
)
|
Net cash paid in acquisitions
|
|
|
-
|
|
|
|
(255
|
)
|
|
|
(12,927
|
)
|
Net cash provided by (used in) investing activities
|
|
|
(66,940
|
)
|
|
|
3,375
|
|
|
|
(90,773
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of debt
|
|
|
(26,871
|
)
|
|
|
(154,876
|
)
|
|
|
(102,101
|
)
|
Acquisition liability payment
|
|
|
(288
|
)
|
|
|
(326
|
)
|
|
|
-
|
|
Acquisition of treasury stock
|
|
|
(74,378
|
)
|
|
|
(65,535
|
)
|
|
|
-
|
|
Sale of common stock
|
|
|
11,957
|
|
|
|
12,205
|
|
|
|
9,320
|
|
Noncontrolling interests equity contributions
|
|
|
-
|
|
|
|
-
|
|
|
|
480
|
|
Income tax impact of stock options, warrants and restricted stock
|
|
|
357
|
|
|
|
(1,310
|
)
|
|
|
(316
|
)
|
Net cash used in financing activities
|
|
|
(89,223
|
)
|
|
|
(209,842
|
)
|
|
|
(92,617
|
)
|
Effect of exchange rate changes on cash
|
|
|
(643
|
)
|
|
|
(309
|
)
|
|
|
90
|
|
Net change in cash and cash equivalents
|
|
|
(6,674
|
)
|
|
|
22,675
|
|
|
|
(17,081
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
229,648
|
|
|
|
206,973
|
|
|
|
224,054
|
|
Cash and cash equivalents at end of period
|
|
$
|
222,974
|
|
|
$
|
229,648
|
|
|
$
|
206,973
|
|
See accompanying notes to consolidated financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
ACXIOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED MARCH 31, 2013, 2012 AND 2011
(Dollars in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
12,709
|
|
|
$
|
19,059
|
|
|
$
|
23,886
|
|
Income taxes
|
|
|
57,464
|
|
|
|
20,765
|
|
|
|
25,339
|
|
Payments on capital leases and installment payment arrangements
|
|
|
16,514
|
|
|
|
18,331
|
|
|
|
22,357
|
|
Payments on software and data license liabilities
|
|
|
1,769
|
|
|
|
2,916
|
|
|
|
5,316
|
|
Prepayment of debt
|
|
|
-
|
|
|
|
125,000
|
|
|
|
66,000
|
|
Other debt payments
|
|
|
8,588
|
|
|
|
8,629
|
|
|
|
8,428
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment under capital leases and installment payment arrangements
|
|
|
2,157
|
|
|
|
11,242
|
|
|
|
23,753
|
|
See accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business -
Acxiom is an enterprise data, analytics and software-as-a-service company. For over 40 years, Acxiom has been an innovator in harnessing the powerful potential of data to strengthen connections between people, businesses and their partners. We focus on creating better connections that enable better living for people and better results for the businesses who serve them.
Founded in 1969, Acxiom is headquartered in Little Rock, Arkansas, USA and serves clients around the world from locations in the United States, Europe, South America and the Asia-Pacific region.
Basis of Presentation and Principles of Consolidation -
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in 20% to 50% owned entities are accounted for using the equity method with equity in earnings recorded in “other, net” in the accompanying consolidated statements of operations. Investments in less than 20% owned entities are accounted for at cost. Investment income and charges related to investments accounted for at cost are recorded in “other, net.”
Discontinued Operations -
Discontinued operations comprise those activities that have been disposed of during the period or which have been classified as held for sale at the end of the period, and represent a separate major line of business or geographical area that can be clearly distinguished for operational and financial reporting purposes. Acxiom identified its background screening unit, Acxiom Information Security Services (AISS), as a component of the Company that is reported as discontinued operations as a result of its disposal (see note 4).
Use of Estimates -
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ from those estimates. Areas in which significant judgments and estimates are used include projected cash flows associated with recoverability of assets, restructuring and impairment accruals, litigation loss accruals, and the recognition and measurement of current and deferred income taxes, including the measurement of uncertain tax positions.
Reclassifications -
Certain amounts reported in previous periods have been reclassified to conform to the current presentation.
Adoption of New Accounting Standards -
In September 2011, the Financial Accounting Standards Board (“FASB”) issued an update,
Testing Goodwill for Impairment.
The update provides an entity with the option to first assess qualitative factors in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. After assessing the qualitative factors, if an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test. Entities have the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step impairment test as well as resume performing the qualitative assessment in any subsequent period. The update is effective for the Company and has been adopted for fiscal 2013.
In June 2011, the FASB issued an update,
Presentation of Comprehensive Income.
The update gives companies the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in separate but consecutive statements. The amendments in the update do not change the items that must be reported in other
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
comprehensive income or when an item of other comprehensive income must be reclassified to net income. This amendment also required an entity to present on the face of the financial statements adjustments for items that are reclassified from accumulated other comprehensive income to net income, however, in December 2011 the FASB issued an update which defers the specific requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. As of March 31, 2013, the deferral remains in place. The Company adopted this guidance as of April 1, 2012 and now includes consolidated statements of comprehensive income as part of the consolidated financial statements.
In May 2011, the FASB issued an update,
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP.
The update revises the application of the valuation premise of highest and best use of an asset, the application of premiums and discounts for fair value determination, as well as the required disclosures for transfers between Level 1 and Level 2 fair value measures and the highest and best use of nonfinancial assets. The update provides additional disclosures regarding Level 3 fair value measurements and clarifies certain other existing disclosure requirements. The update is effective for the Company and has been adopted for fiscal 2013.
Cash and Cash Equivalents -
The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.
Accounts Receivable -
Accounts receivable include amounts billed to customers as well as unbilled amounts recognized in accordance with the Company’s revenue recognition policies, as stated below. Unbilled amounts included in accounts receivable, which generally arise from the delivery of data and performance of services to customers in advance of billings, were $20.0 million and $19.8 million, respectively, at March 31, 2013 and 2012.
Accounts receivable are presented net of allowance for doubtful accounts. The Company evaluates its allowance for doubtful accounts based on a combination of factors at each reporting date. Each account or group of accounts is evaluated based on specific information known to management regarding each customer’s ability or inability to pay, as well as historical experience for each customer or group of customers, the length of time the receivable has been outstanding, and current economic conditions in the customer’s industry. Accounts receivable that are determined to be uncollectible are charged against the allowance for doubtful accounts.
Property and Equipment -
Property and equipment are stated at cost. Depreciation and amortization are calculated on the straight-line method over the estimated useful lives of the assets as follows: buildings and improvements, up to 30 years; data processing equipment, 2 - 5 years, and office furniture and other equipment, 3 - 7 years.
Property held under capitalized lease arrangements is included in property and equipment, and the associated liabilities are included in long-term debt. Amortization of property under capitalized leases is included in depreciation and amortization expense. Property and equipment taken out of service and held for sale is recorded at the lower of depreciated cost or net realizable value and depreciation is ceased.
Leases -
Rent expense on operating leases is recorded on a straight-line basis over the term of the lease agreement.
Software and Research and Development Costs
–
Costs of internally developed software are amortized on a straight-line basis over the remaining estimated economic life of the software product, generally two to five years, 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. The Company capitalizes software development costs following accounting standards regarding the costs of computer software to be sold, leased or otherwise marketed or the costs of computer software developed or obtained for internal use. Although there are differences in the two accounting standards, depending on whether a
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
product is intended for internal use or to be provided to customers, both accounting standards generally require that research and development costs incurred prior to establishing technological feasibility or the beginning of the application development stage of software products are charged to operations as such costs are incurred. Once technological feasibility is established or the application development stage has begun, costs are capitalized until the software is available for general release. Amortization expense related to internally developed software is included in cost of revenue in the accompanying consolidated statements of operations.
Purchased Software Licenses -
Costs of purchased software licenses are amortized using a units-of-production basis over the estimated economic life of the license, generally not to exceed ten years. Amortization of software is included in cost of revenue in the accompanying consolidated statements of operations.
Some of these licenses are, in effect, volume purchase agreements for software licenses needed for internal use and to provide services to customers over the terms of the agreements. Therefore, amortization lives are periodically reevaluated and, if justified, adjusted to reflect current and future expected usage based on units-of-production amortization. Factors considered in estimating remaining useful life include, but are not limited to, contract provisions of the underlying licenses, introduction of new mainframe hardware which is compatible with previous generation software, predictions of continuing viability of mainframe architecture, and customers’ continuing commitments to utilize mainframe architecture and the software under contract.
Goodwill -
The excess of the purchase price over fair value of net identifiable assets and liabilities of an acquired business (“goodwill”) and other indefinite-lived intangible assets are not amortized, but rather tested for impairment, at least annually. The Company tests for goodwill and indefinite-lived intangible asset impairment during the first quarter of its fiscal year.
The Company assesses the recoverability of the carrying value of goodwill at least annually or whenever events or changes in circumstances indicate that the carrying amount of the goodwill of a reporting unit may not be fully recoverable. Recoverability is measured at the reporting unit level based on the provisions of the authoritative literature.
The Company measures recoverability of goodwill for each reporting unit using a discounted cash flow model incorporating discount rates commensurate with the risks involved, which is classified as a Level 3 measurement under fair value measurement authoritative guidance. If the calculated fair value is less than the current carrying value, impairment of the reporting unit may exist. When the recoverability test indicates potential impairment, the Company, or in certain circumstances, a third-party valuation consultant, will calculate an implied fair value of goodwill for the reporting unit. The implied fair value of goodwill is determined in a manner similar to how goodwill is calculated in a business combination. If the implied fair value of goodwill
exceeds
the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment loss is recorded to write down the carrying value. An impairment loss cannot exceed the carrying value of goodwill assigned to a reporting unit but may indicate certain long-lived and amortizable intangible assets associated with the reporting unit may require additional impairment testing.
Completion of the Company’s annual impairment test during the quarter ended June 30, 2012 indicated no potential impairment of its goodwill balances. The Company expects to complete its next annual impairment test during the quarter ending
June
30, 2013. During the quarter ended March 31, 2013, triggering events occurred which required the Company to test the goodwill of its European Marketing and data services unit for impairment, however, the results of the interim test indicated no impairment (see note 6). During the quarter ended December 31, 2011, triggering events occurred which required the Company to test the goodwill in its Brazil operation for impairment. Results of the two-step test indicated impairment and the Company recorded an impairment charge of $13.8 million during fiscal 2012 (see note 6). During the quarter ended March 31, 2011, triggering events occurred which required the Company to test the goodwill in its International operations for impairment. Results of the two-step test indicated impairment in certain units, and the Company recorded an impairment charge of $77.3 million during fiscal 2011 (see note 6).
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
Impairment of Long-lived Assets and Long-lived Assets to Be Disposed Of -
Long-lived assets and certain identifiable intangibles as well as equity investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company considers factors such as operating losses, declining outlooks, and business conditions when evaluating the necessity for an impairment analysis. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of shall be classified as held for sale and are reported at the lower of the carrying amount or fair value less costs to sell.
During the quarters ended December 31, 2011 and March 31, 2011, in conjunction with the goodwill impairment tests noted above, the Company also tested certain intangible assets in the affected units for impairment. As a result of those reviews, the Company recorded impairment charges of $4.0 million in fiscal 2012 for intangible assets related to the Brazil operation and $2.4 million in fiscal 2011 for intangible assets related to the Middle East operations (see note 6).
Deferred Costs and Data Acquisition Costs -
The Company defers certain costs, primarily salaries and benefits and other direct and incremental third party costs, in connection with client contracts and various other contracts and arrangements. Direct and incremental costs incurred during the setup phase under client contracts for database management or for IT management arrangements are deferred until such time as the database or the outsourcing services are operational and revenue recognition begins. These costs are directly related to the individual client, are to be used specifically for the individual client and have no other use or future benefit. In addition, revenue recognition of billings, if any, related to these setup activities are deferred during the setup phase. All deferred costs and billings are then amortized as contract revenue recognition occurs over the remaining term of the arrangement. During the period when costs are being deferred, the Company performs a net realizable value review on a quarterly basis to ensure that the deferred costs are recoverable through either 1) recognition of previously deferred revenue, 2) future minimum contractual billings or 3) billings in excess of contractual minimum billings that can be reasonably estimated and are deemed likely to occur. Once revenue recognition begins, these deferred costs are assessed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Some contracts contain provisions allowing the customer to request reductions in pricing if they can demonstrate that the Company charges lower prices for similar services to other customers, or if the prices charged are higher than certain benchmarks. If pricing is renegotiated, deferred costs are assessed for impairment.
