William T. Dillard II
| Director (Non-Executive Chairman of the Board)
| | | | | | | | Michael J. Durham* | Director | | May 27, 201125, 2012 |
Michael J. Durham
Michael J. Durham | | | | | | | | Jerry D. Gramaglia* | Director (Non-Executive Chairman of the Board) | | May 25, 2012 | Jerry D. Gramaglia | | | | | | | | Ann Die Hasselmo* | Director | | May 25, 2012 | Ann Die Hasselmo | | | | | | | | William J. Henderson* | Director | | May 25, 2012 | William J. Henderson | | | | | | | | Scott E. Howe* | Director, CEO & President (principal executive officer) | | May 27, 2011 25, 2012 |
Jerry D. GramagliaScott E. Howe | | | |
Ann Die Hasselmo
William J. Henderson
| Director | | May 27, 2011 25, 2012 |
| | | | Kevin M. Twomey* | Director | | May 27, 201125, 2012 |
R. Halsey Wise*
| Director
| | May 27, 2011
| |
Christopher W. Wolf* /s/Warren C. Jenson
Christopher W. Wolf �� Warren C. Jenson | CFOChief Financial Officer & Executive Vice President (principal financial
and accounting officer) | | May 27, 2011 25, 2012 | |
| | |
*By: | /s/ Catherine L. Hughes | |
Catherine L. Hughes Attorney-in-Fact
Selected Financial Data | | | F-2 | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | | F-3 | | Management’s Report on Internal Control Over Financial Reporting | | | F-20 | F-24 | Reports of Independent Registered Public Accounting Firm | | | F-21 | F-25 | Annual Financial Statements: | | | | | Consolidated Balance Sheets as of March 31, 20112012 and 20102011 | | | F-23 | F-27 | Consolidated Statements of Operations for the years ended March 31, 2012, 2011 2010 and 20092010 | | | F-24 | F-28 | Consolidated Statements of Equity and Comprehensive Income (Loss) for the years ended March 31, 2012, 2011 2010 and 20092010 | | | F-25 | F-29 | Consolidated Statements of Cash Flows for the years ended March 31, 2012, 2011 2010 and 20092010 | | | F-26 | F-30 | Notes to the Consolidated Financial Statements | | | F-28 | F-32 |
ACXIOM CORPORATION SELECTED FINANCIAL DATA (In thousands, except per share data)
Years ended March 31, | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | | | 2012 | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | Statement of operations data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenue | | $ | 1,159,970 | | | $ | 1,099,235 | | | $ | 1,276,573 | | | $ | 1,384,079 | | | $ | 1,390,511 | | | $ | 1,130,624 | | | $ | 1,113,755 | | | $ | 1,063,598 | | | $ | 1,235,711 | | | $ | 1,339,765 | | Net earnings (loss) from continuing operations | | | $ | 37,617 | | | $ | (31,838 | ) | | $ | 43,427 | | | $ | 36,498 | | | $ | (9,624 | ) | Net earnings from discontinued operations, net of tax | | | | 33,899 | | | | 3,396 | | | | 732 | | | | 1,006 | | | | 1,844 | | Net earnings (loss) | | $ | (28,442 | ) | | $ | 44,159 | | | $ | 37,504 | | | $ | (7,780 | ) | | $ | 67,873 | | | $ | 71,516 | | | $ | (28,442 | ) | | $ | 44,159 | | | $ | 37,504 | | | $ | (7,780 | ) | Net earnings (loss) attributable to Acxiom | | $ | (23,147 | ) | | $ | 44,549 | | | $ | 37,504 | | | $ | (7,780 | ) | | $ | 67,873 | | | $ | 77,263 | | | $ | (23,147 | ) | | $ | 44,549 | | | $ | 37,504 | | | $ | (7,780 | ) | Earnings (loss) per share: | | | | | | | | | | | | | | | | | | | | | | Basic | | $ | (0.36 | ) | | $ | 0.56 | | | $ | 0.48 | | | $ | (0.10 | ) | | $ | 0.82 | | | Diluted | | $ | (0.36 | ) | | $ | 0.55 | | | $ | 0.48 | | | $ | (0.10 | ) | | $ | 0.80 | | | Earnings (loss) per share attributable to Acxiom stockholders: | | | | | | | | | | | | | | | | | | | | | | Basic | | $ | (0.29 | ) | | $ | 0.56 | | | $ | 0.48 | | | $ | (0.10 | ) | | $ | 0.82 | | | Diluted | | $ | (0.29 | ) | | $ | 0.56 | | | $ | 0.48 | | | $ | (0.10 | ) | | $ | 0.80 | | | Basic earnings (loss) per share: | | | | | | | | | | | | | | | | | | | | | | Net earnings (loss) from continuing operations | | | $ | 0.47 | | | $ | (0.40 | ) | | $ | 0.55 | | | $ | 0.47 | | | $ | (0.12 | ) | Net earnings from discontinued operations | | | | 0.43 | | | | 0.04 | | | | 0.01 | | | | 0.01 | | | | 0.02 | | Net earnings (loss) | | | $ | 0.90 | | | $ | (0.36 | ) | | $ | 0.56 | | | $ | 0.48 | | | $ | (0.10 | ) | Net earnings (loss) attributable to Acxiom | | | $ | 0.97 | | | $ | (0.29 | ) | | $ | 0.56 | | | $ | 0.48 | | | $ | (0.10 | ) | Diluted earnings (loss) per share: | | | | | | | | | | | | | | | | | | | | | | Net earnings (loss) from continuing operations | | | $ | 0.47 | | | $ | (0.40 | ) | | $ | 0.54 | | | $ | 0.47 | | | $ | (0.12 | ) | Net earnings from discontinued operations | | | | 0.42 | | | | 0.04 | | | | 0.01 | | | | 0.01 | | | | 0.02 | | Net earnings (loss) | | | $ | 0.89 | | | $ | (0.36 | ) | | $ | 0.55 | | | $ | 0.48 | | | $ | (0.10 | ) | Net earnings (loss) attributable to Acxiom | | | $ | 0.96 | | | $ | (0.29 | ) | | $ | 0.56 | | | $ | 0.48 | | | $ | (0.10 | ) | Cash dividend per common share | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.12 | | | $ | 0.12 | | | $ | 0.22 | | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.12 | | | $ | 0.12 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of March 31, | | | 2011 | | | | 2010 | | | | 2009 | | | | 2008 | | | | 2007 | | | | 2012 | | | | 2011 | | | | 2010 | | | | 2009 | | | | 2008 | | Balance sheet data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current assets | | $ | 459,250 | | | $ | 458,705 | | | $ | 458,522 | | | $ | 384,508 | | | $ | 380,495 | | | $ | 472,005 | | | $ | 480,276 | | | $ | 458,705 | | | $ | 458,522 | | | $ | 384,508 | | Current liabilities | | $ | 229,494 | | | $ | 255,056 | | | $ | 254,554 | | | $ | 339,626 | | | $ | 387,788 | | | $ | 265,616 | | | $ | 229,494 | | | $ | 255,056 | | | $ | 254,554 | | | $ | 339,626 | | Total assets | | $ | 1,306,625 | | | $ | 1,363,420 | | | $ | 1,366,792 | | | $ | 1,471,304 | | | $ | 1,623,523 | | | $ | 1,226,851 | | | $ | 1,306,625 | | | $ | 1,363,420 | | | $ | 1,366,792 | | | $ | 1,471,304 | | Long-term debt, excluding current installments | | $ | 394,260 | | | $ | 458,629 | | | $ | 537,272 | | | $ | 575,308 | | | $ | 648,879 | | | $ | 251,886 | | | $ | 394,260 | | | $ | 458,629 | | | $ | 537,272 | | | $ | 575,308 | | Total equity | | $ | 591,033 | | | $ | 578,497 | | | $ | 503,414 | | | $ | 496,256 | | | $ | 485,225 | | | $ | 611,855 | | | $ | 591,033 | | | $ | 578,497 | | | $ | 503,414 | | | $ | 496,256 | |
The selected financial data for the periods reported above has been derived from the consolidated financial statements. This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes. Previously reported amounts have been reclassified as a result of the discontinued operations. The historical results are not necessarily indicative of results to be expected in any future period.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
We present Management’s Discussion and Analysis of Financial Condition and Results of Operations in seven parts: Introduction and Overview, Results of Operations, Capital Resources and Liquidity, Seasonality and Inflation, Non-U.S. Operations, Critical Accounting Policies, and New Accounting Pronouncements.
