(Unaudited)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
These condensed consolidated financial statements have been prepared by Acxiom Corporation (“Registrant,” “Acxiom” or “the Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC” or “the Commission”). In the opinion of the Registrant’s management all adjustments necessary for a fair presentation of the results for the periods included have been made and the disclosures are adequate to make the information presented not misleading. All such adjustments are of a normal recurring nature. Certain note information has been omitted because it has not changed significantly from that reflected in notes 1 through 18 of the Notes to Consolidated Financial Statements filed as part of Item 8 of the Registrant’s annual report on Form 10-K for the fiscal year ended March 31, 2014 (“2014 Annual Report”), as filed with the Commission on May 28, 2014. This report and the accompanying condensed consolidated financial statements should be read in connection with the 2014 Annual Report. The financial information contained in this report is not necessarily indicative of the results to be expected for any other period or for the full fiscal year ending March 31, 2015.
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 condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ from those estimates. Certain of the accounting policies used in the preparation of these condensed consolidated financial statements are complex and require management to make judgments and/or significant estimates regarding amounts reported or disclosed in these financial statements. Additionally, the application of certain of these accounting policies is governed by complex accounting principles and their interpretation. A discussion of the Company’s significant accounting principles and their application is included in note 1 of the Notes to Consolidated Financial Statements and in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s 2014 Annual Report.
Reclassifications
Certain amounts reported in previous periods have been reclassified to conform to the current presentation. On May 30, 2014 the Company substantially completed the sale of its U.K. call center operation, 2Touch, to Parseq Ltd., a European business process outsourcing service provider. Some assets of the 2Touch operation are subject to a second closing, expected to occur during the current fiscal year. The business qualified for treatment as discontinued operations during the current fiscal quarter. The results of operations and the balance sheet amounts pertaining to 2Touch have been classified as discontinued operations in the condensed consolidated financial statements. Refer to Note 4, Discontinued Operations, for more information regarding the sale.
2. EARNINGS (LOSS) PER SHARE AND STOCKHOLDERS’ EQUITY:
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):
|
|
For the quarter ended
June 30
|
|
|
|
2014
|
|
|
2013
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations
|
|
$
|
(6,072
|
)
|
|
$
|
12,503
|
|
Net earnings (loss) from discontinued operations
|
|
|
(1,532
|
)
|
|
|
592
|
|
Net earnings (loss)
|
|
$
|
(7,604
|
)
|
|
$
|
13,095
|
|
Net loss attributable to noncontrolling interest
|
|
|
-
|
|
|
|
(85
|
)
|
Net earnings (loss) attributable to Acxiom
|
|
$
|
(7,604
|
)
|
|
$
|
13,180
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
76,833
|
|
|
|
73,679
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.08
|
)
|
|
$
|
0.17
|
|
Discontinued operations
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
Net earnings (loss)
|
|
$
|
(0.10
|
)
|
|
$
|
0.18
|
|
Net loss attributable to noncontrolling interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Net earnings (loss) attributable to Acxiom
|
|
$
|
(0.10
|
)
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
76,833
|
|
|
|
73,679
|
|
Dilutive effect of common stock options, warrants, and restricted stock as computed under the treasury stock method
|
|
|
-
|
|
|
|
1,812
|
|
Diluted weighted-average shares outstanding
|
|
|
76,833
|
|
|
|
75,491
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.08
|
)
|
|
$
|
0.17
|
|
Discontinued operations
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
Net earnings (loss)
|
|
$
|
(0.10
|
)
|
|
$
|
0.17
|
|
Net loss attributable to noncontrolling interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Net earnings (loss) attributable to Acxiom
|
|
$
|
(0.10
|
)
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
Some earnings (loss) per share amounts may not add due to rounding.