The test of recoverability is performed by comparing the carrying value of the asset to its undiscounted expected future cash flows. If such review indicates that the carrying amount of an asset exceeds the sum of its expected future cash flows, the asset’s carrying amount is written down to its estimated fair value. Fair value is determined by an internally developed discounted projected cash flow analysis of the asset.
In addition to client contract costs, the Company defers direct and incremental costs incurred in connection with obtaining other contracts, including debt facilities, lease facilities, and various other arrangements. Costs deferred in connection with obtaining scheduled debt facilities are amortized over the term of the arrangement using the interest method. Costs deferred in connection with lease facilities or revolving credit facilities are amortized over the term of the arrangement on a straight-line basis.
The Company also defers costs related to the acquisition or licensing of data for the Company’s proprietary databases which are used in providing data products and services to customers. These costs are amortized over the useful life of the data, which is from two to seven years. In order to estimate the useful life of any acquired data, the Company considers several factors including 1) the type of data acquired, 2) whether the data becomes stale over time, 3) to what extent the data will be replaced by updated data over time, 4) whether the stale data continues to have value as historical data, 5) whether a license places restrictions on the use of the data, and 6) the term of the license.
Deferred Revenue -
Deferred revenue consists of amounts billed in excess of revenue recognized. Deferred revenues are subsequently recorded as revenue in accordance with the Company’s revenue recognition policies.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
|
Revenue
Recognition -
The Company provides database management and IT management services under long-term arrangements. These arrangements may require the Company to perform setup activities such as the design and build of a database for the customer under the database management contracts and migration of the customer’s IT environment under IT management contracts. In some cases, the arrangements also contain provisions requiring customer acceptance of the setup activities prior to commencement of the ongoing services arrangement. Up-front fees billed during the setup phase for these arrangements are deferred and setup costs that are direct and incremental to the contract are capitalized. Revenue recognition does not begin until after customer acceptance in cases where contracts contain acceptance provisions. Once the setup phase is complete and customer acceptance occurs, the Company recognizes revenue and the related costs for each element as delivered. In situations where the arrangement does not require customer acceptance before the Company begins providing services, revenue is recognized for each element as delivered and no costs are deferred.
Sales of third-party software, hardware and certain other equipment are recognized when delivered. If such sales are part of a multiple-element arrangement, they are recognized as a separate element unless collection of the sales price is dependent upon delivery of other products or services. Additionally, the Company evaluates revenue from the sale of data, software, hardware and equipment in accordance with accounting standards to determine whether such revenue should be recognized on a gross or a net basis. All of the factors in the accounting standards are considered with the primary factor being whether the Company is the primary obligor in the arrangement. “Out-of-pocket” expenses incurred by, and reimbursed to, the Company in connection with customer contracts are recorded as gross revenue.
The Company evaluates its database management and IT management arrangements to determine whether the arrangement contains a lease. If the arrangement is determined to contain a lease, applicable accounting standards require the Company to account for the lease component separately from the remaining components of the arrangement. In cases where database management or IT management arrangements are determined to include a lease, the lease is evaluated to determine whether it is a capital lease or operating lease and accounted for accordingly. These lease revenues are not significant to the Company’s consolidated financial statements.
Revenues from the licensing of data are recognized upon delivery of the data to the customer. Revenue from the licensing of data to the customer in circumstances where the license agreement contains a volume cap is recognized in proportion to the total records to be delivered under the arrangement. Revenue from the sale of data on a per-record basis is recognized as the records are delivered.
The relative selling price for each unit of accounting in a multiple-element arrangement is established using vendor-specific objective evidence (VSOE), if available, third-party evidence (TPE), if available, or management’s best estimate of stand-alone selling price (BESP). In most cases, the Company has neither VSOE nor TPE and therefore uses BESP. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. Management’s BESP is determined by considering multiple factors including actual contractual selling prices when the item is sold on a stand-alone basis, as well as market conditions, competition, internal costs, profit objectives and pricing practices. The amount of revenue recognized for a delivered element is limited to an amount that is not contingent upon future delivery of additional products or services. As pricing and marketing strategies evolve, we may modify our pricing practices in the future, which could result in changes to BESP, or to the development of VSOE or TPE for individual products or services. As a result, future revenue recognition for multiple-element arrangements could differ from recognition in the current period. Our relative selling prices are analyzed on an annual basis, or more frequently if we experience significant changes in selling prices.
All taxes assessed on revenue-producing transactions described above are presented on a net basis, or excluded from revenues.
The Company also performs services on a project basis outside of, or in addition to, the scope of long-term arrangements. The Company recognizes revenue from these services as the services are performed.
Some contracts contain benchmarking provisions or provisions allowing the customer to request a future reduction in pricing under certain circumstances. Any resulting reduction in pricing is only implemented on a prospective basis. The Company’s contracts provide a warranty that the services or products will meet the agreed-upon criteria or any necessary modifications will be made. The Company ensures that services or products delivered meet the agreed-upon criteria prior to recognition of revenue.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
|
Concentration of Credit Risk -
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts, unbilled and notes receivable. The Company’s receivables are from a large number of customers. Accordingly, the Company’s credit risk is affected by general economic conditions. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. Management, however, believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
Income Taxes -
The Company and its domestic subsidiaries file a consolidated federal income tax return. The Company’s foreign subsidiaries file separate income tax returns in the countries in which their operations are based.
The Company provides for deferred taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed. Valuation allowances are recorded to reduce deferred tax assets to an amount whose realization is more likely than not. In determining the recognition of uncertain tax positions, the Company applies a more-likely-than-not recognition threshold and determines the measurement of uncertain tax positions considering the amounts and probabilities of the outcomes that could be realized upon ultimate settlement with taxing authorities. Income taxes payable are classified in the accompanying consolidated balance sheets based on their estimated payment date.
Foreign Currency Translation -
The balance sheets of the Company’s foreign subsidiaries are translated at period-end rates of exchange, and the statements of operations are translated at the weighted-average exchange rate for the period. Gains or losses resulting from translating foreign currency financial statements are included in accumulated other comprehensive income (loss) in the consolidated statements of stockholders’ equity and comprehensive income (loss).
Advertising Expense -
The Company expenses advertising costs as incurred. Advertising expense was approximately $5.3 million, $4.5 million and $7.6 million for the years ended March 31, 2013, 2012 and 2011, respectively. Advertising expense is included in selling, general and administrative expense on the accompanying consolidated statements of operations.
Guarantees -
The Company accounts for the guarantees of indebtedness of others under applicable accounting standards which require a guarantor to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. A guarantor is also required to make additional disclosures in its financial statements about obligations under certain guarantees issued. The Company is required to recognize a liability in its consolidated financial statements equal to the fair value of its guarantees. The Company’s liability for the fair value of guarantees is not material (see note 11).
Loss Contingencies and Legal Expenses -
The Company records a liability for loss contingencies when the liability is probable and reasonably estimable. Legal fees associated with loss contingencies are recorded when the legal fees are incurred.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
Earnings (Loss) per Share -
A reconciliation of the numerator and denominator of basic and diluted earnings (loss) per share is shown below (in thousands, except per share amounts):
(dollars in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations
|
|
$
|
57,119
|
|
|
$
|
37,617
|
|
|
$
|
(31,838
|
)
|
Net earnings from discontinued operations
|
|
|
-
|
|
|
|
33,899
|
|
|
|
3,396
|
|
Net earnings (loss)
|
|
$
|
57,119
|
|
|
$
|
71,516
|
|
|
$
|
(28,442
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
(488
|
)
|
|
|
(5,747
|
)
|
|
|
(5,295
|
)
|
Net earnings (loss) attributable to Acxiom
|
|
$
|
57,607
|
|
|
$
|
77,263
|
|
|
$
|
(23,147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
74,814
|
|
|
|
79,483
|
|
|
|
80,111
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.76
|
|
|
$
|
0.47
|
|
|
$
|
(0.40
|
)
|
Discontinued operations
|
|
|
0.00
|
|
|
|
0.43
|
|
|
|
0.04
|
|
Net earnings (loss)
|
|
$
|
0.76
|
|
|
$
|
0.90
|
|
|
$
|
(0.36
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
(0.01
|
)
|
|
|
(0.07
|
)
|
|
|
(0.07
|
)
|
Net earnings (loss) attributable to Acxiom
|
|
$
|
0.77
|
|
|
$
|
0.97
|
|
|
$
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
74,814
|
|
|
|
79,483
|
|
|
|
80,111
|
|
Dilutive effect of common stock options, warrants, and restricted stock as computed under the treasury stock method
|
|
|
1,683
|
|
|
|
911
|
|
|
|
-
|
|
Diluted weighted-average shares outstanding
|
|
|
76,497
|
|
|
|
80,394
|
|
|
|
80,111
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.75
|
|
|
$
|
0.47
|
|
|
$
|
(0.40
|
)
|
Discontinued operations
|
|
|
0.00
|
|
|
|
0.42
|
|
|
|
0.04
|
|
Net earnings (loss)
|
|
$
|
0.75
|
|
|
$
|
0.89
|
|
|
$
|
(0.36
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
(0.01
|
)
|
|
|
(0.07
|
)
|
|
|
(0.07
|
)
|
Net earnings (loss) attributable to Acxiom
|
|
$
|
0.75
|
|
|
$
|
0.96
|
|
|
$
|
(0.29
|
)
|
Some earnings per share amounts may not add due to rounding.
Due to the net loss incurred by the Company in fiscal 2011, the dilutive effect of options, warrants and restricted stock of 1.7 million shares was excluded from the earnings per share calculation since the impact on the calculation was anti-dilutive. In addition, options, warrants, and restricted stock units to purchase shares of common stock, including performance-based restricted stock units not meeting such performance criteria, that were outstanding during the periods presented but were not included in the computation of diluted earnings per share because the effect was anti-dilutive are shown below (in thousands, except per share amounts):
|
|
2013
|
|
2012
|
|
2011
|
Number of shares outstanding under options, warrants and restricted stock units
|
|
6,709
|
|
9,344
|
|
5,938
|
Range of exercise prices for options and warrants
|
|
$13.10-$62.06
|
|
$13.14-$62.06
|
|
$16.71-$75.55
|
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
Share-based Compensation -
The Company accounts for share-based compensation under applicable accounting standards which require the cost of employee services received in exchange for an award of equity instruments (including stock options) based on the grant-date fair value of the award to be recognized in the statement of operations over the service period of the award. Expense for awards with graded vesting is recognized on a straight-line basis over the service period of the entire award.
Share-based Compensation Plans -
The Company has stock option plans and equity compensation plans (collectively referred to as the “share-based plans”) administered by the compensation committee of the board of directors under which options and restricted stock units were outstanding as of March 31, 2013.
The Company’s equity compensation plan provides that all associates (employees, officers, directors, affiliates, independent contractors or consultants) are eligible to receive awards (grant of any option, stock appreciation right, restricted stock award, restricted stock unit award, performance award, performance share, performance unit, qualified performance-based award, or other stock unit award) pursuant to the plan with the terms and conditions applicable to an award set forth in applicable grant documents. The Company currently has outstanding, and expects to grant in the future, restricted stock awards, stock options and performance-based awards.
Incentive stock option awards granted pursuant to the share-based plans cannot be granted with an exercise price less than 100% of the per-share market value of the Company’s shares at the date of grant and have a maximum duration of ten years from the date of grant. Board policy currently requires that nonqualified options also must be priced at or above the fair market value of the common stock at the time of grant with a maximum duration of ten years.
Restricted stock units may be issued pursuant to the equity compensation plan and represent the right to receive shares in the future by way of an award agreement which includes vesting provisions. Award agreements can further provide for forfeitures triggered by certain prohibited activities, such as breach of confidentiality. All restricted stock units will be expensed over the vesting period as adjusted for estimated forfeitures. The vesting of some restricted stock units is subject to the Company’s achievement of certain performance criteria, as well as the individual remaining employed by the Company for a period of years.