Introduction and Overview
Acxiom is a recognized leader in marketing servicestechnology and technologyservices that enable marketers to successfully manage audiences, personalize consumer experiences and create profitable customer relationships. Our superior industry-focused, consultative approach combines consumer data and analytics, databases, data integration and consulting solutions for personalized, multichannel marketing strategies. Acxiom leverages over 40 years of experience inof data management to deliver high-performance, highly secure, reliable information management services. 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 Asia-Pacific and the Middle East.Asia-Pacific region.
Effective October 1, 2011, we realigned our business segments to better reflect the way we assess the business. Our new 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 U.S. risk business, and the UK fulfillment business. The segment results do not include any inter-company transactions. Additionally, items reported as impairment expense or gains, losses, and other items, net on the consolidated statement of operations are excluded from segment results.
During fiscal 2012 we announced the sale of our background screening unit, Acxiom Information Security Systems (AISS). This transaction closed on February 1, 2012. AISS results are presented as discontinued operations in the consolidated balance sheets and the consolidated statement of operations. Revenue and expenses related to discontinued operations as well as the gain from sale of the business are presented together, net of tax, in the statement of operations for all periods presented. Unless otherwise indicated, we refer to captions such as revenues, earnings, and earnings per share from continuing operations attributable to the Company simply as “revenues”, “earnings”, and “earnings per share” throughout this Management’s Discussion and Analysis. Similarly, discussion of other matters in our consolidated financial statements relates to continuing operations unless otherwise indicated.
As the Company completeswe complete fiscal 20112012 and lookslook ahead to 2012 the2013, our Company is in a transition. The most significant challenges facing the Company involve putting in placetransitioning to a new management team and growing the business for the long term. The Company’s board of directors is searching forexecutive leadership team. We named a new CEO and expects to search forchief executive officer on July 25, 2011, a new CFO once thechief financial officer on January 11, 2012, a new CEO is in place.
Fiscal 2011chief revenue growth overall was 5.5% compared to the previous year. The Products segment ended the year strong, but Services was flat in the fourth quarter due to the loss of an Infrastructure Management client during the fourth quarter. Going intoofficer on January 31, 2012 and a new chief product and engineering officer on April 19, 2012. During fiscal 2012 we expect current trendsannounced plans to continue although the mix of businesssignificantly accelerate investment in product development in fiscal 2013, which management believes will help drive revenue growth may be different, with core datain fiscal 2014 and marketing services business growth offsetting a challenging year in the Infrastructure Management business due to the client loss.beyond.
Highlights of the most recently completed fiscal year are identified below.
· | Revenue of $1.160 billion, up 5.5 percent from $1.099$1.131 billion, a year ago, an1.5% increase of $60.7 millionfrom $1.114 billion in annual revenue.the prior fiscal year. |
· | Income from operations of $30.9was $85.6 million compared to $98.8$25.2 million lastin the prior fiscal year. |
· | Earnings from discontinued operations include a pretax gain of $48.4 million, or $30.9 million net of tax, from the sale of AISS. |
· | Diluted earnings (loss) per share attributable to Acxiom stockholders of ($0.29)was $0.47 compared to $0.56($0.40) in the prior fiscal 2010. |
· | Pre-tax earnings of $5.6 million, compared to pre-tax earnings of $76.8 million in fiscal 2010.year. |
· | Operating cash flow for the fiscal year was $166.2$229.5 million compared to $239.3$166.2 million in the prior year. |
· | Gross margin was 23.7 percent, compared to 23.6 percent for fiscal 2010.year. |
· | The Company recorded an$17.8 million in impairment charge of $79.7 millioncharges related to goodwill and other intangibles related to the Brazil operations. The related earn-out liability was reduced to zero to reflect the expected outcome of the earn-out calculation. |
· | The Company disposed of its Internationalownership interest in Acxiom MENA - its operations in the Middle East. The Company recorded a net loss on the disposal of $2.5 million in gains, losses, and other items, net, and $0.9 million in net loss attributable to noncontrolling interest in the consolidated statement of operations. |
· | The Company recorded $4.4$12.6 million in restructuring charges and adjustments included in gains, losses and other items in the consolidated statement of operations. |
· | The Company recorded a $3.3 million loss in gains, losses and other items in the consolidated statement of operations resulting from the disposal of its operations in Portugal and The Netherlands. |
· | The Company made term loan prepayments of $66.0$125.0 million. |
· | The Company completed the acquisitionsacquired $68.2 million of 100% of the outstanding sharesits stock as part of a digital marketing business (“XYZ”) operating in Australia and New Zealand, and a 70% interest in GoDigital Tecnologia E Participacoes, Ltda. (“GoDigital”), a Brazilian marketing services business.stock repurchase program. |
The highlights above are intended to identify to the reader some of the more significant events and transactions of the Company during the fiscal year ended March 31, 2011.2012. However, these highlights are not intended to be a full discussion of the Company’s 20112012 fiscal year. These highlights should be read in conjunction with the following discussion of Results of Operations and Capital Resources and Liquidity and with the Company’s consolidated financial statements and footnotes accompanying this report.
Results of Operations
A summary of selected financial information for each of the years in the three-year period ended March 31, 20112012 is presented below (dollars in millions, except per share amounts): | | 2011 | | | 2010 | | | 2009 | | | % Change 2011-2010 | | | % Change 2010-2009 | | | 2012 | | | 2011 | | | 2010 | | | % Change 2012-2011 | | | % Change 2011-2010 | | Revenue | | | | | | | | | | | | | | | | | Services | | $ | 893.6 | | | $ | 849.4 | | | $ | 920.3 | | | | 5 | % | | | (8 | )% | | Products | | | 266.4 | | | | 249.8 | | | | 356.3 | | | | 7 | | | | (30 | ) | | | | $ | 1,160.0 | | | $ | 1,099.2 | | | $ | 1,276.6 | | | | 6 | % | | | (14 | )% | | Revenues | | | $ | 1,130.6 | | | $ | 1,113.8 | | | $ | 1,063.6 | | | | 2 | % | | | 5 | % | Total operating costs and expenses | | | 1,129.1 | | | | 1,000.4 | | | | 1,183.7 | | | | (13 | ) | | | 15 | | | | 1,045.0 | | | | 1,088.6 | | | | 966.1 | | | | 4 | | | | (13 | ) | Income from operations | | $ | 30.9 | | | $ | 98.8 | | | $ | 92.9 | | | | (69 | )% | | | 6 | % | | $ | 85.6 | | | $ | 25.2 | | | $ | 97.5 | | | | 240 | % | | | (74 | )% | Diluted earnings (loss) per share attributable to Acxiom shareholders | | $ | (0.29 | ) | | $ | 0.56 | | | $ | 0.48 | | | | (152 | )% | | | 17 | % | | $ | 0.96 | | | $ | (0.29 | ) | | $ | 0.56 | | | | 431 | % | | | (152 | )% |
Revenues ForThe following table presents the fiscal yearCompany’s revenue for each of the years in the three-year period ended March 31, 2012 (dollars in millions):
| | 2012 | | | 2011 | | | 2010 | | | % Change 2012-2011 | | | % Change 2011-2010 | | Revenues | | | | | | | | | | | | | | | | Marketing and data services | | $ | 771.7 | | | $ | 736.1 | | | $ | 721.2 | | | | 5 | % | | | 2 | % | IT Infrastructure management services | | | 291.5 | | | | 302.7 | | | | 276.4 | | | | (4 | ) | | | 10 | | Other services | | | 67.4 | | | | 75.0 | | | | 66.0 | | | | (10 | ) | | | 14 | | Total revenues | | $ | 1,130.6 | | | $ | 1,113.8 | | | $ | 1,063.6 | | | | 2 | % | | | 5 | % | | | | | | | | | | | | | | | | | | | | | |
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 Company’sdisposed 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 was $1,160.0increased 1.7% in fiscal 2012.