Options and warrants to purchase shares of common stock and restricted stock units that were outstanding during the periods presented, but were not included in the computation of diluted earnings (loss) per share because the effect was antidilutive are shown below (in thousands, except per share amounts):
|
|
|
|
For the quarter ended
June 30
|
|
|
|
|
|
|
2014
|
|
2013
|
Number of shares outstanding under options, warrants and restricted stock units
|
|
|
|
|
|
1,872
|
|
4,018
|
Range of exercise prices for options and warrants
|
|
|
|
|
|
$21.17-$62.06
|
|
$21.06-$62.06
|
|
|
|
|
|
|
|
|
|
In addition to the antidilutive items shown above, because of the loss reported for the quarter ended June 30, 2014, all options, warrants, and restricted stock are excluded from the diluted weighted-average shares calculation since the effect would be antidilutive.
Stockholders’ Equity
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, on February 5, 2013, and again on November 18, 2013. Under the modified common stock repurchase program, the Company may purchase up to $250.0 million of its common stock through the period ending November 18, 2014. During the three months ended June 30, 2014, the Company had no common stock repurchases. Through June 30, 2014, the Company had repurchased 12.3 million shares of its stock for $192.6 million, leaving remaining capacity of $57.4 million under the stock repurchase program.
Accumulated Other Comprehensive Income
The accumulated balances for each component of other comprehensive income are as follows (dollars in thousands):
|
|
June 30,
2014
|
|
|
March 31,
2014
|
|
Foreign currency translation
|
|
$
|
14,603
|
|
|
$
|
13,686
|
|
Unrealized loss on interest rate swap
|
|
|
(175
|
)
|
|
|
(24
|
)
|
|
|
$
|
14,428
|
|
|
$
|
13,662
|
|
Noncontrolling Interest
During fiscal year 2011, the Company acquired a 70% interest in GoDigital (Acxiom Brazil), a data quality and precision marketing firm located in Brazil. Since Acxiom had voting control of the entity, its results were included in Acxiom’s consolidated results. The interest that was not Acxiom-owned was reflected as noncontrolling interest in the condensed consolidated statement of operations and the condensed consolidated balance sheets. During fiscal 2014, the Company acquired the balance of the outstanding equity interests it did not already own in Acxiom Brazil and, as a result, the subsidiary is now wholly-owned.
3. SHARE-BASED COMPENSATION:
Share-based Compensation Plans
The Company has stock option and equity compensation plans for which a total of 26.4 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 requires that nonqualified options also be priced at or above the fair market value of the common stock at the time of grant. At June 30, 2014, there were a total of 3.3 million shares available for future grants under the plans.
Stock Option Activity
The Company granted 381,509 stock options in the three months ended June 30, 2014. The per-share weighted-average fair value of the stock options granted during the three months ended June 30, 2014 was $8.14. 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 2.5%; expected option life of 4.4 years; expected volatility of 43% and a suboptimal exercise multiple of 1.4.
Option activity for the three months ended June 30, 2014 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, 2014
|
|
|
4,538,518
|
|
|
$
|
20.30
|
|
|
|
|
|
|
|
Granted
|
|
|
381,509
|
|
|
$
|
21.17
|
|
|
|
|
|
|
|
Exercised
|
|
|
(14,137
|
)
|
|
$
|
18.79
|
|
|
|
|
|
$
|
50
|
|
Forfeited or cancelled
|
|
|
(520,923
|
)
|
|
$
|
34.66
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2014
|
|
|
4,384,967
|
|
|
$
|
18.67
|
|
|
|
4.73
|
|
|
$
|
19,297
|
|
Exercisable at June 30, 2014
|
|
|
3,152,528
|
|
|
$
|
19.09
|
|
|
|
3.25
|
|
|
$
|
14,034
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Acxiom’s closing stock price on the last trading day of the quarter and the exercise price for each in-the-money option) that would have been realized by the option holders had option holders exercised their options on June 30, 2014. This amount changes based upon changes in the fair market value of Acxiom’s common stock.