The Company receives income tax deductions as a result of the exercise of stock options and the vesting of restricted stock units. The tax benefit of share-based compensation expense in excess of the book compensation expense is reflected as a financing cash inflow and operating cash outflow included in changes in operating assets and liabilities. The Company has elected the short-cut method in accounting for the tax benefits of share-based payment awards.
Hedging -
The Company has entered into an interest rate swap as a cash flow hedge against LIBOR interest rate movements on the term loan. All changes in fair value of the derivative are deferred and recorded in other comprehensive income (loss) until the related forecasted transaction is recognized in the consolidated statement of operations. The fair value of the interest rate swap agreement recorded in accumulated other comprehensive income (loss) may be recognized in the statement of operations if certain terms of the floating-rate debt change, if the floating-rate debt is extinguished or if the interest rate swap agreement is terminated prior to maturity.
Derivatives -
Derivative financial instruments are valued in the market using regression analysis. Significant inputs to the derivative valuation for interest rate swaps are observable in active markets and are classified as Level 2 in the fair value hierarchy.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
Restructuring -
The Company records costs associated with employee terminations and other exit activity in accordance with applicable accounting standards, depending on whether the costs relate to exit or disposal activities under the accounting standards, or whether they are other post-employment termination benefits. Under applicable accounting standards related to exit or disposal costs, the Company records employee termination benefits as an operating expense when the benefit arrangement is communicated to the employee and no significant future services are required. Under the accounting standards related to post employment termination benefits the Company records employee termination benefits when the termination benefits are probable and can be estimated. The Company recognizes the present value of facility lease termination obligations, net of estimated sublease income and other exit costs, when the Company has future payments with no future economic benefit or a commitment to pay the termination costs of a prior commitment. In future periods the Company will record accretion expense to increase the liability to an amount equal to the estimated future cash payments necessary to exit the leases. This requires a significant amount of judgment and management estimation in order to determine the expected time frame it will take to secure a subtenant, the amount of sublease income to be received and the appropriate discount rate to calculate the present value of the future cash flows. Should actual lease exit costs differ from estimates, the Company may be required to adjust the restructuring charge which will impact net income in the period any adjustment is recorded.
2. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES:
The following table summarizes the restructuring activity for the years ended March 31, 2011, 2012 and 2013 (dollars in thousands):
|
|
Associate-related reserves
|
|
|
Ongoing
contract costs
|
|
|
Total
|
|
March 31, 2010
|
|
$
|
2,870
|
|
|
$
|
12,904
|
|
|
$
|
15,774
|
|
Restructuring charges and adjustments
|
|
|
5,773
|
|
|
|
(1,338
|
)
|
|
|
4,435
|
|
Payments
|
|
|
(3,081
|
)
|
|
|
(2,024
|
)
|
|
|
(5,105
|
)
|
March 31, 2011
|
|
$
|
5,562
|
|
|
$
|
9,542
|
|
|
$
|
15,104
|
|
Restructuring charges and adjustments
|
|
|
10,126
|
|
|
|
2,652
|
|
|
|
12,778
|
|
Payments
|
|
|
(6,091
|
)
|
|
|
(1,145
|
)
|
|
|
(7,236
|
)
|
March 31, 2012
|
|
$
|
9,597
|
|
|
$
|
11,049
|
|
|
$
|
20,646
|
|
Restructuring charges and adjustments
|
|
|
2,836
|
|
|
|
58
|
|
|
|
2,894
|
|
Payments
|
|
|
(8,744
|
)
|
|
|
(2,086
|
)
|
|
|
(10,830
|
)
|
March 31, 2013
|
|
$
|
3,689
|
|
|
$
|
9,021
|
|
|
$
|
12,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Plans
In fiscal 2013, the Company recorded a total of $2.9 million in restructuring charges and adjustments included in gains, losses and other items in the consolidated statement of operations. The expense includes severance and other associate-related payments of $2.8 million and lease accruals of $0.1 million.
The associate-related accruals of $2.8 million relate to the termination of associates in the United States, Australia, and Europe. Of the amount recorded, $2.5 million remained accrued as of March 31, 2013. These costs are expected to be paid out in fiscal 2014. Of the amount accrued for lease costs, $0.1 million remained accrued as of March 31, 2013. These costs are expected to be paid out in fiscal 2014.
In fiscal 2012, the Company recorded a total of $12.8 million in restructuring charges and adjustments included in gains, losses and other items in the consolidated statement of operations. The expense included severance and other associate-related payments of $9.9 million, lease accruals of $2.6 million, and adjustments to the fiscal 2011 restructuring plan of $0.3 million.
The associate-related accruals of $9.9 million relate to the termination of associates in the United States, Australia, Europe, and Brazil. Of the amount recorded, $1.2 million remained accrued as of March 31, 2013. These costs are expected to be paid out in fiscal 2014.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
The lease accruals of $2.6 million were evaluated under the accounting standards which govern exit costs. These accounting standards require the Company to make an accrual for the liability for lease costs that will continue to be incurred without economic benefit to the Company upon the date that the Company ceases using the leased property. On or before March 31, 2012, the Company ceased using certain leased office facilities. The Company intends to attempt to sublease those facilities to the extent possible. The Company established a liability for the fair value of the remaining lease payments, partially offset by the estimated sublease payments to be received over the course of those leases. The fair value of these liabilities is based on a net present value model using a credit-adjusted risk-free rate. These liabilities will be paid out over the remainder of the leased properties’ terms, of which the longest continues through July 2019. Actual sublease terms may differ from the estimates originally made by the Company. Any future changes in the estimates or in the actual sublease income could require future adjustments to the liability for these leases, which would impact net income in the period the adjustment is recorded. The remaining amount accrued at March 31, 2013 is $1.6 million.
In fiscal 2011, the Company recorded $4.4 million in restructuring charges and adjustments included in gains, losses and other items in the consolidated statement of operations. The expense includes severance and other associate-related charges of $3.4 million, offset by adjustments to previous restructuring plans of $1.7 million, and executive leadership transition charges of $2.7 million.
The associate-related charges of $3.4 million result from the termination of associates in the United States, Australia, and Europe. These charges have been paid in full.
The transition charges of $2.7 million result from the transition agreement between the Company and its Chief Executive Officer upon his resignation in March 2011. According to the agreement, one lump sum payment equal to two times the officer’s annual salary and bonus opportunity was to be paid by the Company. The entire amount of $2.7 million was accrued at March 31, 2011 and was paid in full in April 2011.
As part of its restructuring plans in fiscal 2008 and 2009, the Company recorded lease accruals included in gains, losses and other items in the consolidated statement of operations. The lease accruals were evaluated under the accounting standards which govern exit costs. These liabilities will be paid out over the remainder of the leased properties’ terms, of which the longest continues through November 2021. Any future changes in the estimates or in the actual sublease income could require future adjustments to the liability for these leases, which would impact net income in the period the adjustment is recorded. The remaining amount accrued at March 31, 2013 is $7.3 million.
Gains, Losses and Other Items
Gains, losses and other items for each of the years presented are as follows (dollars in thousands):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Restructuring plan charges and adjustments
|
|
$
|
2,894
|
|
|
$
|
12,778
|
|
|
$
|
4,435
|
|
Earnout liability adjustment (see note 3)
|
|
|
-
|
|
|
|
(2,598
|
)
|
|
|
(1,058
|
)
|
Other
|
|
|
(884
|
)
|
|
|
2,458
|
|
|
|
1,223
|
|
|
|
$
|
2,010
|
|
|
$
|
12,638
|
|
|
$
|
4,600
|
|
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
3. ACQUISITIONS:
On July 1, 2010, the Company completed the acquisition of a 70% interest in GoDigital Tecnologia E Participacoes, Ltda. (“GoDigital”), a Brazilian marketing services business. The Company paid $10.9 million, net of cash acquired, and not including amounts, if any, to be paid under an earnout agreement in which the Company could have paid up to an additional $9.3 million based on the results of the acquired business over approximately the next two years. The acquired business had annual revenue of approximately $8 million. The Company has omitted pro forma disclosures related to this acquisition as the pro forma effect of the acquisition is not material. The results of operations for GoDigital are included in the Company’s consolidated results beginning July 1, 2010.
The value of the earnout was originally estimated at $3.6 million. During fiscal 2011, the Company estimated the value of the earnout to have decreased by $1.1 million and recorded the adjustment in gains, losses and other items, net on the consolidated statement of operations. During fiscal 2012, the Company adjusted the value of the earnout to zero through gains, losses and other items, since there was no expectation of an earnout payment. During the quarter ended September 30, 2012, a final determination was made that no liability for earnout payment existed under the acquisition agreement.
Also during the quarter ended December 31, 2011, triggering events occurred which required the Company to test the goodwill and other intangible assets of GoDigital for impairment (see note 6). A total impairment charge of $17.8 million was recorded of which $13.8 million was related to goodwill and $4.0 million was related to other intangible assets. Approximately 30% of this charge is attributable to the noncontrolling interest.
On April 1, 2010, the Company acquired 100% of the outstanding shares of a digital marketing business (“XYZ”) operating in Australia and New Zealand. The acquisition provided the Company additional market opportunities in this region. The Company paid $1.8 million in cash, net of cash acquired, and not including amounts to be paid under an earnout agreement. As of March 31, 2013, the Company has paid approximately $0.6 million and has no remaining liability under that agreement. The acquired business had annual revenue of less than $2 million. The Company has omitted pro forma disclosures related to this acquisition as the pro forma effect of this acquisition is not material. The results of operation for the acquisition are included in the Company’s consolidated results beginning April 1, 2010.
The following table shows the allocation of GoDigital and XYZ purchase prices to assets acquired and liabilities assumed (dollars in thousands):
|
|
GoDigital
|
|
|
XYZ
|
|
Assets acquired:
|
|
|
|
|
|
|
Cash
|
|
$
|
776
|
|
|
$
|
547
|
|
Goodwill
|
|
|
15,546
|
|
|
|
1,446
|
|
Other intangible assets
|
|
|
6,500
|
|
|
|
779
|
|
Other current and noncurrent assets
|
|
|
1,178
|
|
|
|
184
|
|
|
|
|
24,000
|
|
|
|
2,956
|
|
Accounts payable, accrued expenses and capital leases assumed
|
|
|
2,091
|
|
|
|
120
|
|
Net assets acquired
|
|
|
21,909
|
|
|
|
2,836
|
|
Less:
|
|
|
|
|
|
|
|
|
Cash acquired
|
|
|
776
|
|
|
|
547
|
|
Earnout liability
|
|
|
3,611
|
|
|
|
532
|
|
Noncontrolling interest
|
|
|
6,573
|
|
|
|
-
|
|
Net cash paid
|
|
$
|
10,949
|
|
|
$
|
1,757
|
|
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
The fair value of the noncontrolling interest in GoDigital in the table above was derived based on the purchase price paid by Acxiom for its interest. The amount allocated to goodwill is due primarily to assembled work force. The amounts allocated to other intangible assets in the table above include software, customer relationship intangibles and trademarks. Amortization lives for those intangibles range from three years to five years. The following table shows the amortization activity of purchased intangible assets (dollars in thousands):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Developed technology assets, gross
|
|
$
|
18,014
|
|
|
$
|
18,417
|
|
|
$
|
21,165
|
|
Accumulated amortization
|
|
|
(17,881
|
)
|
|
|
(17,557
|
)
|
|
|
(15,679
|
)
|
Net developed technology assets
|
|
$
|
133
|
|
|
$
|
860
|
|
|
$
|
5,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer/trademark assets, gross
|
|
$
|
18,823
|
|
|
$
|
24,946
|
|
|
$
|
25,042
|
|
Accumulated amortization
|
|
|
(18,259
|
)
|
|
|
(23,421
|
)
|
|
|
(18,146
|
)
|
Net customer/trademark assets
|
|
$
|
564
|
|
|
$
|
1,525
|
|
|
$
|
6,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, gross
|
|
$
|
36,837
|
|
|
$
|
43,363
|
|
|
$
|
46,207
|
|
Total accumulated amortization
|
|
|
(36,140
|
)
|
|
|
(40,978
|
)
|
|
|
(33,825
|
)
|
Net intangible assets
|
|
$
|
697
|
|
|
$
|
2,385
|
|
|
$
|
12,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense
|
|
$
|
1,671
|
|
|
$
|
5,512
|
|
|
$
|
6,950
|
|
In addition to the amortization expense noted above, the Company recorded impairment of intangible assets of $4.0 million in 2012 for intangible assets of GoDigital (see note 6) and $2.4 million in 2011 for intangible assets of MENA (see note 4). The remaining intangible assets in the table above will be substantially amortized over the next two years.