Total revenue increased 4.7%, or $50.2 million, a 5.5% or $60.7to $1,113.8 million increase fromin fiscal 2010 revenue of $1,099.2 million.2011. Of the revenue increase, $10.1 million related to the MENA and GoDigital acquisitions. Excluding unfavorable exchange rate movements of $2.7 million and the acquisition-related revenue, International operationstotal revenue had an overall decrease of $3.5 million from the prior year. The remaining $57.4 million net revenue increase in US operations revenue was primarily attributed to growth in Infrastructure Management services of $26.9 million from new contracts, a rebound in Consumer Insights products ($9.9 million), and increasing background screening revenue ($10.6 million) resulting from increased hiring trends.$42.7 million.
For the fiscal year ended March 31, 2010, the Company’sMarketing and data service (MDS) revenue was $1,099.2increased $35.6 million, compared to revenue of $1,276.6 millionor 4.8% in fiscal 2009, reflecting a decrease of $177.3 million or 13.9%. Fiscal 2010 revenue was lower due to a change in a pass-through data contract. Effective February 1, 2009, the pass-through revenue was recorded net rather than gross.
Fiscal 2009 revenue included $71.3 million related to the pass-through contract. Excluding this item, revenue declined 8.8%. Of the revenue decline, $52.0 million was attributable to reductions in services revenue from the Financial Services industry. In addition, approximately $17.6 million of the decrease was due to reductions in international operations products revenue excluding the impact of exchange rate fluctuations. The remaining $36.4 million net decrease was due to unfavorable exchange rate movement in international services revenue ($4.3 million) and contract scope reductions and other net reductions including lower volumes and terminated business.
Services revenue for the year ended March 31, 2011 was $893.6 million. This represents a $44.2 million increase or 5.2% from the prior year.2012. On a geographic basis, International servicesMDS revenue increased $7.6$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 US servicesthe favorable impact of foreign currency translation, International MDS revenue increased $36.6$1.6 million. A $1.2 million or 4.8%. International services growth included $10.1 million of revenue related to the MENA and GoDigital acquisitions. Excluding unfavorable exchange rate movements and acquisition-relateddecline in Brazil was offset by revenue International services decreased approximately $1.9 million from the prior year. International services were negatively impacted by the loss of certain services contracts in Europe during the prior fiscal year. Revenue increases of approximately $8.2 million in Australia and China mitigatedChina. The increase in U.S. MDS revenue was broad-based, with increases in business activity in most industry verticals, in particular, the declinesConsumer, Convergent, and Financial Services vertical markets.
MDS revenue increased in Europe. US services revenue growth resulted from new ITall lines of business in fiscal 2012. The largest increases were in Consulting and Agency Services contracts signed($14.1 million, or 14.1%) and Marketing Management ($12.1 million or 4.1%). Increases in the previous year. OfConsumer Insight Products ($4.5 million or 3.1%) and the $34.1CDI Services ($4.8 million of organic services growth, $26.9 million was related to Infrastructure Management. By lineor 2.3%) lines of business were impacted by a prior year one-time project with a large customer ($4.1 million) and the revenue increasesdecline in Multi-channel Marketing Services ($12.2Brazil.
MDS revenue increased $14.9 million, or 3.5%), Consulting ($6.7 million or 18.1%) and Infrastructure Management ($26.9 million or 9.7%) were offset by a decrease2.1% in Customer Data Integration (“CDI”) Services ($16.2 million or 10.3%). CDI Services were negatively impacted by the contract and volume losses in Europe and the US of which $11.8 million of the decline was in Europe. Infrastructure Management Services growth slowed in the fourth quarter due to the loss of a contract. Fiscal 2011 revenue associated with the lost business was approximately $18 million.
Services revenue for the year ended March 31, 2010 was $849.4 million. This represents a $70.8 million decrease, or 7.7%, from the prior year.fiscal 2011. On a geographic basis, International servicesMDS revenue decreased approximately $2.9$4.8 million, while US services decreased approximately $67.9 million.or 3.7% and U.S. MDS revenue increased $19.7 million, or 3.3%. The decrease in International services were impacted by unfavorable exchange rate movement. Excluding exchange rates, International servicesMDS revenue was relatively flat comparedprimarily in Europe where revenue was down $19.8 million. The revenue declines in Europe were partially offset by revenue increases in Australia and China and by the GoDigital acquisition in Brazil. The increase in U.S. MDS was primarily attributable to the prior year. By line of business, a $66.9retail industry which increased by $20.7 million due mostly to increases with existing clients.
IT Infrastructure management services (IM) revenue decreased $11.1 million, or 16.9%3.7%, declineto $291.5 million in Multichannel Marketing Servicesfiscal 2012. IM revenue wasdecreased $23.5 million primarily as a result of contract losses during the primary causefourth quarter of fiscal 2011 and the reduced US services revenue. Increases in Consultingfourth quarter of fiscal 2012, partially offset by one-time projects and revenue offset a smaller decline in CDI revenue and other lines were relatively flat compared to the prior year. Of the $66.9 million decline in Multichannel Marketing Services, the Financial Services vertical accounted for $46.4 million of the decline. During fiscal 2010, revenue reductions occurred due to contract renegotiations for reduced amounts, lost contracts, volume reductions, and contracts terminated because of economic pressures. Other industry verticals were impacted by similar issues to a lesser degree. Although Infrastructure Management Services had similar issues, the signing of a large new Infrastructure Management Services arrangement earlier in the year offset such reductions.growth with existing clients.
ProductsIM revenue forincreased $26.3 million, or 9.5% in fiscal 2011. The increase in IM revenue was due to a major new client that was added during fiscal 2010, as well as other new client wins in fiscal 2010 and fiscal 2011.
Other services (OS) revenue decreased $7.6 million, or 10.2%, to $67.4 million in fiscal 2012. Excluding the year ended March 31, 2011 was $266.4impact of the Mena disposal of $4.4 million, which represents a $16.6 million increase, or 6.6%, compared to the same period last year. International operationsOS revenue decreased $4.1$3.3 million during the period. Unfavorable exchange rate movements accounted for $2.1 million of the decrease. In the US, productsyear. OS revenue increased $20.8from U.S. Risk operations decreased $3.9 million, or 11.5%. Due to increased hiring trends, Background Screening revenue increased approximately 30% for the year. US Consumer Insights revenue grew approximately 8% in2.8%, during the year due to higher levels oflower project activityvolume from existing customers. The decrease was partially offset by modest increases in various industry verticals.other operations.
ProductsOS revenue forincreased $9.0 million, or 13.6% in fiscal 2011. $4.0 million of the year ended March 31, 2010increase was $249.8 million. This represents a $106.5 million decrease or 29.9% when compared to the prior year. Excluding the prior year pass-through revenue of $71.3 million related to the amended data contract discussed above, productsMENA operation, which was included for the full year in fiscal 2011 and only four months in fiscal 2010. Additionally, the UK fulfillment operation increased by $4.3 million and OS revenue was down $35.2 million, or 12.4%. International operations accounted for $20.7 million of the decrease. For the year ended March 31, 2010, exchange rate fluctuations had very little impact on products revenue results. International operations were impacted by much lower ad hoc and project activity, particularly in the UK and the Netherlands. Most US industry verticals also were down year over year due to lower volumes and some contract reductions and terminations.U.S. increased by $0.7 million.