Following is a summary of stock options outstanding and exercisable as of June 30, 2014:
|
|
|
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 - $ 8.90
|
|
|
|
39,668
|
|
3.61 years
|
|
$
|
8.74
|
|
|
|
39,668
|
|
|
$
|
8.74
|
|
$
|
11.08 - $ 14.42
|
|
|
|
1,728,984
|
|
6.01 years
|
|
$
|
13.21
|
|
|
|
1,115,733
|
|
|
$
|
13.04
|
|
$
|
15.10 - $ 19.76
|
|
|
|
686,167
|
|
2.20 years
|
|
$
|
16.38
|
|
|
|
686,167
|
|
|
$
|
16.38
|
|
$
|
20.44 - $ 25.00
|
|
|
|
1,590,000
|
|
5.15 years
|
|
$
|
22.32
|
|
|
|
990,364
|
|
|
$
|
22.95
|
|
$
|
26.33 - $ 29.30
|
|
|
|
115,358
|
|
1.03 years
|
|
$
|
27.94
|
|
|
|
115,358
|
|
|
$
|
27.94
|
|
$
|
32.85 - $ 35.16
|
|
|
|
91,812
|
|
2.76 years
|
|
$
|
34.45
|
|
|
|
72,260
|
|
|
$
|
34.88
|
|
$
|
40.88 - $ 62.06
|
|
|
|
132,978
|
|
1.13 years
|
|
$
|
41.82
|
|
|
|
132,978
|
|
|
$
|
41.82
|
|
|
|
|
|
|
4,384,967
|
|
4.73 years
|
|
$
|
18.67
|
|
|
|
3,152,528
|
|
|
$
|
19.09
|
|
Total expense related to stock options for the three months ended June 30, 2014 and 2013 was approximately $0.7 million and $0.5 million respectively. Future expense for these options is expected to be approximately $7.2 million over the next four years.
Stock Appreciation Right (SAR) Activity
During the three months ended June 30, 2014, the Company granted 245,404 performance-based SARs with a value at the date of grant of $0.5 million and having an exercise price of $40. All of the performance-based SARs granted in the current period vest subject to attainment of performance criteria established by the compensation committee of the board of directors. The units granted in the current period may vest in a number of SARs up to 100% of the award, based on the attainment of certain revenue targets for the period from April 1, 2014 to March 31, 2017. At vesting, the SARs will be automatically exercised, and the award recipient may receive a number of common stock shares equal to the number of SARs that are being exercised multiplied by the quotient of (a) the final Company stock market value (up to a maximum share value of $70) minus the SAR exercise price, divided by (b) the SAR exercise price. The SARs contain an accelerated exercise provision if the closing market price of the Company’s stock exceeds the $70 maximum share value for 20 consecutive trading days during the performance period. The grant date value of the performance-based SARs is determined using a Monte Carlo simulation model.
Following is a summary of SAR activity for the three months ended June 30, 2014:
|
|
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, 2014
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Granted
|
|
|
245,404
|
|
|
$
|
40.00
|
|
|
|
|
|
|
|
Outstanding at June 30, 2014
|
|
|
245,404
|
|
|
$
|
40.00
|
|
|
|
2.76
|
|
|
$
|
-
|
|
Exercisable at June 30, 2014
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Total expense related to SARs for the three months ended June 30, 2014 was not material. Future expense for these SARs is expected to be approximately $0.5 million over the next three years.
Restricted Stock Unit Activity
During the three months ended June 30, 2014, the Company granted time-vesting restricted stock units covering 395,902 shares of common stock with a value at the date of grant of $8.4 million. Of the restricted stock units granted in the current period, 387,872 vest in equal annual increments over four years and 8,030 vest in one year. Valuation of these units is equal to the quoted market price for the shares on the date of grant.
Non-vested time-vesting restricted stock unit activity for the three-month period ending June 30, 2014 was 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, 2014
|
|
|
1,078,029
|
|
|
$
|
18.46
|
|
|
|
2.17
|
|
Granted
|
|
|
395,902
|
|
|
$
|
21.17
|
|
|
|
|
|
Vested
|
|
|
(302,774
|
)
|
|
$
|
16.19
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
(16,091
|
)
|
|
$
|
21.65
|
|
|
|
|
|
Outstanding at June 30, 2014
|
|
|
1,155,066
|
|
|
$
|
19.94
|
|
|
|
2.65
|
|
During the three months ended June 30, 2014, the Company granted performance-based restricted stock units covering 232,274 shares of common stock with a value at the date of grant of $4.5 million. All of the performance-based restricted stock units granted in the current period vest subject to attainment of performance criteria established by the compensation committee of the board of directors. The units granted in the current period 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 2017, with a modifier based on the total shareholder return of Acxiom stock compared to total shareholder return of a group of peer companies established by the compensation committee of the board of directors for the period from April 1, 2014 to March 31, 2017. The value of the performance units is determined using a Monte Carlo simulation model.