4. DIVESTITURES:
Prior to July 12, 2011, the Company owned a controlling interest in Acxiom MENA (“MENA”), a limited liability company registered under the laws and regulations of the Kingdom of Saudi Arabia. MENA comprised the Company’s Middle East and North Africa operations. The consolidated net earnings of the Company in the statement of operations included the noncontrolling interests of MENA. On July 12, 2011, the Company entered into a transaction with MENA’s minority partners to fully dispose of its interest in its MENA subsidiary. The terms of the disposal included a $1.0 million cash payment to MENA and the release of any claims that the acquirer may have against the Company and an agreement to hold the Company harmless from any future liabilities. Following the transaction, the Company will have continued involvement primarily related to providing transaction support for a period not longer than two years. The entity will no longer be a related party of the Company.
The Company recorded a loss on the MENA disposal of $3.4 million in the statement of operations. Of the $3.4 million loss, $2.5 million is recorded in gains, losses and other items, net and $0.9 million is recorded in net loss attributable to noncontrolling interest. The deconsolidation of MENA in July 2011 resulted in the elimination of the accumulated deficit attributed to MENA from the Company’s consolidated statement of equity and comprehensive income of $0.9 million. All goodwill associated with the MENA operations was impaired in the fourth quarter of fiscal 2011, therefore there was no goodwill allocated to the disposed operations. The revenue associated with the MENA operations for fiscal 2011 was approximately $5.7 million.
On February 1, 2011, the Company entered into an agreement to dispose of the Company’s operations in Portugal. The Company made a cash payment of $0.9 million to the acquirer as part of the disposal and recorded a loss in the statement of operations of $0.8 million. There was no goodwill allocated to the disposed operations. The revenue associated with the Portugal operations was approximately $0.7 million in fiscal 2011.
On March 31, 2011 the Company entered into an agreement to dispose of the Company’s operations in The Netherlands. The Company transferred $0.2 million in cash as part of the sale and recorded a loss in the statement of operations of $2.5 million. There was no goodwill allocated to the disposed operations. Included in the loss calculation was a $1.1 million accrual for exit activities. The revenue associated with The Netherlands operations was approximately $3.5 million in fiscal 2011.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
Discontinued Operation
On February 1, 2012 the Company completed the sale of its background screening unit, Acxiom Information Security Services (AISS), to Sterling Infosystems, a New York-based technology firm for $74 million. The results of operations and gain on disposal amounts pertaining to the AISS business have been classified as discontinued operations in the consolidated financial statements.
The AISS business unit was included in the Information Products segment in the Company’s segment results presented in prior periods. During the quarter ended December 31, 2011, the Company realigned its segments and the AISS business unit was included in the Other services segment. However, the AISS business unit is excluded from segment results and segregated as discontinued operations.
Summary results of operations of the AISS business unit for all periods presented are segregated and included in income from discontinued operations, net of tax in the consolidated statements of operations and are as follows (dollars in thousands):
|
|
2012
|
|
|
2011
|
|
Revenues
|
|
$
|
42,819
|
|
|
$
|
46,215
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations before income taxes
|
|
$
|
4,907
|
|
|
$
|
5,747
|
|
Gain on sale of discontinued operations before income taxes
|
|
|
48,380
|
|
|
|
-
|
|
Income taxes
|
|
|
(19,388
|
)
|
|
|
(2,351
|
)
|
Income from discontinued operations, net of tax
|
|
$
|
33,899
|
|
|
$
|
3,396
|
|
|
|
|
|
|
|
|
|
|
The net cash flows related to the AISS discontinued operation for each of the categories of operating, investing, and financing activities were not significant for the periods presented.
5. OTHER CURRENT AND NONCURRENT ASSETS:
Other current assets consist of the following (dollars in thousands):
|
|
March 31,
2013
|
|
|
March 31,
2012
|
|
Prepaid expenses
|
|
$
|
45,032
|
|
|
$
|
43,768
|
|
Assets of non-qualified retirement plan
|
|
|
13,771
|
|
|
|
13,344
|
|
Other miscellaneous assets
|
|
|
132
|
|
|
|
692
|
|
Other current assets
|
|
$
|
58,935
|
|
|
$
|
57,804
|
|
Other noncurrent assets consist of the following (dollars in thousands):
|
|
March 31,
2013
|
|
|
March 31,
2012
|
|
Acquired intangible assets, net
|
|
$
|
564
|
|
|
$
|
1,525
|
|
Deferred income tax asset
|
|
|
7,099
|
|
|
|
5,926
|
|
Other miscellaneous noncurrent assets
|
|
|
5,389
|
|
|
|
2,172
|
|
Noncurrent assets
|
|
$
|
13,052
|
|
|
$
|
9,623
|
|
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
6. GOODWILL:
Goodwill is measured and tested for impairment on an annual basis in the first quarter of the Company’s fiscal year in accordance with applicable accounting standards, or more frequently if indicators of impairment exist. Triggering events for interim impairment testing include indicators such as adverse industry or economic trends, restructuring actions, downward revisions to projections of financial performance, or a sustained decline in market capitalization. The performance of the impairment test involves a two-step process. The first step requires comparing the estimated fair value of a reporting unit to its net book value, including goodwill. A potential impairment exists if the estimated fair value of the reporting unit is lower than its net book value. The second step of the impairment test involves assigning the estimated fair value of the reporting unit to its identifiable assets, with any residual fair value being assigned to goodwill. If the carrying value of an individual indefinite-lived intangible asset (including goodwill) exceeds its estimated fair value, such asset is written down by an amount equal to the excess, and a corresponding amount is recorded as a charge to operations for the period in which the impairment test is completed. Completion of the Company’s annual impairment test during the quarter ended June 30, 2012 indicated no potential impairment of its goodwill balances. During the quarter ended March 31, 2013, triggering events occurred which required the Company to test the goodwill in its European Marketing and data services unit for impairment. The triggering events included the revision of the Company’s long-term projections in conjunction with the fiscal 2014 budget. However, the results of the interim test indicated no impairment.
The carrying amount of goodwill, by operating segment, at March 31, 2013, 2012 and 2011, and the changes in those balances are presented in the following table.
(dollars in thousands)
|
|
Marketing and Data Services
|
|
|
IT Infrastructure Management
|
|
|
Other Services
|
|
|
Total
|
|
Balance at March 31, 2011
|
|
$
|
321,772
|
|
|
$
|
71,508
|
|
|
$
|
4,709
|
|
|
$
|
397,989
|
|
Goodwill impairment
|
|
|
(13,599
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,599
|
)
|
Change in foreign currency translation adjustment
|
|
|
(2,096
|
)
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
(2,105
|
)
|
Balance at March 31, 2012
|
|
$
|
306,077
|
|
|
$
|
71,508
|
|
|
$
|
4,700
|
|
|
$
|
382,285
|
|
Change in foreign currency translation adjustment
|
|
|
(1,011
|
)
|
|
|
-
|
|
|
|
(145
|
)
|
|
|
(1,156
|
)
|
Balance at March 31, 2013
|
|
$
|
305,066
|
|
|
$
|
71,508
|
|
|
$
|
4,555
|
|
|
$
|
381,129
|
|
Year end balances in the table above are net of accumulated impairment losses of $86.1 million at March 31, 2013 and 2012, and $72.5 million at March 31, 2011.
Goodwill by component included in Marketing and data services as of March 31, 2013 is US, $264.6 million; Europe, $18.5 million; Australia, $15.0 million; China, $6.0 million; and Brazil, $1.0 million.
In order to estimate the fair value for each of the components, management uses an income approach based on a discounted cash flow model (income approach) together with valuations based on an analysis of public company market multiples and a similar transactions analysis.
The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined by using a weighted average cost of capital (“WACC”). The WACC considers market and industry data as well as company-specific risk factors for each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business. Management, considering industry and company-specific historical and projected data, develops growth rates and cash flow projections for each reporting unit. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates.
The public company market multiple
method
is used to estimate values for each of the components by looking at market value
multiples
to revenue
and
EBITDA (earnings before interest, taxes, depreciation and amortization) for
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
selected public companies that are believed to be representative of companies that marketplace participants would use to arrive at comparable multiples for the individual component being tested. These multiples are then used to develop an estimated value for each respective component.
The similar transactions method compares multiples based on acquisition prices of other companies believed to be those that marketplace participants would use to compare to the individual
component
being tested. Those multiples are then used to develop an estimated value for that component.
In order to arrive at an
estimated
value for each component, management uses a weighted-average approach to combine the results of each analysis. Management believes that using multiple valuation approaches and then weighting them appropriately is a technique that a marketplace participant would use.
As a final test of the valuation results, the
total
of the values of the components is reconciled to the actual market value of Acxiom common stock as of the valuation date. This reconciliation indicated an implied control premium.
Management
believes this control premium is reasonable compared to
historical
control premiums observed in actual transactions.
Goodwill is tested for impairment at the reporting unit level, which is defined as either an operating segment or one step below an operating segment, known as a component. Acxiom’s segments are the Marketing and data services segment, the IT Infrastructure management
segment
, and the Other services segment. Because the Marketing and data services segment and the Other services segment contain both U.S. and
International
components, and there are differences in economic characteristics between
the
components in the different geographic regions, management tested a total of eight components at the beginning of the year. The goodwill amounts as of April 1, 2012 included in
each
component
tested were
: U.S. Marketing and data services, $264.6 million; Europe Marketing and data services, $19.5 million; Australia Marketing and data services, $14.9 million; China Marketing and data services, $6.0 million; Brazil Marketing and data services, $1.1 million; U.S. Infrastructure management, $71.5 million; U.S. Other services, $1.8 million; and Europe Other services, $2.9 million.
As of
April
1, 2012,
each
of the components had an estimated
fair
value in excess of its carrying value, indicating no impairment. All of the components had a substantial excess fair value, except for the Brazil component, for which the excess was 11%.
The additional impairment test for the Europe Marketing and data services component, carried out as of March 31, 2013, indicated a reduced fair value.
However
, the fair value is still substantially in excess of carrying value.
Each quarter the Company considers whether indicators of impairment exist such that additional impairment testing may be necessary. During the quarter ended December 31, 2011, management determined that results for the Brazil operation were likely to be significantly lower than had been projected in the previous goodwill test. Management further determined that the failure of the Brazil operation to meet expectations, combined with the expectation that future budget projections would also be lowered, constituted a triggering event, requiring an interim goodwill impairment test. In conjunction with the interim goodwill impairment test, management also tested for impairment all other intangible assets other than goodwill associated with the Brazil operation. This test was performed during the quarter ended December 31, 2011, resulting in a total impairment charge of $17.8 million, of which $13.8 million was recorded as impairment of goodwill and $4.0 million was recorded as impairment of other intangible assets. In addition, the $2.6 million earn-out liability relating to the Brazil acquisition was reduced to zero as there is no future expectation of an earn-out payment. The reduction of the earn-out liability is reflected as a credit to gains, losses and other items, net.
The carrying value of the goodwill and other intangible assets associated with the Brazil operation prior to completion of the impairment test was $14.7 million for goodwill and $4.1 million for other intangible assets. The Brazil component was previously part of the Information services segment and is now part of the Marketing and data services segment.
During the quarter ended March 31, 2011, triggering events occurred which required the Company to test the goodwill associated with its International operations for impairment. The triggering events were changes to the Company’s projected long-term revenue growth and margins in both Europe and the Middle East and North Africa (MENA) as well as the disposal of the Company’s Portugal and Netherlands operations. Results of the two-step test indicated impairment associated with these operations, and the Company recorded an impairment charge of $79.7 million, of which $77.3 million was related to goodwill and $2.4 million was related to other intangible assets.