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, 20112012 (dollars in millions):
| | 2011 | | | 2010 | | | 2009 | | | % Change 2011-2010 | | | % Change 2010-2009 | | | 2012 | | | 2011 | | | 2010 | | | % Change 2012-2011 | | | % Change 2011-2010 | | Cost of revenue | | | | | | | | | | | | | | | | | $ | 869.8 | | | $ | 853.2 | | | $ | 808.8 | | | | (2 | )% | | | (5 | )% | Services | | $ | 695.0 | | | $ | 654.7 | | | $ | 694.3 | | | | (6 | )% | | | 6 | % | | Products | | | 189.9 | | | | 184.6 | | | | 280.8 | | | | (3 | ) | | | 34 | | | Total cost of revenue | | | 884.9 | | | | 839.3 | | | | 975.1 | | | | (5 | ) | | | 14 | | | Selling, general and administrative | | | 159.9 | | | | 162.1 | | | | 170.0 | | | | 1 | | | | 5 | | | | 144.8 | | | | 151.1 | | | | 158.2 | | | | 4 | | | | 4 | | Impairment of goodwill and other intangibles | | | 79.7 | | | | - | | | | - | | | | (100 | ) | | | - | | | | 17.8 | | | | 79.7 | | | | - | | | | 78 | | | | (100 | ) | Gains, losses and other items, net | | | 4.6 | | | | (1.0 | ) | | | 38.6 | | | | (587 | ) | | | 102 | | | | 12.6 | | | | 4.6 | | | | (0.9 | ) | | | (175 | ) | | | (611 | ) | Total operating costs and expenses | | $ | 1,129.1 | | | $ | 1,000.4 | | | $ | 1,183.7 | | | | (13 | )% | | | 15 | % | | $ | 1,045.0 | | | $ | 1,088.6 | | | $ | 966.1 | | | | 4 | % | | | (13 | )% |
Cost of revenue increased 1.9%, or $16.6 million, to $869.8 million in fiscal 2012. Gross Profit Margin The following table presents the Company’s gross profit margin for each of the years in the three-year period ended March 31, 2011:
| | 2011 | | | 2010 | | | 2009 | | Gross profit margin | | | | | | | | | | Services | | | 22.2 | % | | | 22.9 | % | | | 24.5 | % | Products | | | 28.7 | | | | 26.1 | | | | 21.2 | | Total gross profit margin | | | 23.7 | % | | | 23.6 | % | | | 23.6 | % | Operating profit margin | | | 2.7 | % | | | 9.0 | % | | | 7.3 | % |
Gross profit margins for services revenue declined to 22.2 %decreased from 23.4% in fiscal 2011 from 22.9%to 23.1% in fiscal 2010.2012. U.S. gross margins decreased from 24.8% to 24.4% primarily due to increasing compensation and delivery costs. International gross margins decreased from 15.4% to 15.2% in fiscal 2012 primarily due to increasing losses in Brazil. International gross margin benefitted in fiscal 2012 from the Mena disposal in the second quarter of the year.
Cost of revenue increased 5.5%, or $44.4 million, to $853.2 million in fiscal 2011. Gross margins decreased from 24.0% in fiscal 2010 to 23.4% in fiscal 2011. Margins have beenwere negatively impacted by thea decline in higher margin CDICustomer Data Integration Services revenue. Margins were also negatively impacted by therevenue, lost contracts in Europe and negative gross margins on acquired operations in Saudi Arabia and Brazil. Services margins wereBrazil, offset by cost reductions in Europe. The fiscal 2011 margin was also impacted by higher than expected migration costs of approximately $10.0 million on a large Infrastructure ManagementIM contract. The contract migration is now completed.
Gross profit margins for services revenue declined to 22.9% in fiscal 2010 from 24.5% in fiscal 2009. Margins were impacted by the decline in revenue, particularly high-margin volume-based business, and a change in the mix of revenue (higher percent of Infrastructure Management Services revenue). The margin impact on this volume-based business was mitigated by efficiency improvements in the shared IT and delivery functions.
The gross profit margins for products revenue were 28.7% in fiscal 2011 compared to 26.1% in fiscal 2010. Margins improved primarily due to the fixed cost nature of certain product costs of revenue. Additionally, margins benefited from cost reductions in Europe.
The gross profit margins for products revenue were 26.1% in fiscal 2010 compared to 21.2% in fiscal 2009. Excluding the impact of pass-through revenue, fiscal 2009 gross profit margin was 26.5%. Margins for products were impacted in a similar fashion to services. In particular, the large decline in volume-based business in Europe impacted overall margins.
Selling, general and administrative expense was $159.9$144.8 million for the year ended March 31, 2012 representing a $6.3 million, or 4.2%, decrease from the prior year. As a percent of total revenue, these expenses were 12.8% this year compared to 13.6% in fiscal 2011. Decreases in 2012 selling, general, and administrative expense resulted 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.
Selling, general and administrative expense was $151.1 million for the year ended March 31, 2011 representing a $2.2$7.0 million decrease from the prior year. As a percent of total revenue, these expenses were 13.8% this year13.6% in fiscal 2011 compared to 14.7%14.9% in fiscal 2010. Europe costs were approximately $5.1 million lower than the prior year due to cost reductions necessitated by lower revenues. Offsetting these reductions were expense increases in Australia and China on higher revenue levels.
Selling, generalImpairment of goodwill and administrative expenseother intangibles was $162.1$17.8 million for the year ended March 31, 2010 representing a $7.9 million decrease from2012. During the prior year. As a percent of total revenue, these expensesquarter ended December 31, 2011, management determined that results for the Brazil operation were 14.7% in 2010 comparedlikely to 13.3% in 2009 (14.1% excluding the impact of pass-through data revenue). Selling, general and administrative expenses reflected the cost savings initiated during both 2009 and 2010. Additionally, 2010 costs werebe significantly lower than 2009 duehad been projected in the previous goodwill test that was performed as of April 1, 2011. Management further determined that the failure of the Brazil operation to lower levelsmeet 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 incentive compensation.$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 (see note 6).
Impairment of goodwill and other intangibles was $79.7 million for the year ended March 31, 2011. 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 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.assets (see note 6).
Gains, losses and other items, net for each of the years presented are as follows (dollars in thousands):
| | 2011 | | | 2010 | | | 2009 | | Gain on disposition of operations in France | | $ | - | | | $ | (677 | ) | | $ | (2,083 | ) | Loss on disposition of operations in Portugal | | | 828 | | | | - | | | | - | | Loss on disposition of operations in The Netherlands | | | 2,511 | | | | - | | | | - | | Legal contingency | | | (2,125 | ) | | | - | | | | 1,000 | | Restructuring plan charges and adjustments | | | 4,435 | | | | (1,292 | ) | | | 42,340 | | Leased airplane disposals | | | - | | | | - | | | | (110 | ) | Earnout liability adjustment | | | (1,058 | ) | | | - | | | | - | | Other | | | 9 | | | | 1,025 | | | | (2,581 | ) | | | $ | 4,600 | | | $ | (944 | ) | | $ | 38,566 | |
| | 2012 | | | 2011 | | | 2010 | | Loss (gain) on disposition of operations in Portugal (see note 4) | | $ | (7 | ) | | $ | 828 | | | $ | - | | Loss on disposition of operations in Netherlands (see note 4) | | | 30 | | | | 2,511 | | | | - | | Loss on disposition of operations in MENA (see note 4) | | | 2,505 | | | | - | | | | - | | Legal contingency | | | - | | | | (2,125 | ) | | | - | | Restructuring plan charges and adjustments | | | 12,778 | | | | 4,435 | | | | (1,292 | ) | Earnout liability adjustment (see note 3) | | | (2,598 | ) | | | (1,058 | ) | | | - | | Other | | | (70 | ) | | | 9 | | | | 348 | | | | $ | 12,638 | | | $ | 4,600 | | | $ | (944 | ) |
InGains, 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 includes 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. 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 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 and executive leadership transition charges of $2.7 million. These were offset by adjustments to previous restructuring plans of $1.7 million, and executive leadership transition charges of $2.7 million.