Non-vested performance-based restricted stock unit activity for the three-month period ending June 30, 2014 was 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, 2014
|
|
|
1,066,828
|
|
|
$
|
14.19
|
|
|
|
0.91
|
|
Granted
|
|
|
232,274
|
|
|
$
|
19.29
|
|
|
|
|
|
Vested
|
|
|
(115,086
|
)
|
|
$
|
14.38
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
(4,474
|
)
|
|
$
|
26.00
|
|
|
|
|
|
Outstanding at June 30, 2014
|
|
|
1,179,542
|
|
|
$
|
15.13
|
|
|
|
1.16
|
|
Total expense related to all restricted stock units in the three months ended June 30, 2014 and 2013 was approximately $3.3 million and $2.7 million respectively. Future expense for these restricted stock units is expected to be approximately $28.9 million over the next four years.
Other Performance Unit Activity
During the three months ended June 30, 2014, the Company granted 201,464 performance-based units with a value at the date of grant of $1.0 million. All of the performance-based units granted in the current period vest subject to attainment of performance criteria established by the compensation committee of the board of directors. The units granted in the current period may vest in a number of units up to 100% of the award, based on the attainment of certain revenue targets for the period from April 1, 2014 to March 31, 2017. At vesting, the award recipient may receive a number of common stock shares equal to the number of units vested multiplied by a share price factor. The share price factor modifies the final number of common shares awarded based on the Company’s stock price having a range of 0% at a $40 Company stock price, or below, to 100% at a $70 Company stock price. The units also contain an accelerated exercise provision if the closing market price of the Company’s stock exceeds the $70 maximum share value for 20 consecutive trading days during the performance period. The grant date value of the performance-based units is determined using a Monte Carlo simulation model.
Following is a summary of other performance unit activity for the three months ended June 30, 2014:
|
|
Number
of shares
|
|
|
Weighted average fair value per
share at grant date
|
|
|
Weighted-average remaining contractual term (in years)
|
|
Outstanding at March 31, 2014
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Granted
|
|
|
201,464
|
|
|
$
|
5.18
|
|
|
|
|
|
Outstanding at June 30, 2014
|
|
|
201,464
|
|
|
$
|
5.18
|
|
|
|
2.76
|
|
Total expense related to other performance units for the three months ended June 30, 2014 was not material. Future expense for these performance units is expected to be approximately $1.0 million over the next three years.
4. DISCONTINUED OPERATIONS:
On May 30, 2014, the Company substantially completed the sale of its U.K. call center operation, 2Touch, to Parseq Ltd., a European business process outsourcing service provider. Some assets of the 2Touch operation are subject to a second closing, expected to occur during the current fiscal year. The business qualified for treatment as discontinued operations during the current fiscal quarter. The results of operations, cash flows, and the balance sheet amounts pertaining to 2Touch have been classified as discontinued operations in the condensed consolidated financial statements.
The 2Touch business unit was included in the Other services segment in the Company’s segment results presented in prior periods. However, in the current fiscal quarter, the 2Touch business unit is excluded from segment results and segregated as discontinued operations.