Prior to the fourth quarter of fiscal 2011, the Company historically had concluded that its International Information Products operations, which includes operations in Europe and Asia/Pacific (APAC), were properly aggregated into a
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
single International Information Products component for purposes of impairment testing and its International Information Services operations, which includes operations in Europe, APAC, MENA and Brazil, were properly aggregated into a single International Information Services component for purposes of impairment testing. These conclusions were based on management’s determinations that the operations included in each of these non-U.S. components shared economic characteristics, as well as similar products and services, types of customers, and services distribution methods. The primary economic characteristic that management concluded was similar for each of these units was expected long-term gross margins.
During the fourth quarter of fiscal 2011, as a result of the triggering events described above, and as management was developing revised projections for the Company’s International operations, management concluded that it was no longer appropriate to conclude that the respective operations previously included in the International Information Products component and the International Information Services component, respectively, all shared similar economic characteristics, due to management’s differing expectations for these operations over the long term. Therefore management did not aggregate these operations for testing as it had in the past, but instead performed step-one testing on the operations in the geographic regions described above individually (except for the Brazil operation, which was recently acquired and as to which management concluded the long-term expectations had not changed since the acquisition). The carrying value of the goodwill associated with these operations prior to performing the impairment tests performed in the fourth quarter of fiscal 2011 were: Europe Information Services, $28.8 million; APAC Information Services, $10.8 million; MENA Information Services, $4.8 million; Brazil Information Services, $16.9 million; Europe Information Products, $66.2 million; and APAC Information Products, $10.0 million. Based on the step-one testing, which utilized a weighted average of estimated values derived from a discounted cash flow model, similar transactions analysis, and public company market multiples analysis, the Company determined that there was indicated impairment for Europe Information Services, Europe Information Products, and MENA Information Services units. The estimated fair value for each of APAC Information Services and APAC Information Products exceeded its carrying value by a significant margin.
Step two of the goodwill test, which was required only for Europe Information Services, Europe Information Products, and MENA Information Services consisted of performing a hypothetical purchase price allocation, under which the estimated fair value was allocated to its tangible and intangible assets based on their estimated fair values. In the case of MENA Information Services, this process indicated that all of its existing goodwill and other intangibles were impaired, and management determined that it was not necessary to perform detailed step two calculations in order to conclude that all of the goodwill and other intangibles related to MENA Information Services should be written off. The total impairment charge for MENA
Information
Services was therefore $7.2 million, of which $4.8 million related to goodwill and $2.4 million related to other intangible assets.
For the European operations, there was no impairment for other intangible assets, but the hypothetical purchase price allocation indicated goodwill impairment of $72.5 million, of which $15.4 million was for European Information Services and $57.1 million was for
European
Information Products.
Management believes that the
estimated
valuations it arrived at are reasonable and consistent with what other marketplace participants would use in valuing the Company’s components. However, management cannot give any assurance that these market values will not change in the future. For example, if discount rates demanded by the market increase, this could lead to reduced valuations under the income approach. If the Company’s projections are not achieved in the future, this could lead
management
to reassess their assumptions and lead to reduced valuations under the income
approach
. If the market price of the Company’s stock decreases, this could cause the Company to reassess the reasonableness of the implied control premium, which might cause management to assume a higher discount rate under the income approach which could lead to reduced valuations. If future similar transactions exhibit lower multiples than those observed in the past, this could lead to reduced valuations under the similar transactions approach. And finally, if there is a general decline in the stock market and particularly in those companies selected as comparable to the Company’s components, this could lead to reduced valuations under the public company market multiple approach. The Company’s next annual impairment test will be performed during the first quarter of fiscal 2014. The fair value of the Company’s components could deteriorate which could result in the need to record impairment charges in future periods. The Company continues to monitor potential triggering events including changes in the business climate in which it operates, attrition of key personnel, the volatility in the capital markets, the Company’s market capitalization compared to its book value, the Company’s recent operating performance, and the Company’s financial projections. The occurrence of one or more triggering events could require additional impairment testing, which could result in impairment charges.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
7. SOFTWARE AND RESEARCH AND DEVELOPMENT COSTS:
The Company recorded amortization expense related to internally developed computer software of $8.6 million, $15.2 million, and $20.5 million for fiscal 2013, 2012, and 2011, respectively, and amortization of purchased software licenses of $9.7 million, $13.5 million and $15.6 million in 2013, 2012 and 2011, respectively. Additionally, research and development costs of $11.7 million, $5.5 million and $11.6 million were charged to cost of revenue during 2013, 2012 and 2011, respectively. Amortization expense related to both internally developed and purchased software is included in cost of revenue in the accompanying consolidated statements of operations.
8. PROPERTY AND EQUIPMENT:
Property and equipment, some of which has been pledged as collateral for long-term debt, is summarized as follows (dollars in thousands):
|
|
March 31,
2013
|
|
|
March 31,
2012
|
|
Land
|
|
$
|
6,737
|
|
|
$
|
6,737
|
|
Buildings and improvements
|
|
|
263,172
|
|
|
|
263,115
|
|
Data processing equipment
|
|
|
492,626
|
|
|
|
583,696
|
|
Office furniture and other equipment
|
|
|
59,904
|
|
|
|
59,525
|
|
|
|
|
822,439
|
|
|
|
913,073
|
|
Less accumulated depreciation and amortization
|
|
|
591,687
|
|
|
|
659,700
|
|
|
|
$
|
230,752
|
|
|
$
|
253,373
|
|
Depreciation expense on property and equipment (including amortization of property and equipment under capitalized leases) was $61.8 million, $62.4 million and $64.1 million for the years ended March 31, 2013, 2012 and 2011, respectively.
9. LONG-TERM DEBT:
Long-term debt consists of the following (dollars in thousands):
|
|
March 31,
2013
|
|
|
March 31,
2012
|
|
Term loan credit agreement
|
|
$
|
218,000
|
|
|
$
|
224,000
|
|
Capital leases and installment payment obligations on land, buildings and equipment payable in monthly payments of principal plus interest at rates ranging from approximately 3% to 8%; remaining terms up to nine years
|
|
|
21,368
|
|
|
|
35,726
|
|
Other debt and long-term liabilities
|
|
|
14,137
|
|
|
|
18,496
|
|
Total long-term debt and capital leases
|
|
|
253,505
|
|
|
|
278,222
|
|
Less current installments
|
|
|
16,105
|
|
|
|
26,336
|
|
Long-term debt, excluding current installments
|
|
$
|
237,400
|
|
|
$
|
251,886
|
|
|
|
|
|
|
|
|
|
|
The Company’s amended and restated credit agreement provides for (1) term loans up to an aggregate principal amount of $600 million and (2) revolving credit facility borrowings consisting of revolving loans, letter of credit participations and swing-line loans up to an aggregate amount of $120 million.
The term loan is payable in quarterly installments of approximately $1.5 million each, through December 31, 2014, with a final payment of approximately $207.5 million due March 15, 2015. The revolving loan commitment expires March 15, 2014.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
Revolving credit facility borrowings currently bear interest at LIBOR plus a credit spread, or at an alternative base rate or at the Federal Funds rate plus a credit spread, depending on the type of borrowing. The LIBOR credit spread is 2.75%. There were no revolving credit borrowings outstanding at March 31, 2013 or March 31, 2012. Term loan borrowings bear interest at LIBOR plus a credit spread of 3.00%. The weighted-average interest rate on term loan borrowings at March 31, 2013 was 3.7%. Outstanding letters of credit at March 31, 2013 were $2.2 million.
The term loan allows prepayments before maturity. The credit agreement is secured by the accounts receivable of Acxiom and its domestic subsidiaries, as well as by the outstanding stock of certain Acxiom subsidiaries.
Under the terms of the term loan, the Company is required to maintain certain debt-to-cash flow and debt service coverage ratios, among other restrictions. At March 31, 2013, the Company was in compliance with these covenants and restrictions. In addition, if certain financial ratios and other conditions are not satisfied, the revolving credit facility limits the Company’s ability to pay dividends in excess of $30 million in any fiscal year (plus additional amounts in certain circumstances).
On July 25, 2011, the Company entered into an interest rate swap agreement. The agreement provides for the Company to pay interest through January 27, 2014 at a fixed rate of 0.94% plus the applicable credit spread on $150.0 million notional amount, while receiving interest for the same period at the LIBOR rate on the same notional amount. The LIBOR rate as of March 31, 2013 was 0.30%. The swap was entered into as a cash flow hedge against LIBOR interest rate movements on the term loan. As of March 31, 2013, the hedge relationship qualified as an effective hedge under applicable accounting standards. Consequently, all changes in fair value of the derivative are deferred and recorded in other comprehensive income (loss) until the related forecasted transaction is recognized in the consolidated statement of operations. The fair market value of the derivative was zero at inception and an unrealized loss of $0.8 million since inception is recorded in other comprehensive income (loss) with the offset recorded to other noncurrent liabilities. The fair value of the interest rate swap agreement recorded in accumulated other comprehensive income (loss) may be recognized in the statement of operations if certain terms of the floating-rate debt change, if the floating-rate debt is extinguished or if the interest rate swap agreement is terminated prior to maturity. The Company has assessed the creditworthiness of the counterparty of the swap and concludes that no substantial risk of default exists as of March 31, 2013.
The Company’s future obligations, excluding interest, under its long-term debt at March 31, 2013 are as follows (dollars in thousands):
Year ending March 31,
|
|
|
|
2014
|
|
$
|
16,105
|
|
2015
|
|
|
221,621
|
|
2016
|
|
|
7,686
|
|
2017
|
|
|
1,001
|
|
2018
|
|
|
1,157
|
|
Thereafter
|
|
|
5,935
|
|
|
|
$
|
253,505
|
|
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
10. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
A summary of the activity of the allowance for doubtful accounts, returns and credits is as follows (dollars in thousands):
|
|
Balance at beginning of period
|
|
|
Additions charged to costs and expenses
|
|
|
Other changes
|
|
|
Bad debts written off, net of amounts recovered
|
|
|
Balance at end of period
|
|
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts, returns and credits
|
|
$
|
6,341
|
|
|
$
|
940
|
|
|
$
|
198
|
|
|
$
|
(1,857
|
)
|
|
$
|
5,622
|
|
2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts, returns and credits
|
|
$
|
5,622
|
|
|
$
|
1,731
|
|
|
$
|
(164
|
)
|
|
$
|
(2,313
|
)
|
|
$
|
4,876
|
|
2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts, returns and credits
|
|
$
|
4,876
|
|
|
$
|
902
|
|
|
$
|
(112
|
)
|
|
$
|
(1,525
|
)
|
|
$
|
4,141
|
|
Included in other changes are allowance accounts acquired in connection with business combinations, disposals, and the effects of exchange rates.
11. COMMITMENTS AND CONTINGENCIES:
Legal Matters
The Company is involved in various claims and legal proceedings. Management routinely assesses the likelihood of adverse judgments or outcomes to these matters, as well as ranges of probable losses, to the extent losses are reasonably estimable. The Company records accruals for these matters to the extent that management concludes a loss is probable and the financial impact, should an adverse outcome occur, is reasonably estimable. These accruals are reflected in the Company’s consolidated financial statements. In management’s opinion, the Company has made appropriate and adequate accruals for these matters and management believes the probability of a material loss beyond the amounts accrued to be remote; however, the ultimate liability for these matters is uncertain, and if accruals are not adequate, an adverse outcome could have a material effect on the Company’s consolidated financial condition or results of operations. Listed below are certain matters pending against the Company and/or its subsidiaries for which the potential exposure is considered material to the Company’s consolidated financial statements. Management believes the Company has substantial defenses to the claims made and intends to vigorously defend these matters.