In fiscal 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 as part of the disposal and recorded a loss in the statement of operationsgains, losses and other items, net of $0.8 million. There was no goodwill allocated to the disposed operations. The revenue associated with the Portugal operations was approximately $0.7 millionAlso in fiscal 2011.
In fiscal 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 operationsgains, losses and other items, net 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.
In fiscal 2011, the Company completed the acquisition of a 70% interest in GoDigital Tecnologia E Participacoes, Ltda. (“GoDigital”), a Brazilian marketing services business. The value of the earnout related to this acquisition 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, in the consolidated statement of operations.net. The value of the earnout liability will continue to bewas subsequently adjusted to its estimated value until the completionzero in fiscal 2012 since there is no expectation of thean earnout period.payment.
In previous fiscal 2009,years the Company recordedaccrued a total of $42.3 million in restructuring plan 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 $12.4 million, lease accruals of $3.2 million, asset disposal and write-offs of $26.5 million and $0.2 million in adjustments for the fiscal 2008 restructuring plan. Included in the asset disposal was a $24.6 million loss incurred as a result of the Company terminating a software contract.
In fiscal 2008, the Company sold its GIS operations in France. Adjustments regarding the final calculated purchase price were recorded in fiscal 2009 and 2010 resulting in gains of $2.1 and $0.7 million, respectively.
In fiscal 2008 the Company accrued $4.0$5.0 million for the estimated settlement cost on an ongoing lawsuit. In fiscal 2009, another $1.0 million was accrued for the contingency. In fiscal 2011 the Company settled the lawsuit and reversed $2.1 million of the accrual.
The following table shows the balances that were accrued for restructuring plans discussed above, as well as the changes in those balances during the years ended March 31, 2009, 2010, 2011 and 20112012 (dollars in thousands):
| | Associate-related reserves | | | Ongoing contract costs | | | Other accruals | | | Total | | | Associate-related reserves | | | Ongoing contract costs | | | Total | | March 31, 2008 | | $ | 13,648 | | | $ | 26,880 | | | $ | 357 | | | $ | 40,885 | | | Fiscal year 2009 restructuring plan amount | | | 12,434 | | | | 3,210 | | | | - | | | | 15,644 | | | Adjustments | | | (1,246 | ) | | | 752 | | | | (39 | ) | | | (533 | ) | | Payments | | | (16,603 | ) | | | (6,910 | ) | | | (318 | ) | | | (23,831 | ) | | March 31, 2009 | | $ | 8,233 | | | $ | 23,932 | | | $ | - | | | $ | 32,165 | | | $ | 8,233 | | | $ | 23,932 | | | $ | 32,165 | | Adjustments | | | 1,026 | | | | (1,336 | ) | | | - | | | | (310 | ) | | | 1,026 | | | | (1,336 | ) | | | (310 | ) | Payments | | | (6,389 | ) | | | (9,692 | ) | | | - | | | | (16,081 | ) | | | (6,389 | ) | | | (9,692 | ) | | | (16,081 | ) | March 31, 2010 | | $ | 2,870 | | | $ | 12,904 | | | $ | - | | | $ | 15,774 | | | $ | 2,870 | | | $ | 12,904 | | | $ | 15,774 | | Fiscal year 2011 restructuring plan amount | | | 6,064 | | | | - | | | | - | | | | 6,064 | | | Fiscal year 2011 restructuring plan | | | | 6,064 | | | | - | | | | 6,064 | | Adjustments | | | (291 | ) | | | (1,338 | ) | | | - | | | | (1,629 | ) | | | (291 | ) | | | (1,338 | ) | | | (1,629 | ) | Payments | | | (3,081 | ) | | | (2,024 | ) | | | - | | | | (5,105 | ) | | | (3,081 | ) | | | (2,024 | ) | | | (5,105 | ) | March 31, 2011 | | $ | 5,562 | | | $ | 9,542 | | | $ | - | | | $ | 15,104 | | | $ | 5,562 | | | $ | 9,542 | | | $ | 15,104 | | Fiscal year 2012 restructuring plan | | | | 9,855 | | | | 2,652 | | | | 12,507 | | Adjustments | | | | 271 | | | | - | | | | 271 | | Payments | | | | (6,091 | ) | | | (1,145 | ) | | | (7,236 | ) | March 31, 2012 | | | $ | 9,597 | | | $ | 11,049 | | | $ | 20,646 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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, 2012 (dollars in thousands): | | 2012 | | | 2011 | | | 2010 | | Operating profit and profit margin: | | | | | | | | | | Marketing and data services | | $ | 96,095 | | | $ | 87,254 | | | $ | 79,004 | | | | | 12.5 | % | | | 11.9 | % | | | 11.0 | % | | | | | | | | | | | | | | IT Infrastructure management services | | $ | 24,988 | | | $ | 24,467 | | | $ | 22,293 | | | | | 8.6 | % | | | 8.1 | % | | | 8.1 | % | | | | | | | | | | | | | | Other services | | $ | (5,079 | ) | | $ | (2,270 | ) | | $ | (4,699 | ) | | | | (7.5 | )% | | | (3.0 | )% | | | (7.1 | )% | | | | | | | | | | | | | | Corporate | | $ | (30,441 | ) | | $ | (84,274 | ) | | $ | 944 | | | | | | | | | | | | | | | Total operating profit | | $ | 85,563 | | | $ | 25,177 | | | $ | 97,542 | | Total operating profit margin | | | 7.6 | % | | | 2.3 | % | | | 9.2 | % |
Fiscal 2012 operating margins were 7.6% compared to 2.3% in fiscal 2011 and 9.2% in fiscal 2010. 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.
Fiscal 2011 operating margins were 2.7% compared to 9.0% for fiscal 2010 and 7.3% for fiscal 2009. Fiscal 2011 margins were impacted by the goodwill and other intangible write-downs which reduced operating margin by 690 basis points,7.2%, and by the items recorded in gains, losses and other items, net which reduced margins by 40 basis points.0.4%. Fiscal 2010 margins improved as a result ofwere impacted by cost savings initiated during both fiscal 2010 and fiscal 2009. The fiscal 2009 margins were positively impacted by the cost reduction initiative that was implemented during that year but were negatively impacted by the restructuring charges noted above.
Other Income (Expense), Income Taxes and Other Items Interest expense forwas $17.4 million in fiscal 2012, a decrease of $6.4 million from $23.8 million in fiscal 2011. The decrease primarily relates 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 ended March 31, 2011and, 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.
Interest expense was $23.8 million in fiscal 2011 compared to $22.5 million a year ago.in fiscal 2010. The increase is primarily related to the term loan described below. The average balance declined approximately $65 million; however,an increase in the average rate increasedof approximately 75 basis points.points, offset by a decline in the average balance of the Company’s term loan of approximately $65 million. Interest on other debt, such as capital leases, was also lower.
Interest expense for the year ended March 31, 2010 was $22.5 million compared to $32.6 million for the year ended March 31, 2009. The decrease was primarily related to the term loan. The average balance of the term loan declined approximately $50 million and the average rate declined approximately 115 basis points. Interest on other debt, such as capital leases, was also lower.
Other expense was $1.4 million in fiscal 2012 compared to $1.5 million in fiscal 2011 compared toand other income of $0.4 million in the prior year period. Other income (expense) generally consistsfiscal 2010. Fiscal 2012 other expense primarily consisted of interest and investment income. In addition to interest income, the current year includesforeign currency transaction losses. Fiscal 2011other expense included a $1.6 million impairment of an equity investment. The remainder of other, net primarily consists of interest and investment income.