Summary results of operations of the 2Touch business unit for the three months ended June 30, 2014 and 2013, respectively, are segregated and included in earnings (loss) from discontinued operations, net of tax, in the condensed consolidated statements of operations and are as follows (dollars in thousands):
|
|
For the quarter ended
June 30
|
|
|
|
2014
|
|
|
2013
|
|
Revenues
|
|
$
|
5,762
|
|
|
$
|
9,015
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations before income taxes
|
|
$
|
343
|
|
|
$
|
614
|
|
Loss on sale of discontinued operations before income taxes
|
|
|
(1,875
|
)
|
|
|
-
|
|
Income taxes
|
|
|
-
|
|
|
|
(22
|
)
|
Earnings (loss) from discontinued operations, net of tax
|
|
$
|
(1,532
|
)
|
|
$
|
592
|
|
|
|
|
|
|
|
|
|
|
The carrying amounts of the major classes of assets and liabilities of the 2Touch business unit are segregated and included in assets from discontinued operations and liabilities from discontinued operations in the condensed consolidated balance sheets and are as follows (dollars in thousands):
|
|
June 30,
2014
|
|
|
March 31,
2014
|
|
Trade accounts receivable, net
|
|
$
|
886
|
|
|
$
|
6,451
|
|
Other current assets
|
|
|
5
|
|
|
|
881
|
|
Other assets, net
|
|
|
249
|
|
|
|
-
|
|
Assets from discontinued operations
|
|
$
|
1,140
|
|
|
$
|
7,332
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable and accrued expenses
|
|
$
|
380
|
|
|
$
|
4
|
|
Accrued payroll and related expenses
|
|
|
178
|
|
|
|
1,790
|
|
Other accrued expenses
|
|
|
1,040
|
|
|
|
2,350
|
|
Deferred revenue
|
|
|
83
|
|
|
|
106
|
|
Liabilities from discontinued operations
|
|
$
|
1,681
|
|
|
$
|
4,250
|
|
|
|
|
|
|
|
|
|
|
5. ACQUISITIONS
Subsequent Event
On July 1, 2014, the Company completed the acquisition of LiveRamp, Inc., a leading service provider for onboarding customer data into digital marketing applications. As a result of this transaction, LiveRamp is now a wholly-owned subsidiary of the Company. Under the terms of the merger agreement, the Company paid $265.7 million, net of cash acquired, in cash for all outstanding shares of LiveRamp, resulting in a 100% change in control of LiveRamp. The purchase price for the acquisition will also include certain replacement stock options issued to LiveRamp employees. The Company has not yet completed the purchase accounting for the acquisition. Results of operations for LiveRamp will be included in the Company’s condensed consolidated financial statements from the date of acquisition.
Upon the completion of the acquisition on July 1, 2014, the Company incurred a liability amounting to $0.8 million payable to a third party for transaction fees relating to the acquisition. In addition, transaction fees related to the acquisition were $0.8 million for the three months ended June 30, 2014.
LiveRamp will be included in the Marketing and data services segment. LiveRamp’s annual revenue for its most recent fiscal year was approximately $22 million.
6. OTHER CURRENT AND NONCURRENT ASSETS:
Other current assets consist of the following (dollars in thousands):
|
|
June 30,
2014
|
|
|
March 31,
2014
|
|
Prepaid expenses
|
|
$
|
36,915
|
|
|
$
|
40,339
|
|
Assets of non-qualified retirement plan
|
|
|
14,069
|
|
|
|
13,900
|
|
Other miscellaneous assets
|
|
|
660
|
|
|
|
245
|
|
Other current assets
|
|
$
|
51,644
|
|
|
$
|
54,484
|
|
Other noncurrent assets consist of the following (dollars in thousands):
|
|
June 30,
2014
|
|
|
March 31,
2014
|
|
Acquired intangible assets, net
|
|
$
|
220
|
|
|
$
|
281
|
|
Deferred data acquisition costs
|
|
|
4,275
|
|
|
|
4,502
|
|
Deferred expenses
|
|
|
13,895
|
|
|
|
16,143
|
|
Other miscellaneous noncurrent assets
|
|
|
4,217
|
|
|
|
3,551
|
|
Noncurrent assets
|
|
$
|
22,607
|
|
|
$
|
24,477
|
|
The acquired intangible assets noted above represent customer relationship intangibles acquired through purchase acquisitions, net of accumulated amortization.
7. 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, 2014 indicated no potential impairment of its goodwill balances.
The carrying amount of goodwill, by operating segment, at June 30, 2014, and the changes in those balances are presented in the following table.