A putative class action is pending against the Company, AISS (which was sold to another company in fiscal 2012), and Acxiom Risk Mitigation, Inc., a Colorado corporation and wholly-owned subsidiary of Acxiom, in the United States District Court for the Eastern District of Virginia seeking to certify nationwide classes of persons who requested a consumer file from any Acxiom entity from 2007 forward; who were the subject of an Acxiom report sold to a third party that contained information not obtained directly from a governmental entity and who did not receive a timely copy of the report; who were subject of an Acxiom report and about whom Acxiom adjudicated the hire/no hire decision on behalf of the employer; who, from 2010 forward, disputed an Acxiom report and Acxiom did not complete the investigation within 30 days; or who, from 2007 forward, were subject to an Acxiom report for which no permissible purpose existed. The complaint alleges various violations of the Fair Credit Reporting Act. The Company has not recorded an accrual for this matter as it believes no loss is probable. The Company cannot estimate the range of reasonably possible loss.
The founders of GoDigital, a subsidiary of the Company, have sued the Company in Brazil contending that the Company breached its obligations to maximize the founders’ earnout revenue and reduced the value of the founders’ remaining holdings. The Company acquired a 70% interest in GoDigital in fiscal 2011. The acquisition agreement provided for an up-front payment with the possibility of a future payment based upon the performance of the business over a two-year period of time. The Company has not recorded an accrual for this matter as it believes no loss is probable, and the range of reasonably possible loss is not material.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
In the opinion of management, the ultimate disposition of all of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
Commitments
The Company leases data processing equipment, office furniture and equipment, land and office space under noncancellable operating leases. The Company has a future commitment for lease payments over the next 27 years of $110.1 million.
Total rental expense on operating leases was $21.7 million, $23.9 million and $34.3 million for the years ended March 31, 2013, 2012 and 2011, respectively. Future minimum lease payments under all noncancellable operating leases for the five years ending March 31, 2018, are as follows: 2014, $22.0 million; 2015, $17.1 million; 2016, $13.9 million; 2017, $13.4 million; and 2018, $11.5 million.
In connection with a certain building, the Company has entered into a 50/50 joint venture with a local real estate developer. The Company is guaranteeing a portion of the loan for the building. In addition, in connection with the disposal of certain assets, the Company has guaranteed a lease for the buyer of the assets. These guarantees were made by the Company primarily to facilitate favorable financing terms for those third parties. Should the third parties default, the Company would be required to perform under these guarantees. A portion of the guaranteed amount is collateralized by real property. At March 31, 2013 the Company’s maximum potential future payments under these guarantees were $3.1 million.
12. STOCKHOLDERS’ EQUITY:
The Company has authorized 200 million shares of $0.10 par value common stock and 1 million shares of $1.00 par value preferred stock. The board of directors of the Company may designate the relative rights and preferences of the preferred stock when and if issued. Such rights and preferences could include liquidation preferences, redemption rights, voting rights and dividends, and the shares could be issued in multiple series with different rights and preferences. The Company currently has no plans for the issuance of any shares of preferred stock.
The Company has issued warrants to purchase shares of its common stock. The following table shows outstanding warrants as of March 31, 2013:
|
|
Number of warrants outstanding
|
|
Issued
|
Vesting date
|
Expiration date
|
|
Weighted average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
AISS acquisition (fiscal 2003)
|
|
|
1,272,024
|
|
August 2002
|
August 2002
|
August 12, 2017
|
|
$
|
16.32
|
|
Toplander acquisition (fiscal 2003)
|
|
|
102,935
|
|
March 2004
|
March 2004
|
March 17, 2019
|
|
$
|
13.24
|
|
|
|
|
1,374,959
|
|
|
|
|
|
$
|
16.09
|
|
On August 29, 2011, the board of directors adopted a common stock repurchase program. That program was subsequently modified and expanded on December 5, 2011, on May 24, 2012, and again on February 5, 2013. Under the modified common stock repurchase program, the Company may purchase up to $200.0 million of its common stock through the period ending February 5, 2014. During the fiscal year ended March 31, 2012, the Company repurchased 5.8 million shares of its common stock for $68.2 million. During the fiscal year ended March 31, 2013, the Company repurchased 4.6 million shares of its common stock for $71.7 million. Through March 31, 2013, the Company has repurchased 10.4 million shares of its stock for $139.9 million, leaving remaining capacity of $60.1 million under the stock repurchase program. Cash paid for acquisition of treasury stock in the consolidated statement of cash flows may differ from the aggregate purchase price due to trades made during one fiscal period that settle in a different fiscal period.
The Company paid no dividends on its common stock for any of the years reported.
Stock Option Activity
The Company has stock option and equity compensation plans for which a total of 38.2 million shares of the Company’s common stock have been reserved for issuance since inception of the plans. These plans provide that the exercise prices of qualified options will be at or above the fair market value of the common stock at the time of the grant. Board policy has also required that nonqualified options be priced at or above the fair market value of the common stock at the time of grant. At March 31, 2013, there were a total of 4.2 million shares available for future grants under the plans.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
The per-share weighted-average fair value of the stock options granted during 2013 was $5.00. This valuation was determined using a customized binomial lattice approach with the following weighted-average assumptions: dividend yield of 0.0%; risk-free interest rate of 1.7%; expected option life of 4.5 years; expected volatility of 43% and a suboptimal exercise multiple of 1.4. The per-share weighted-average fair value of the stock options granted during 2012 was $5.82 on the date of grant using a customized binomial lattice approach with the following weighted-average assumptions: dividend yield of 0.0%; risk-free interest rate of 2.2%; expected option life of 5.3 years; expected volatility of 44% and a suboptimal exercise multiple of 1.7. The per-share weighted-average fair value of the stock options granted during 2011 was $7.54 on the date of grant using a customized binomial lattice approach with the following weighted-average assumptions: dividend yield of 0.0%; risk-free interest rate of 3.4%; expected option life of 5.6 years; expected volatility of 52% and a suboptimal exercise multiple of 1.9.
Total expense related to stock options was approximately $1.9 million for fiscal 2013, $1.1 million for fiscal 2012 and $2.4
million for 2011. Future expense for these options is expected to be approximately $5.0 million in total over the next four years.
Activity in stock options was as follows:
|
|
Number of shares
|
|
|
Weighted-average exercise price per share
|
|
|
Weighted-average remaining contractual term (in years)
|
|
|
Aggregate Intrinsic value (in thousands)
|
|
Outstanding at March 31, 2012
|
|
|
8,322,077
|
|
|
$
|
20.91
|
|
|
|
|
|
|
|
Granted
|
|
|
497,409
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(402,830
|
)
|
|
|
|
|
|
|
|
|
$
|
2,651
|
|
Forfeited or cancelled
|
|
|
(223,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2013
|
|
|
8,193,248
|
|
|
$
|
20.85
|
|
|
|
3.64
|
|
|
$
|
24,429
|
|
Exercisable at March 31, 2013
|
|
|
7,045,869
|
|
|
$
|
22.05
|
|
|
|
2.81
|
|
|
$
|
16,481
|
|
The aggregate intrinsic value for options exercised in fiscal 2013, 2012, and 2011 was $2.7 million, $2.4 million, and $0.6 million, respectively. The aggregate intrinsic value at period end represents total pre-tax intrinsic value (the difference between Acxiom’s closing stock price on the last trading day of the period and the exercise price for each in-the-money option) that would have been received by the option holders had option holders exercised their options on March 31, 2013. This amount changes based upon changes in the fair market value of Acxiom’s stock.
Following is a summary of stock options outstanding as of March 31, 2013:
|
|
|
Options outstanding
|
|
|
Options exercisable
|
|
Range of
exercise price
per share
|
|
|
Options
outstanding
|
|
Weighted- average remaining contractual life
|
|
Weighted-average
exercise price
per share
|
|
|
Options
exercisable
|
|
|
Weighted-average
exercise price
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6.32 - $ 9.62
|
|
|
|
98,798
|
|
5.27 years
|
|
$
|
8.69
|
|
|
|
71,798
|
|
|
$
|
8.61
|
|
$
|
10.22 - $ 15.00
|
|
|
|
2,308,398
|
|
6.45 years
|
|
$
|
13.04
|
|
|
|
1,211,163
|
|
|
$
|
12.62
|
|
$
|
15.10 - $ 19.82
|
|
|
|
1,700,968
|
|
3.05 years
|
|
$
|
16.71
|
|
|
|
1,677,824
|
|
|
$
|
16.70
|
|
$
|
20.12 - $ 25.00
|
|
|
|
2,081,052
|
|
3.10 years
|
|
$
|
22.92
|
|
|
|
2,081,052
|
|
|
$
|
22.92
|
|
$
|
25.98 - $ 29.30
|
|
|
|
1,095,987
|
|
1.45 years
|
|
$
|
26.69
|
|
|
|
1,095,987
|
|
|
$
|
26.69
|
|
$
|
30.93 - $ 39.12
|
|
|
|
668,512
|
|
1.22 years
|
|
$
|
35.81
|
|
|
|
668,512
|
|
|
$
|
35.81
|
|
$
|
40.88 - $ 62.06
|
|
|
|
239,533
|
|
1.57 years
|
|
$
|
44.07
|
|
|
|
239,533
|
|
|
$
|
44.07
|
|
|
|
|
|
|
8,193,248
|
|
3.64 years
|
|
$
|
20.85
|
|
|
|
7,045,869
|
|
|
$
|
22.05
|
|
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
Restricted Stock Unit Activity
Non-vested time-vesting restricted stock units and changes during the year ended March 31, 2013 were as follows:
|
|
Number
of shares
|
|
|
Weighted- average
fair value per share at
grant date
|
|
|
Weighted-average remaining contractual term (in years)
|
|
Outstanding at March 31, 2012
|
|
|
1,175,161
|
|
|
$
|
13.40
|
|
|
|
2.21
|
|
Granted
|
|
|
681,408
|
|
|
$
|
14.07
|
|
|
|
|
|
Vested
|
|
|
(470,285
|
)
|
|
$
|
12.64
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
(173,998
|
)
|
|
$
|
13.99
|
|
|
|
|
|
Outstanding at March 31, 2013
|
|
|
1,212,286
|
|
|
$
|
13.97
|
|
|
|
2.24
|
|
During fiscal 2013, the Company granted time-vesting restricted stock units covering 681,408 shares of common stock with a value at the date of grant of $9.6 million. Of the restricted stock units granted in fiscal 2013, 604,229 vest in equal annual increments over four years and 77,179 vest in one year. During fiscal 2012, the Company granted time-vesting restricted stock units covering 787,451 shares of common stock with a value at the date of grant of $10.4 million. Of the restricted stock units granted, 654,357 vest in equal annual increments over four years and 133,094 vest in one year. During fiscal 2011, the Company granted time-vesting restricted stock units covering 539,729 shares of common stock with a value at the date of grant of $9.4 million. Of the restricted stock units granted, 467,641 vest in equal annual increments over four years and 72,088 vest in one year. Valuation of time-vesting restricted stock units for all periods presented is equal to the quoted market price for the shares on the date of grant. The total fair value of time-vesting restricted stock units vested in fiscal 2013, 2012, and 2011 was $6.9 million, $6.9 million, and $2.6 million, respectively.
Non-vested performance-based restricted stock units and changes during the year ended March 31, 2013 were as follows:
|
|
Number
of shares
|
|
|
Weighted- average
fair value
per share at grant date
|
|
|
Weighted-average remaining contractual term (in years)
|
|
Outstanding at March 31, 2012
|
|
|
511,864
|
|
|
$
|
10.91
|
|
|
|
2.31
|
|
Granted
|
|
|
384,563
|
|
|
$
|
13.50
|
|
|
|
|
|
Forfeited or Cancelled
|
|
|
(32,706
|
)
|
|
$
|
25.25
|
|
|
|
|
|
Outstanding at March 31, 2013
|
|
|
863,721
|
|
|
$
|
11.52
|
|
|
|
1.63
|
|
During fiscal 2013, the Company granted performance-based restricted stock units covering 384,563 shares of common stock with a value at the date of grant of $5.2 million. All of the performance-based restricted stock units granted in fiscal 2013 vest subject to attainment of performance criteria established by the compensation committee of the board of directors. Of the units granted in fiscal 2013, 333,463 may vest in a number of shares from zero to 200% of the award, based on the attainment of an earnings-per-share target for fiscal 2015, with a multiplier based on the total shareholder return of Acxiom stock compared to total shareholder return of a group of peer companies established by the committee for the period from April 1, 2012 to March 31, 2015. The remaining 51,100 units represent inducement awards granted to an executive officer. The executive officer may vest in up to 100% of the inducement award based on price targets for the Company’s common stock during the determination period from January 26, 2013 to July 26, 2014. The value of the performance units is determined using a Monte Carlo simulation model. There were no performance-based restricted stock units vested in fiscal 2013.