Excluding the impact of the goodwill and intangible impairment charges, which were all non-deductible for tax purposes, the fiscal 20112012 effective tax rate on continuing operations was 40%34.5% compared to 39.9% in fiscal 2011 and 42.5% in fiscal 2010 and 39.7%2010. 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 fiscal 2009.the valuation allowance for foreign deferred tax assets of $5.2 million. 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. Excluding the impact of the reserve adjustment, the current year rate was approximately 44%. All three fiscal period tax rates were impacted by losses in foreign jurisdictions.jurisdictions including the additional foreign losses reflected in gains, losses and other items, net. The Company does not record the tax benefit of those losses due to uncertainty of future benefit. The fiscal 2011 rate was also impacted by additional foreign losses reflected in the gains, losses, and other items, net account. Additionally, there was no tax benefit recorded related to the impairment of the equity investment. Ininvestment in fiscal 20092011. Removing the Company reduced incomeimpact 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 expense by $2.1 million asrate calculation would have resulted in a resulttax rate of reducing valuation reserves previously recorded for net operating loss carryforwards in France.approximately 42%.
Capital Resources and Liquidity
Working Capital and Cash Flow Working capital at March 31, 2011 totaled $229.8decreased $44.4 million compared to $203.6$206.4 million at March 31, 2010.2012 compared to $250.8 million at March 31, 2011. Total current assets increased $0.5decreased $8.3 million, resulting primarily from increasesdecreases in accounts receivableassets of $8.1 milliondiscontinued operations ($27.1 million) and refundable income taxes of $7.4($7.4 million) offset by an increase in cash and cash equivalents ($22.7 million). Current liabilities increased $36.1 million, primarily resulting from increases in trade accounts payable ($3.5 million), accrued payroll and related expenses ($13.1 million), other accrued expenses ($3.2 million), deferred revenue ($4.0 million), and income taxes payable ($16.4 million), offset by a decrease in cashliabilities of $17.1 million. Current liabilities decreased $25.6 million, primarily resulting from decreases in current installments of long-term debt of $14.1 million, trade accounts payable of $15.3 million, and income taxes payable of $2.5 million, offset by increases in accrued payroll of $5.7 million.discontinued operations ($2.4 million).
Cash provided by operating activities was $229.5 million in fiscal 2012 compared to $166.2 million compared toand $239.3 million in fiscal 2011 and 2010, respectively. Deferred costs were approximately $27.1 million lower in the current fiscal year due to decreased IT Infrastructure Management contract migration activity. Operating cash flows also benefited from positive working capital movements, primarily in trade and $268.8 milliontax payables, accrued payroll, and deferred revenue. The decrease observed in fiscal 2009. Higher2011 compared to fiscal 2010 resulted from higher earnings, excluding non-cash charges in the current fiscal yearwhich were offset by lower depreciation and changes in working capital. Deferred costs arewere higher in the current fiscal year2011 due to increased IT Infrastructure Management contract migration activity.
Accounts receivable days sales outstanding (“DSO”) was 5354 days at both March 31, 20112012 and March 31, 2010,2011, and is calculated as follows (dollars in thousands):
| | March 31, 2011 | | | March 31, 2010 | | | March 31, 2012 | | | March 31, 2011 | | Numerator – trade accounts receivable, net | | $ | 176,654 | | | $ | 168,522 | | | $ | 169,446 | | | $ | 171,252 | | Denominator: | | | | | | | | | | | | | | | | | Quarter revenue | | | 298,796 | | | | 288,342 | | | | 287,255 | | | | 287,226 | | Number of days in quarter | | | 90 | | | | 90 | | | | 91 | | | | 90 | | Average daily revenue | | $ | 3,320 | | | $ | 3,204 | | | $ | 3,157 | | | $ | 3,191 | | Days sales outstanding | | | 53 | | | | 53 | | | | 54 | | | | 54 | |
Investing activities used $90.8provided $3.4 million in cash in fiscal 20112012 compared to uses of cash of $90.8 million and $89.3 million in fiscal 2011 and 2010, and $65.4respectively. Investing activities reflect net cash received for disposal of operations of $72.4 million in fiscal 2009.2012. 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 (see note 4). Investing activities in fiscal 2011 included $1.1 million in payments made for the disposal of the Portugal and Netherlands operations. Investing activities in fiscal 2010 also included $1.1 million in proceeds from the sale of fixed assets. The cash inflow from the disposition of operations in fiscal 2012 was offset by other investing activity of $69.2 million. Other investing activities included capitalized software development costs of $5.3 million in 2012 compared to $4.6 million compared toand $8.3 million in fiscal 2011 and 2010, and $16.2respectively; capital expenditures of $51.6 million in fiscal 2009. Capital expenditures were2012 compared to $59.0 million in 2011 compared toand $57.9 million in fiscal 2011 and 2010, respectively; and $31.4data acquisition costs of $12.3 million in fiscal 2009. Data acquisition costs were2012 compared to $13.4 million in 2011 compared toand $18.8 million in fiscal 2011 and 2010, and $30.6 million in fiscal 2009.respectively.
Investing activities also reflect net cash paid for acquisitions of $0.3 million in fiscal 2012 compared to $12.9 million and $3.4 million in fiscal 2011 compared to $3.4 million in fiscaland 2010, and $15.9 million in fiscal 2009.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. In fiscal 2010 the Company paid $3.8 million for the acquisition of a 51% interest in the assets of DMS, offset by $0.4 million cash returned from escrow related to the Precision Marketing acquisition. Fiscal 2009 included cash paid for the acquisition of Precision Marketing for $9.0 million, the acquisition of Quinetia for $2.9 million and the acquisition of Alvion for $3.6 million. The remainder of the cash paid for acquisitions each year relates to fees and earnout payments paid on acquisitions made in a priorprevious year.
Investing activities in fiscal 2011 also included $1.1 million in payments made for the disposal of the Portugal and Netherlands operations. Investing activities in fiscal 2010 also included $1.1 million in proceeds from the sale of fixed assets. In fiscal 2009 the Company received $24.2 million in proceeds from the sale of the Company’s Phoenix facility. In fiscal 2010 the Company paid $2.0 million for an equity investment. Payments received on investments of $2.6 million in 2009 include sales or collections on a number of investments.
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 ($1.21.1 million at March 31, 2011)2012). 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.
On August 29, 2011, the fiscal year endedboard of directors adopted a common stock repurchase program for a twelve-month period ending August 23, 2012. Under the repurchase program, the Company had the authority to purchase up to $50 million worth of its common stock. Subsequently, the board of directors authorized the expansion of this existing stock repurchase program, effective December 5, 2011. Under the expanded program, the Company may purchase up to an additional $39.1 million worth of its common stock, bringing the total amount authorized under the stock repurchase plan to $89.1 million through the period ending December 5, 2012. Through March 31, 2009,2012, the Company had repurchased 0.35.8 million shares of its common stock for $2.1$68.2 million under its previously-announced stock buybackthis program. Cash paid for repurchases of $65.5 million differs from the aggregate purchase price due to trades made at the end of the period which were settled in the following period.subsequent to March 31, 2012. There were no share repurchases in fiscal 20102011 or 2011.2010.
Financing activities used $209.8 million of cash in fiscal 2012, compared to $92.6 million and $103.7 million in fiscal 2011 and 2010, respectively. Financing activities in fiscal 2012 included payments of debt of $154.9 million and acquisition of treasury stock as previously described of $65.5 million, offset by $12.2 million in proceeds from the sale of common stock. Financing activities in fiscal 2011 used $92.6 million of cash includingincluded $102.1 million in payments of debt offset by $9.3 million in proceeds from the sale of common stock. Financing activities in fiscal 2010 used $103.7 million of cash includingincluded $104.5 million in debt payments and $4.6 million in debt financing fees offset by $5.9 million in sales of common stock. Financing activitiesDebt payments include prepayments on the Company’s term loan of $125.0 million in fiscal 2009 used $86.9 million of cash including $86.82012, $66.0 million in debt payments, dividends paid of $9.3 millionfiscal 2011, and stock repurchases of $1.8 million offset by $10.9$57.5 million in sales of stock.fiscal 2010.