(dollars in thousands)
|
|
Marketing and Data Services
|
|
|
IT Infrastructure Management
|
|
|
Total
|
|
Balance at March 31, 2014
|
|
$
|
286,876
|
|
|
$
|
71,508
|
|
|
$
|
358,384
|
|
Change in foreign currency translation adjustment
|
|
|
287
|
|
|
|
-
|
|
|
|
287
|
|
Balance at June 30, 2014
|
|
$
|
287,163
|
|
|
$
|
71,508
|
|
|
$
|
358,671
|
|
Goodwill by component included in Marketing and Data Services as of June 30, 2014 is US, $266.7 million; Australia, $13.6 million; China, $6.0 million; and Brazil, $0.9 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 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 annual 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. Management believes the resulting 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. At April 1, 2014, Acxiom’s segments were the Marketing and data services segment and the IT Infrastructure management segment. Because the Marketing and data services segment contains 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 five components at the beginning of the year. The goodwill amounts as of April 1, 2014 included in
each
component
tested were
: U.S. Marketing and data services, $266.7 million; Australia Marketing and data services, $13.3 million; China Marketing and data services, $6.0 million; Brazil Marketing and data services, $0.9 million; and U.S. Infrastructure management, $71.5 million.
As of
April
1, 2014,
each
of the
components
had an estimated fair value in excess of its carrying value, indicating no impairment. All of the components had an excess fair value exceeding 35%, except for U.S. Infrastructure management. The fair value of the U.S. Infrastructure management segment has decreased by a significant amount since the prior annual test.
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 2016. 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.
8. LONG-TERM DEBT:
Long-term debt consists of the following (dollars in thousands):
|
|
June 30,
2014
|
|
|
March 31,
2014
|
|
Term loan credit agreement
|
|
$
|
288,750
|
|
|
$
|
292,500
|
|
Capital leases and installment payment obligations on land, buildings and equipment payable in monthly payments of principal plus interest at rates ranging from approximately 4% to 8%; remaining terms up to eight years
|
|
|
9,989
|
|
|
|
12,990
|
|
Other debt and long-term liabilities
|
|
|
11,604
|
|
|
|
12,120
|
|
Total long-term debt and capital leases
|
|
|
310,343
|
|
|
|
317,610
|
|
Less current installments
|
|
|
31,368
|
|
|
|
28,567
|
|
Long-term debt, excluding current installments
|
|
$
|
278,975
|
|
|
$
|
289,043
|
|
|
|
|
|
|
|
|
|
|
The Company’s amended and restated credit agreement provides for (1) term loans up to an aggregate principal amount of $300 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 $300 million.
The term loan agreement is payable in quarterly installments of $3.8 million through September 2014, followed by quarterly installments of $7.5 million through September 2017, followed by quarterly installments of $11.3 million through June 2018, with a final payment of $161.3 million due October 9, 2018. The revolving loan commitment expires October 9, 2018.
Term loan and revolving credit facility borrowings bear interest at LIBOR or at an alternative base rate plus a credit spread. At June 30, 2014, the LIBOR credit spread was 2.00%. There were no revolving credit borrowings outstanding at June 30, 2014 or March 31, 2014. The weighted-average interest rate on term loan borrowings at June 30, 2014 was 2.3%. Outstanding letters of credit at June 30, 2014 were $2.2 million.
The term loan allows for 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 June 30, 2014, 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 March 10, 2014, the Company entered into an interest rate swap agreement. The agreement provides for the Company to pay interest through March 10, 2017 at a fixed rate of 0.98% plus the applicable credit spread on $50.0 million notional amount, while receiving interest for the same period at the LIBOR rate on the same notional amount. The LIBOR rate as of June 30, 2014 was 0.23%. The swap was entered into as a cash flow hedge against LIBOR interest rate movements on the term loan. The Company assesses the effectiveness of the hedge based on the hypothetical derivative method. There was no ineffectiveness for the period ended June 30, 2014. Under the hypothetical derivative method, the cumulative change in fair value of the actual swap is compared to the cumulative change in fair value of the hypothetical swap, which has terms that identically match the critical terms of the hedged transaction. Thus, the hypothetical swap is presumed to perfectly offset the hedged cash flows. The change in the fair value of the hypothetical swap will then be regarded as a proxy for the present value of the cumulative change in the expected future cash flows from the hedged transactions. All of the fair values are derived from an interest-rate futures model. As of June 30, 2014, the hedge relationship still qualified as an effective hedge under applicable accounting standards. Consequently, all changes in fair value of the derivative will be 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 $0.2 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 June 30, 2014.
9. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Trade accounts receivable are presented net of allowances for doubtful accounts, returns and credits of $4.9 million at June 30, 2014 and March 31, 2014.
10. 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. Prior to the current fiscal quarter, the Company’s business segments consisted of Marketing and data services, IT Infrastructure management, and Other services. The Other services segment consisted solely of the Company’s UK fulfillment business, 2Touch. On May 30, 2014, the Company substantially completed the sale of 2Touch to Parseq Ltd., a European business process outsourcing service provider (see Note 4 for further details). As a result, in the current fiscal quarter, the 2Touch business unit is excluded from segment results and reported as discontinued operations. 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 (including the Audience Operating System), and E-mail Fulfillment and Agency Services. The IT Infrastructure management segment develops and delivers IT outsourcing and transformational solutions.
Company management uses the revenues and earnings of the remaining two operating segments, among other factors, for performance evaluation and resource allocation. The Company evaluates performance of the segments based on segment operating income (loss). The Company’s calculation of segment operating income (loss) does not include inter-company transactions and allocates all corporate expenses, excluding those reported as impairments or gains, losses and other items, as well as certain business separation and transformation expenses.
The following tables present information by business segment (dollars in thousands):
|
|
For the three months ended
June 30
|
|
|
|
2014
|
|
|
2013
|
|
Revenue:
|
|
|
|
|
|
|
Marketing and data services
|
|
$
|
186,683
|
|
|
$
|
187,793
|
|
IT Infrastructure management
|
|
|
55,532
|
|
|
|
69,385
|
|
Total revenue
|
|
$
|
242,215
|
|
|
$
|
257,178
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
Marketing and data services
|
|
$
|
10,272
|
|
|
$
|
12,697
|
|
IT Infrastructure management
|
|
|
4,739
|
|
|
|
10,761
|
|
Corporate
|
|
|
(19,489
|
)
|
|
|
-
|
|
Income (loss) from operations
|
|
$
|
(4,478
|
)
|
|
$
|
23,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES:
The Company records costs associated with employee terminations and other exit activity in accordance with applicable accounting standards when those costs become probable and are reasonably estimable. The following table summarizes the restructuring activity for the three months ended June 30, 2014 (dollars in thousands):
|
|
Associate-related reserves
|
|
|
Ongoing
contract costs
|
|
|
Total
|
|
Balance at March 31, 2014
|
|
$
|
6,542
|
|
|
$
|
10,217
|
|
|
$
|
16,759
|
|
Payments
|
|
|
(4,570
|
)
|
|
|
(653
|
)
|
|
|
(5,223
|
)
|
Charges and adjustments
|
|
|
4,040
|
|
|
|
2,459
|
|
|
|
6,499
|
|
Balance at June 30, 2014
|
|
$
|
6,012
|
|
|
$
|
12,023
|
|
|
$
|
18,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above balances are included in accrued expenses and other liabilities on the condensed consolidated balance sheet.
Restructuring Plans
In the three months ended June 30, 2014, the Company recorded a total of $6.7 million in restructuring charges and adjustments included in gains, losses and other items in the condensed consolidated statement of operations. The expense included severance and other associate-related charges of $4.0 million, lease accruals of $2.5 million, and asset write offs of $0.2 million.
The associate-related accruals of $4.0 million relate to the termination of associates in the United States and Europe and include adjustments of $1.0 million to the fiscal 2014 restructuring plan. Of the amount accrued for 2015, $2.3 million remained accrued as of June 30, 2014. These costs are expected to be paid out in fiscal 2015.