During fiscal 2012, the Company granted performance-based restricted stock units covering 530,137 shares of common stock with a value at the date of grant of $5.4 million. All of the performance-based restricted stock units granted vest subject to attainment of performance criteria established by the compensation committee of the board of directors. Of the units granted, 172,945 may vest in a number of shares from zero to 200% of the award, based on the total shareholder return of Acxiom stock compared to total shareholder return of a group of peer companies established by the committee for the period from April 1, 2011 to March 31, 2014. The remaining 357,192 units represent inducement awards granted to the Company’s chief executive officer, chief financial officer, and chief revenue officer. The executive officers may vest in up to 100% of the award based on price targets for the Company’s common stock during the determination period from January 26, 2013 to July 26, 2014. The value of the performance units is determined using a Monte Carlo simulation model. The total fair value of performance-based restricted stock units vested in fiscal 2012 was $6.4 million.
During fiscal 2011, the Company granted performance-based restricted stock units covering 191,790 shares of common stock with a value at the date of grant of $4.7 million. The grants vest subject to attainment of performance criteria established by the compensation committee of the board of directors. Each recipient of the performance units may vest in a number of shares from zero to 200% of their award, based on the total shareholder return of Acxiom
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
stock compared to total shareholder return of a group of peer companies established by the committee for the period from April 1, 2010 to March 29, 2013. The value of the performance units was determined using a Monte Carlo simulation model. None of these shares vested, as the performance targets were not met. Additionally, there were no performance-based restricted stock units vested in fiscal 2011.
The expense related to restricted stock was $10.1 million in fiscal 2013, $7.8 million in fiscal 2012, and $10.7 million in fiscal 2011. Future expense for these restricted stock units is expected to be approximately $8.8 million in fiscal 2014, $5.7 million in fiscal 2015, $2.2 million in fiscal 2016 and $0.4 million in fiscal 2017.
Qualified Employee Stock Purchase Plan
In addition to the share-based plans, the Company maintains a qualified employee stock purchase plan (“ESPP”) that permits substantially all employees to purchase shares of common stock at a price equal to the market price. The number of shares available for issuance at March 31, 2013 was approximately 1.0 million.
Approximately 122,427 shares were purchased under the ESPP during the combined fiscal years 2013, 2012, and 2011. There was no expense to the Company for these share purchases.
Accumulated Other Comprehensive Income
The accumulated balances for each component of other comprehensive income are as follows (dollars in thousands):
|
|
March 31,
2013
|
|
|
March 31,
2012
|
|
Foreign currency translation
|
|
$
|
12,175
|
|
|
$
|
14,664
|
|
Unrealized loss on interest rate swap
|
|
|
(752
|
)
|
|
|
(1,063
|
)
|
|
|
$
|
11,423
|
|
|
$
|
13,601
|
|
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
13. INCOME TAXES:
Total income tax expense (benefit) was allocated as follows (dollars in thousands):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Income from continuing operations
|
|
$
|
33,058
|
|
|
$
|
29,129
|
|
|
$
|
31,726
|
|
Income from discontinued operations
|
|
|
-
|
|
|
|
19,388
|
|
|
|
2,351
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax impact of stock options, warrants and restricted stock
|
|
|
(357
|
)
|
|
|
1,310
|
|
|
|
316
|
|
|
|
$
|
32,701
|
|
|
$
|
49,827
|
|
|
$
|
34,393
|
|
Income tax expense (benefit) attributable to earnings from continuing operations consists of (dollars in thousands):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Current:
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
32,782
|
|
|
$
|
22,919
|
|
|
$
|
10,860
|
|
Non-U.S.
|
|
|
716
|
|
|
|
295
|
|
|
|
176
|
|
State
|
|
|
3,138
|
|
|
|
3,687
|
|
|
|
2,111
|
|
|
|
|
36,636
|
|
|
|
26,901
|
|
|
|
13,147
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
(3,874
|
)
|
|
|
900
|
|
|
|
19,477
|
|
Non-U.S.
|
|
|
(574
|
)
|
|
|
2,359
|
|
|
|
(264
|
)
|
State
|
|
|
870
|
|
|
|
(1,031
|
)
|
|
|
(634
|
)
|
|
|
|
(3,578
|
)
|
|
|
2,228
|
|
|
|
18,579
|
|
Total
|
|
$
|
33,058
|
|
|
$
|
29,129
|
|
|
$
|
31,726
|
|
Earnings (loss) before income tax attributable to U.S. and non-U.S. continuing operations consist of (dollars in thousands):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
U.S.
|
|
$
|
89,791
|
|
|
$
|
100,051
|
|
|
$
|
93,503
|
|
Non-U.S.
|
|
|
386
|
|
|
|
(33,305
|
)
|
|
|
(93,615
|
)
|
Total
|
|
$
|
90,177
|
|
|
$
|
66,746
|
|
|
$
|
(112
|
)
|
Earnings before income taxes, as shown above, are based on the location of the entity to which such earnings are attributable. However, since such earnings may be subject to taxation in more than one country, the income tax provision shown above as U.S. or non-U.S. may not correspond to the earnings shown above.
Below is a reconciliation of income tax expense (benefit) computed using the U.S. federal statutory income tax rate of 35% of earnings before income taxes to the actual provision for income taxes (dollars in thousands) for continuing operations:
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Computed expected tax expense (benefit)
|
|
$
|
31,562
|
|
|
$
|
23,361
|
|
|
$
|
(39
|
)
|
Increase (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
|
|
1,631
|
|
|
|
1,672
|
|
|
|
1,892
|
|
Research, experimentation and other tax credits
|
|
|
(1,408
|
)
|
|
|
(518
|
)
|
|
|
(3,897
|
)
|
Impairment of goodwill and intangibles not deductible for tax
|
|
|
-
|
|
|
|
5,031
|
|
|
|
28,006
|
|
Permanent differences between book and tax expense
|
|
|
(481
|
)
|
|
|
(9,507
|
)
|
|
|
(58
|
)
|
Non-U.S. subsidiaries taxed at other than 35%
|
|
|
1,761
|
|
|
|
3,670
|
|
|
|
4,409
|
|
Adjustment to valuation allowances
|
|
|
726
|
|
|
|
4,598
|
|
|
|
1,312
|
|
Other, net
|
|
|
(733
|
)
|
|
|
822
|
|
|
|
101
|
|
|
|
$
|
33,058
|
|
|
$
|
29,129
|
|
|
$
|
31,726
|
|
In fiscal year 2013, the Company recorded $0.7 million in additional valuation allowances for deferred tax assets principally related to a state jurisdiction and in fiscal year 2012, the Company recorded $4.6 million in additional valuation allowances for deferred tax assets primarily consisting of $5.2 million related to a foreign jurisdiction, offset by other adjustments. The increases in valuation allowances were due to the change in management’s assessment of future projections in certain state and foreign jurisdictions.
Below is a reconciliation of income tax expense (benefit) computed using the U.S. federal statutory income tax rate of 35% of earnings before income taxes to the actual provision for income taxes for discontinued operations (dollars in thousands):
|
|
2012
|
|
|
2011
|
|
Computed expected tax expense (benefit)
|
|
$
|
18,650
|
|
|
$
|
2,011
|
|
Increase (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
|
|
737
|
|
|
|
187
|
|
Other, net
|
|
|
1
|
|
|
|
153
|
|
|
|
$
|
19,388
|
|
|
$
|
2,351
|
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at March 31, 2013 and 2012 are presented below. In accordance with income tax accounting standards, as of March 31, 2013 the Company has not recognized deferred income taxes on approximately $38.1 million of undistributed earnings of foreign subsidiaries that are indefinitely reinvested outside the respective parent’s country. Calculation of the deferred income tax related to these earnings is not practicable (dollars in thousands).
|
|
2013
|
|
|
2012
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Accrued expenses not currently deductible for tax purposes
|
|
$
|
9,183
|
|
|
$
|
11,228
|
|
Revenue recognized for tax purposes in excess of revenue for financial reporting purposes
|
|
|
4,314
|
|
|
|
3,878
|
|
Net operating loss and tax credit carryforwards
|
|
|
45,746
|
|
|
|
51,153
|
|
Other
|
|
|
11,945
|
|
|
|
10,410
|
|
Total deferred tax assets
|
|
|
71,188
|
|
|
|
76,669
|
|
Less valuation allowance
|
|
|
35,981
|
|
|
|
39,083
|
|
Net deferred tax assets
|
|
|
35,207
|
|
|
|
37,586
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets, principally due to differences in amortization
|
|
$
|
(66,959
|
)
|
|
$
|
(64,798
|
)
|
Costs capitalized for financial reporting purposes in excess of amounts capitalized for tax purposes
|
|
|
(24,869
|
)
|
|
|
(26,072
|
)
|
Property and equipment, principally due to differences in depreciation
|
|
|
(17,702
|
)
|
|
|
(24,648
|
)
|
Total deferred tax liabilities
|
|
|
(109,530
|
)
|
|
|
(115,518
|
)
|
Net deferred tax liability
|
|
$
|
(74,323
|
)
|
|
$
|
(77,932
|
)
|
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
At March 31, 2013, the Company has net operating loss carryforwards of approximately $12.5 million and $62.6 million for U.S. federal and state income tax purposes, respectively. These net operating loss carryforwards expire in various amounts from 2013 through 2031. The Company has foreign net operating loss carryforwards of approximately $126.9 million. Of this amount, $123.8 million do not have expiration dates. The remainder expires in various amounts through 2022.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Based upon the Company’s history of profitability and taxable income and the reversal of taxable temporary differences in the U.S., management believes that with the exception of carryforwards in certain states it is more likely than not the Company will realize the benefits of these deductible differences. The Company has established valuation allowances against $56.1 million of loss carryforwards in the states where activity does not support the deferred tax asset.
Based upon the Company’s history of losses in certain non-U.S. jurisdictions, management believes it is more likely than not the Company will not realize the benefits of certain foreign carryforwards and has established valuation allowances for substantial portions of its foreign deferred tax assets.
The following table sets forth changes in the total gross unrecognized tax benefit liabilities, including accrued interest, for the years ended March 31, 2013, 2012, and 2011. The entire liability, if recognized, would reduce the Company’s effective income tax rate in future periods.
(dollars in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Balance at beginning of period
|
|
$
|
3,109
|
|
|
$
|
3,043
|
|
|
$
|
6,379
|
|
Additions based on tax positions related to the current year
|
|
|
342
|
|
|
|
189
|
|
|
|
360
|
|
Reduction due to expiration of statute of limitations
|
|
|
-
|
|
|
|
(94
|
)
|
|
|
(3,460
|
)
|
Adjustments to tax positions taken in prior years
|
|
|
195
|
|
|
|
(29
|
)
|
|
|
(236
|
)
|
Balance at end of period included in other liabilities
|
|
$
|
3,646
|
|
|
$
|
3,109
|
|
|
$
|
3,043
|
|
The Company reports accrued interest and penalties related to unrecognized tax benefits in income tax expense. For the fiscal year ended March 31, 2013, the Company recognized $0.1 million of tax-related interest expense and penalties and had $0.6 million of accrued interest and penalties at March 31, 2013. The Company expects that up to $3.1 million of the above balance could potentially be reversed within the next twelve months.
The Company files a consolidated U.S. federal income tax return and tax returns in various state and local jurisdictions. The Company’s subsidiaries also file tax returns in various foreign jurisdictions in which it operates. In the U.S., the statute of limitations for Internal Revenue Service examinations remains open for the Company’s federal income tax returns for fiscal years subsequent to 2009. The status of state and local and foreign tax examinations varies by jurisdiction. The Company does not anticipate any material adjustments to its financial statements resulting from tax examinations currently in progress.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
14. RETIREMENT PLANS:
The Company has a qualified 401(k) retirement savings plan which covers substantially all U.S. employees. The Company also offers a supplemental nonqualified deferred compensation plan (“SNQDC Plan”) for certain highly-compensated employees. Effective April 1, 2010, the Company matched 25% of the first 6% of employees’ annual aggregate contributions to both plans. Effective October 1, 2010, the Company increased the match to 50% of the first 6% of employee’s annual aggregate contributions. The Company may also contribute additional amounts to the plans at the discretion of the board of directors.