In each of the fiscal years 2012, 2011 2010 and 2009,2010, the Company has incurred debt to finance the acquisition of software licenses and property and equipment. The incurrence of this debt appears on the Consolidated Statementsconsolidated statements of Cash Flowscash flows under “supplemental cash flow information.” Acquisitions under capital leases and installment payment arrangements were $11.2 million in 2012 compared to $23.8 million in 2011 compared toand $24.2 million in 2010 and $11.0 million in 2009. Software licenses acquired under software obligations were $2.2 million in 2010 and $10.0 million in 2009.2010. 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 $200$120 million.
In November 2009, the Company entered into an amendment to its term loan credit facility (the “Amendment”). Under the terms of the Amendment, certain of the lenders agreed to extend the maturity date of the existing term loan, becoming Tranche 2 Term Lenders. Lenders who did not agree to extend the maturity date became Tranche 1 Term Lenders. Certain lenders also agreed to extend the maturity date of the existing revolving loan commitment, becoming Tranche 2 Revolving Lenders. Lenders who did not agree to extend the maturity date of the revolving loan commitment became Tranche 1 Revolving Lenders. Of the $355.0 million balance of the term loan as of March 31, 2011, all of the balance is held by Tranche 2 Term Lenders. The remaining Tranche 1 term loan balance was prepaid in full during fiscal 2011. Of the $200 million revolving loan commitment, $80 million is held by Tranche 1 Revolving Lenders and $120 million is held by Tranche 2 Revolving Lenders.
The term loan is payable in quarterly installments of approximately $1.5 million each, through December 31, 2014, with a final payment of approximately $332.5$207.5 million due March 15, 2015. The Tranche 1 revolving loan commitment expires September 15, 2011 and the Tranche 2 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 1.5% for Tranche 1 and 2.75% for Tranche 2.. There were no revolving credit borrowings outstanding at March 31, 20112012 or March 31, 2010.2011. Term loan borrowings bear interest at LIBOR plus a credit spread which is 1.75% for Tranche 1, andof 3.00% for Tranche 2.. The weighted-average interest rate on term loan borrowings at March 31, 20112012 was 4.1%3.8%. Outstanding letters of credit at March 31, 20112012 were $0.5$2.5 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, 2011,2012, 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 with are 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.
In fiscal 2009,On July 25, 2011, the Company entered into an interest rate swap agreement. The agreement provides for the Company to pay interest through July 25, 2011January 27, 2014 at a fixed rate of 3.25%0.94% plus the applicable credit spread on $95.0$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, 20112012 was 0.30%0.56%. 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 March 31, 2011. 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 March 31, 2011,2012, the hedge relationship qualified as an effective hedge under applicable accounting standards. Consequently, all changes in fair value of the derivative arewill 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 $0.9$1.1 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, 2011.2012.
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,real estate, the Company is a party tohas 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 loansa lease for the buyers 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 on this indebtedness, the Company would be required to perform under these guarantees. Substantially allA portion of the third-party indebtednessguaranteed amount is collateralized by various pieces of real property. At March 31, 20112012 the Company’s maximum potential future payments under these guarantees of third-party indebtedness were $1.4$3.7 million.
Outstanding letters of credit, which reduce the borrowing capacity under the Company’s revolving credit facility, were $2.5 million at March 31, 2012 and $0.5 million at March 31, 2011 and $0.7 million at March 31, 2010.2011.
Contractual Commitments The following table presents Acxiom’s contractual cash obligations, exclusive of interest, and purchase commitments at March 31, 20112012 (dollars in thousands). The table does not include the future payment of gross unrealized tax benefit liabilities of $3.0$3.1 million or the future payment against the Company’s non-current interest rate swap liability of $0.9 million, or the future payment of the Company’s earnout liabilities of $3.6$1.1 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 | | | For the years ending March 31 | | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | Thereafter | | | Total | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | Thereafter | | | Total | | Term loan | | $ | 6,000 | | | $ | 6,000 | | | $ | 6,000 | | | $ | 337,000 | | | $ | - | | | $ | - | | | $ | 355,000 | | | $ | 6,000 | | | $ | 6,000 | | | $ | 212,000 | | | $ | - | | | $ | - | | | $ | - | | | $ | 224,000 | | Capital lease and installment payment obligations | | | 16,423 | | | | 13,140 | | | | 3,925 | | | | 750 | | | | 863 | | | | 8,094 | | | | 43,195 | | | | 15,881 | | | | 7,690 | | | | 3,199 | | | | 863 | | | | 1,001 | | | | 7,092 | | | | 35,726 | | Software and data license liabilities | | | 2,918 | | | | 1,768 | | | | - | | | | - | | | | - | | | | - | | | | 4,686 | | | Software license liabilities | | | | 1,768 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,768 | | Other long-term debt | | | 2,637 | | | | 2,689 | | | | 1,607 | | | | 1,664 | | | | 7,308 | | | | 3,452 | | | | 19,357 | | | | 2,687 | | | | 1,608 | | | | 1,663 | | | | 7,318 | | | | 582 | | | | 2,870 | | | | 16,728 | | Total long-term debt | | | 27,978 | | | | 23,597 | | | | 11,532 | | | | 339,414 | | | | 8,171 | | | | 11,546 | | | | 422,238 | | | | 26,336 | | | | 15,298 | | | | 216,862 | | | | 8,181 | | | | 1,583 | | | | 9,962 | | | | 278,222 | | Operating lease payments | | | 21,484 | | | | 19,758 | | | | 17,725 | | | | 13,656 | | | | 11,142 | | | | 51,895 | | | | 135,660 | | | | 22,862 | | | | 21,791 | | | | 15,851 | | | | 13,101 | | | | 12,445 | | | | 43,679 | | | | 129,729 | | Total contractual cash obligations | | $ | 49,462 | | | $ | 43,355 | | | $ | 29,257 | | | $ | 353,070 | | | $ | 19,313 | | | $ | 63,441 | | | $ | 557,898 | | | $ | 49,198 | | | $ | 37,089 | | | $ | 232,713 | | | $ | 21,282 | | | $ | 14,028 | | | $ | 53,641 | | | $ | 407,951 | �� |
| | For the years ending March 31 | | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | Thereafter | | | Total | | Total purchase commitments | | $ | 61,243 | | | $ | 29,397 | | | $ | 11,193 | | | $ | 11,008 | | | $ | 7,338 | | | $ | 2,296 | | | $ | 122,475 | |
| | For the years ending March 31 | | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | Thereafter | | | Total | | Total purchase commitments | | $ | 62,591 | | | $ | 29,151 | | | $ | 21,865 | | | $ | 14,762 | | | $ | 5,511 | | | $ | 2,314 | | | $ | 136,194 | |
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 20122013 of $22.8$14.1 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, 20112012 (dollars in thousands):
Guarantees on certain partnership and other loans | | $ | 1,351 | | Outstanding letters of credit | | | 506 | |
The total of partnership and other loans of which the Company guarantees the portion noted in the above table, is $5.3 million as of March 31, 2011.Loan guarantee | | $ | 1,195 | | Lease guarantee | | | 2,493 | | Outstanding letters of credit | | | 2,511 | | Surety bonds | | | 380 | |
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 outsourcing or facilities 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. Depending on the size of the acquisition it may be necessary to raise additional capital. If additional capital becomes necessary as a result of any material variance of operating results from projections or from potential future acquisitions, the Company may access available borrowing capacity under its revolving credit agreement, issue debt, equity or hybrid securities, or take a combination of these actions or other actions. However, no assurance can be given that the Company would be able to obtain funding through the issuance of debt, equity or hybrid securities at terms favorable to the Company, or that the desired funding would be available.