The lease accruals of $2.5 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 properties. The Company has ceased using certain leased office facilities. The Company intends to attempt to sublease the 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 the leases. The fair value of these liabilities is based on a net present value model using a credit-adjusted risk-free rate. The liability will be paid out over the remainder of the leased properties’ terms, which continue through June 2017. 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 liabilities, which would impact net income in the period the adjustment is recorded. The remaining amount accrued at June 30, 2014 is $2.5 million.
In fiscal 2014, the Company recorded a total of $17.8 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 charges of $14.0 million and lease accruals of $3.8 million.
The associate-related accruals of $14.0 million relate to the termination of associates in the United States, Australia, China, and Europe. As noted above, this accrual was increased by $1.0 million in fiscal 2015 as a result of additional associate terminations. Of the amount accrued, $3.6 million remained accrued as of June 30, 2014. These costs are expected to be paid out in fiscal 2015.
The lease accruals of $3.8 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. The Company has ceased using a portion of a certain leased office facility. The Company intends to attempt to sublease the facility space 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 the lease. The fair value of this liability is based on a net present value model using a credit-adjusted risk-free rate. The liability will be paid out over the remainder of the leased property’s term, which continues through November 2021. 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 this lease, which would impact net income in the period the adjustment is recorded. The remaining amount accrued at June 30, 2014 is $3.5 million.
As part of its restructuring plans in fiscal 2013, the Company recorded $2.8 million of severance and other associate-related payments in restructuring charges and adjustments included in gains, losses and other items in the consolidated statement of operations. The accruals relate to the termination of associates in the United States, Australia, and Europe. Of the amount recorded, $0.1 million remained accrued as of June 30, 2014. These costs are expected to be paid out in fiscal 2015.
As part of its restructuring plans in fiscal 2012, the Company recorded lease accruals of $2.6 million in restructuring charges and adjustments 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 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 June 30, 2014 is $0.9 million.
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 June 30, 2014 is $4.9 million.
Gains, Losses and Other Items
Gains, losses and other items for each of the periods presented are as follows (dollars in thousands):
|
|
For the three months ended
June 30
|
|
|
|
2014
|
|
|
2013
|
|
Restructuring plan charges and adjustments
|
|
|
6,672
|
|
|
|
-
|
|
LiveRamp acquisition-related costs
|
|
|
780
|
|
|
|
-
|
|
|
|
$
|
7,452
|
|
|
$
|
-
|
|
12. 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 condensed 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. The Company maintains insurance coverage above certain limits. Listed below is one matter pending against the Company and one of its subsidiaries for which the potential exposure is considered material to the Company’s condensed consolidated financial statements.
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 (now known as Acxiom Identity Solutions, LLC), in the United States District Court for the Eastern District of Virginia. This action seeks 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 the 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 the subject of an Acxiom report for which no permissible purpose existed. The complaint alleges various violations of the Fair Credit Reporting Act. The parties have reached a tentative settlement agreement and the Company has accrued $3.7 million as its estimate of the probable loss associated with this matter. The Company believes the chances of additional loss are remote.
In the opinion of management, the ultimate disposition of this matter 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 26 years of $123.6 million.
In connection with the disposal of certain assets, the Company has guaranteed a lease for the buyer of the assets. This guarantee was made by the Company primarily to facilitate favorable financing terms for the third party. Should the third party default, the Company would be required to perform under this guarantee. At June 30, 2014 the Company’s maximum potential future payments under this guarantee were $1.4 million.
13. INCOME TAX
In determining the quarterly provision for income taxes, the Company makes its best estimate of the effective tax rate expected to be applicable for the full fiscal year. The rate for the current fiscal year is impacted by losses in foreign jurisdictions. The Company does not record a tax benefit for certain of these losses due to uncertainty of future benefit.
14. 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 June 30, 2014, 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 June 30, 2014 (dollars in thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
14,069
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,069
|
|
Total assets
|
|
$
|
14,069
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities
|
|
$
|
-
|
|
|
$
|
175
|
|
|
$
|
-
|
|
|
$
|
175
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
175
|
|
|
$
|
-
|
|
|
$
|
175
|
|