Company contributions for the above plans amounted to approximately $6.1 million, $6.4 million and $3.9 million in fiscal years 2013, 2012 and 2011, respectively. Included in both other current assets and other accrued liabilities are the assets and liabilities of the SNQDC Plan in the amount of $13.8 million and $13.3 million at March 31, 2013 and 2012, respectively.
The Company has one small defined benefit pension plan covering certain employees in Germany. During fiscal 2011, the Company had two small defined benefit pension plans covering certain European employees; however one plan was transferred to the purchaser of the disposed Netherlands operations at the end of fiscal 2011. Both the projected benefit obligation and accumulated benefit obligation were $0.6 million as of March 31, 2013 and March 31, 2012.
There was no fair value in the plan assets as of either March 31, 2013 or March 31, 2012. The excess of benefit obligations over plan assets was $0.6 million at March 31, 2013 and March 31, 2012.
15. FOREIGN OPERATIONS:
The Company attributes revenue to each geographic region based on the location of the Company’s operations. The following table shows financial information by geographic area for the years 2013, 2012 and 2011 (dollars in thousands):
Revenue
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
United States
|
|
$
|
954,467
|
|
|
$
|
969,961
|
|
|
$
|
951,642
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
105,278
|
|
|
$
|
118,278
|
|
|
$
|
118,072
|
|
Asia/Pacific
|
|
|
34,876
|
|
|
|
36,158
|
|
|
|
32,282
|
|
Other
|
|
|
4,738
|
|
|
|
6,227
|
|
|
|
11,759
|
|
All Foreign
|
|
$
|
144,892
|
|
|
$
|
160,663
|
|
|
$
|
162,113
|
|
|
|
$
|
1,099,359
|
|
|
$
|
1,130,624
|
|
|
$
|
1,113,755
|
|
Long-lived assets excluding financial instruments (dollars in thousands)
|
|
2013
|
|
|
2012
|
|
United States
|
|
$
|
654,550
|
|
|
$
|
678,044
|
|
Foreign
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
42,690
|
|
|
$
|
54,241
|
|
Asia/Pacific
|
|
|
28,139
|
|
|
|
26,900
|
|
Other
|
|
|
1,231
|
|
|
|
1,587
|
|
All Foreign
|
|
$
|
72,060
|
|
|
$
|
82,728
|
|
|
|
$
|
726,610
|
|
|
$
|
760,772
|
|
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.
Cash and cash equivalents, trade receivables, unbilled and notes receivable, short-term borrowings and trade payables - The carrying amount approximates fair value because of the short maturity of these instruments.
Long-term debt - The interest rate on the term loan and revolving credit agreement is adjusted for changes in market rates and therefore the carrying value of these loans approximates fair value. The estimated fair value of other long-term debt was determined based upon the present value of the expected cash flows considering expected maturities and using interest rates currently available to the Company for long-term borrowings with similar terms. At March 31, 2013, the estimated fair value of long-term debt approximates its carrying value.
Derivative instruments included in other liabilities - The carrying value is adjusted to fair value through other comprehensive income (loss) at each balance sheet date. The fair value is determined from an interest-rate futures model.
Under applicable accounting standards financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company assigned assets and liabilities to the hierarchy in the accounting standards, which is Level 1 - quoted prices in active markets for identical assets or liabilities, Level 2 - significant other observable inputs and Level 3 - significant unobservable inputs.
The following table presents the balances of assets and liabilities measured at fair value as of March 31, 2013 (dollars in thousands):
Fiscal 2013
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
13,771
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,771
|
|
Total assets
|
|
$
|
13,771
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities
|
|
|
-
|
|
|
|
752
|
|
|
|
-
|
|
|
|
752
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
752
|
|
|
$
|
-
|
|
|
$
|
752
|
|
Fiscal 2012
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
13,344
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,344
|
|
Total assets
|
|
$
|
13,344
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities
|
|
|
-
|
|
|
|
1,063
|
|
|
|
-
|
|
|
|
1,063
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
1,063
|
|
|
$
|
-
|
|
|
$
|
1,063
|
|
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
17. SEGMENT INFORMATION:
The Company reports segment information consistent with the way management internally disaggregates its operations to assess performance and to allocate resources. We regularly review our segments and the approach used by management to evaluate performance and allocate resources. The Company’s business segments consist of Marketing and data services, IT Infrastructure management, and Other services. The Marketing and data services segment includes the Company’s global lines of business for Customer Data Integration (CDI), Consumer Insight Solutions, Marketing Management Services, and Consulting and Agency Services. The IT Infrastructure management segment develops and delivers IT outsourcing and transformational solutions. The Other services segment includes the e-mail fulfillment business, the US risk business, and the UK fulfillment business.
Company management uses the revenues and earnings of the three operating segments, among other factors, for performance evaluation and resource allocation. The Company evaluates performance of the segments based on segment operating income. The Company’s calculation of segment operating income does not include inter-company transactions and allocates all corporate expenses, excluding those reported as impairments or gains, losses and other items. Because segment operating income excludes certain impairments and gains, losses and other items this measure is considered a non-GAAP financial measure, which is not a financial measure calculated in accordance with generally accepted accounting principles. Management believes segment operating income is a helpful measure in evaluating performance of the business segments. While management considers segment operating income to be a helpful measure of comparative operating performance, this measure should be considered in addition to, but not as a substitute for, measures of financial performance prepared in accordance with GAAP presented elsewhere in the financial statements. In addition, the Company’s calculation of segment operating income may be different from measures used by other companies and therefore comparability may be affected.
The following tables present information by business segment (dollars in thousands):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Marketing and data services
|
|
$
|
767,738
|
|
|
$
|
771,714
|
|
|
$
|
736,105
|
|
IT Infrastructure management
|
|
|
275,469
|
|
|
|
291,525
|
|
|
|
302,630
|
|
Other services
|
|
|
56,152
|
|
|
|
67,385
|
|
|
|
75,020
|
|
Total revenue
|
|
$
|
1,099,359
|
|
|
$
|
1,130,624
|
|
|
$
|
1,113,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and data services
|
|
$
|
80,513
|
|
|
$
|
95,820
|
|
|
$
|
87,254
|
|
IT Infrastructure management
|
|
|
29,330
|
|
|
|
24,988
|
|
|
|
24,467
|
|
Other services
|
|
|
(5,114
|
)
|
|
|
(4,804
|
)
|
|
|
(2,270
|
)
|
Corporate
|
|
|
(2,010
|
)
|
|
|
(30,441
|
)
|
|
|
(84,274
|
)
|
Income from operations
|
|
$
|
102,719
|
|
|
$
|
85,563
|
|
|
$
|
25,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and data services
|
|
$
|
52,782
|
|
|
$
|
61,443
|
|
|
$
|
69,428
|
|
IT Infrastructure management
|
|
|
60,042
|
|
|
|
66,497
|
|
|
|
67,876
|
|
Other services
|
|
|
3,384
|
|
|
|
6,722
|
|
|
|
9,051
|
|
Depreciation and amortization
|
|
$
|
116,208
|
|
|
$
|
134,662
|
|
|
$
|
146,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and data services
|
|
$
|
641,897
|
|
|
$
|
665,029
|
|
|
|
|
|
IT Infrastructure management
|
|
|
316,009
|
|
|
|
326,673
|
|
|
|
|
|
Other services
|
|
|
18,696
|
|
|
|
20,293
|
|
|
|
|
|
Corporate
|
|
|
211,104
|
|
|
|
220,782
|
|
|
|
|
|
Total assets
|
|
$
|
1,187,706
|
|
|
$
|
1,232,777
|
|
|
|
|
|
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
18. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA:
(dollars in thousands except per-share amounts)
|
|
Quarter ended
June 30,
2012
|
|
|
Quarter ended September 30, 2012
|
|
|
Quarter ended December 31, 2012
|
|
|
Quarter ended
March 31,
2013
|
|
Revenue
|
|
$
|
271,659
|
|
|
$
|
277,467
|
|
|
$
|
273,102
|
|
|
$
|
277,131
|
|
Gross profit
|
|
|
62,333
|
|
|
|
67,581
|
|
|
|
64,075
|
|
|
|
63,544
|
|
Income from operations
|
|
|
25,424
|
|
|
|
30,208
|
|
|
|
26,898
|
|
|
|
20,189
|
|
Net earnings
|
|
|
13,199
|
|
|
|
16,372
|
|
|
|
14,449
|
|
|
|
13,099
|
|
Net earnings attributable to Acxiom
|
|
|
13,333
|
|
|
|
16,511
|
|
|
|
14,525
|
|
|
|
13,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
0.17
|
|
|
|
0.22
|
|
|
|
0.19
|
|
|
|
0.18
|
|
Attributable to Acxiom stockholders
|
|
|
0.17
|
|
|
|
0.22
|
|
|
|
0.20
|
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
0.17
|
|
|
|
0.21
|
|
|
|
0.19
|
|
|
|
0.17
|
|
Attributable to Acxiom stockholders
|
|
|
0.17
|
|
|
|
0.21
|
|
|
|
0.19
|
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands except per-share amounts)
|
|
Quarter ended
June 30,
2011
|
|
|
Quarter ended September 30, 2011
|
|
|
Quarter ended December 31, 2011
|
|
|
Quarter ended
March 31,
2012
|
|
Revenue
|
|
$
|
276,044
|
|
|
$
|
286,432
|
|
|
$
|
280,893
|
|
|
$
|
287,255
|
|
Gross profit
|
|
|
57,755
|
|
|
|
68,945
|
|
|
|
66,968
|
|
|
|
73,467
|
|
Income from operations
|
|
|
20,704
|
|
|
|
27,051
|
|
|
|
15,518
|
|
|
|
22,290
|
|
Earnings from discontinued operations, net of tax
|
|
|
916
|
|
|
|
1,138
|
|
|
|
814
|
|
|
|
31,031
|
|
Net earnings
|
|
|
10,015
|
|
|
|
12,977
|
|
|
|
2,651
|
|
|
|
45,873
|
|
Net earnings attributable to Acxiom
|
|
|
10,975
|
|
|
|
12,292
|
|
|
|
7,930
|
|
|
|
46,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
0.11
|
|
|
|
0.15
|
|
|
|
0.02
|
|
|
|
0.19
|
|
From discontinued operations
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.40
|
|
Attributable to Acxiom stockholders
|
|
|
0.14
|
|
|
|
0.15
|
|
|
|
0.10
|
|
|
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
0.11
|
|
|
|
0.15
|
|
|
|
0.02
|
|
|
|
0.19
|
|
From discontinued operations
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.39
|
|
Attributable to Acxiom stockholders
|
|
|
0.13
|
|
|
|
0.15
|
|
|
|
0.10
|
|
|
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Some earnings per share amounts may not add due to rounding.
In the fourth quarter of fiscal 2013, the Company recorded $2.9 million in restructuring charges, offset by $0.9 million in other credits within gains, losses and other items, net, in the consolidated statement of operations.
In the fourth quarter of fiscal 2012, the Company recorded $12.6 million in restructuring charges included in gains, losses and other items, net in the consolidated statement of operations. In addition, the Company recorded $31.0 million, net of tax, as earnings from discontinued operations, including a gain on disposal of the discontinued operation.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013, 2012 AND 2011
In the third quarter of fiscal 2012, the Company recorded $17.8 million in impairment charges related to goodwill and other intangibles related to the Brazil operations. The related earn-out liability of $2.6 million was reduced to zero to reflect the expected outcome of the earn-out calculation.
In the second quarter of fiscal 2012, the Company recorded a net loss on disposal of $2.5 million in gains, losses, and other items, net and $0.9 million in net loss attributable to noncontrolling interest as a result of the disposal of its interest in Acxiom MENA – its operation in the Middle East.
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