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 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 gives the Company additional market opportunities in this region. The Company paid $1.8 million in cash, net of cash acquired, and not including amounts, if any, to be paid under an earnout agreement in which the Company may pay up to an additional $0.6 million if the acquired business achieves a revenue target over the next two years. The value of the earnout is estimated at $0.5 million. The acquired business has annual revenue of less than $2 million. The results of operations for the acquisition are included in the Company’s consolidated results beginning April 1, 2010.
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 may pay up to an additional $9.3 million based on the results of the acquired business over approximately the next two years. The acquired business hashad annual revenue of approximately $8 million. 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 has estimated the value of the earnout to have decreased by $1.1 million and has recorded the adjustment in gains, losses and other items, innet 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 is no expectation of an earnout payment. The valuefinal determination of the earnout liability will continueoccur after the quarter ended June 30, 2012.
Also during fiscal 2012, 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 gives 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 adjustedpaid under an earnout agreement in which the Company may pay up to its estimated value untilan additional $0.6 million if the completionacquired business achieves a revenue target over the next two years. The Company has paid approximately $0.3 million of the earnout, period.with a remaining liability of $0.3 million at March 31, 2012. The acquired business has annual revenue of less than $2 million. The results of operation for the acquisition are included in the Company’s consolidated results beginning April 1, 2010.
In December 2009, the Company acquired a 51% interest in Direct Marketing Services (“DMS”), with operations in Saudi Arabia and the United Arab Emirates. Subsequently, Acxiom’s ownership has increased to 57%. Upon acquisition DMS was reorganized as a limited liability company registered under the laws and regulations of the Kingdom of Saudi Arabia and renamed Acxiom Middle East and North Africa, LTD (“MENA”). The purchase price for DMS was $3.8 million in cash, not including the amount, if any, to be paid pursuant to an earnout agreement where additional payment iswas contingent on MENA’s financial performance for the period ending on December 31, 2012. Financial performance under the earnout will be measured based on MENA’s calculation of earnings before interest, taxes, depreciation and amortization (“EBITDA”). The actual EBITDA will be divided by $18.3 million and that percentage multiplied by $6.1 million to determine the earnout payment. There will be no earnout payment if the actual EBITDA does not exceed $12.8 million. DMS hashad annual revenue of less than $5 million. The results of operations for MENA are included in the Company’s consolidated results beginning December 1, 2009.
During the year ended March 31, 2011, triggering events occurred which required the Company to test the goodwill and other intangible assets of MENA for impairment.impairment (see note 6). Management concluded that all of the goodwill and other intangibles were impaired. A total impairment charge of $7.2 million was recorded in impairment of goodwill and other intangibles inon the consolidated statement of operations, of which $4.8 million was related to goodwill and $2.4 million related to other intangible assets. Approximately 43% of this charge is attributable to the noncontrolling interest.
Divestitures On November 7, 2008,July 12, 2011, the Company acquiredentered into a transaction with MENA’s minority partners to fully dispose of its interest in its MENA subsidiary. The terms of the assetsdisposal included a $1.0 million cash payment to MENA and the release of Quinetia, LLC, a Rochester, New York-based provider of analytics and predictive modeling for large and medium size businesses. The acquisition providesany claims that the acquirer may have against the Company additional consumer insight capabilities that enable clientsand an agreement to more effectively retain and grow their customer base and optimize pricing. 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 paid $2.7recorded 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 cash acquired,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 acquisition not including amounts paid pursuantCompany entered into an agreement to an earnout agreement.dispose of the Company’s operations in Portugal. The earnout agreement allows forCompany made a cash payment of up$0.9 million to $1.2 million if the acquired business achieves certain earnings before interest, tax, depreciationacquirer as part of the disposal and amortization goals. Payments under the earnout agreement are determined based on resultsrecorded a loss in the target measurement periods endingstatement 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, 2009, 2010 and 2011.2011 the Company entered into an agreement to dispose of the Company’s operations in The first earnout payment ofNetherlands. The Company transferred $0.2 million in fiscal 2009cash as part of the sale and recorded a loss in the second earnout paymentstatement of $0.2operations 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 2010 have been added2011.
Discontinued Operation On February 1, 2012 the Company completed the sale of its background screening unit, Acxiom Information Security Services (AISS), to the purchase price.Sterling Infosystems, a New York-based technology firm for $74 million. The final earnout payment of $0.3 million was added to the purchase pricesale qualified for treatment as discontinued operations during fiscal 2012 (see further discussion in fiscal 2011.note 4). The acquired business has annual revenues of less than $5.0 million. Quinetia’s results of operations are includedand the balance sheet amounts pertaining to the AISS business have been classified as discontinued operations in the Company’s consolidated results beginning November 7, 2008.financial statements.
On September 15, 2008, the Company acquired the direct marketing technology unit of Alvion, LLC. The acquisition allowed the Company to obtain a proven online marketing list fulfillment platform that can be used by small and medium-size businesses that need immediate access to marketing information through a software-as-service environment. The Company paid $3.6 million in cash, net of cash acquired, for the acquisition. The acquired business has annual revenues of less than $5.0 million. Alvion’s results of operations are included in the Company’s consolidated results beginning September 15, 2008.F-14
In July 2008, the Company acquired the database marketing unit of ChoicePoint Precision Marketing, LLC (“Precision Marketing”). The Company paid $9.0 million, of which $4.5 million was paid into two escrow accounts which were subject to escrow arrangements which were finally resolved during fiscal 2010. A total of $0.5 million of one of the escrow funds has been released to reimburse the Company for costs incurred. Of the remaining $4.0 million escrow fund, $3.6 million was paid to the sellers and approximately $0.4 million was returned to the Company as a reduction of the purchase price. The acquired business has annual revenue of approximately $16.0 million. Precision Marketing’s results of operations are included in the Company’s consolidated results beginning July 1, 2008.
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 strategic partnershipsarrangements with more predictable revenues.
Non-U.S. Operations
The Company has a presence in the United Kingdom, France, Germany, Poland, Saudi Arabia, 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 the case of database management contracts, the customer does not acquire any ownership rights to the Company’s intellectual property used in the database and the database itself provides no benefit to the customer outside of the utilization of the system during the term of the database management arrangement. 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 and amortized on a straight-line basis over the service term of the contract. 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 over the remaining service term of the contract. In situations where the arrangement does not require customer acceptance before the Company begins providing services, revenue is recognized over the contract period 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.
The Company does not provide end-users with price-protection or rights of return. 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, 20112012 was $55.9$59.9 million compared to $55.6$55.9 million at March 31, 2010.2011.
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 $24.8$19.8 million and $19.8$24.8 million, respectively, at March 31, 20112012 and 2010.2011.
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. Costs of internally developed software, upon its general release, are amortized on a straight-line basis over the estimated economic life of the product, generally two to five years,Once technological feasibility is established or the amortization that would be recorded by usingapplication development stage has begun, costs are capitalized until the ratio of gross revenuessoftware is available for a product to total current and anticipated future gross revenues for that product, whichever is greater.general release. The Company recorded amortization expense related to internally developed computer software of $15.2 million, $20.5 million, in fiscal 2011,and $23.6 million infor fiscal 2012, 2011, and 2010, and $21.1 million in fiscal 2009.respectively. Additionally, research and development costs associated with internally developed software incurred prior to becoming eligible for capitalization or other research activities of $5.5 million, $11.6 million in fiscal 2011,and $6.8 million in fiscal 2010 and $19.4 million in fiscal 2009 were charged to cost of revenue in the consolidated statement of operations during those years.2012, 2011 and 2010, 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 $13.5 million, $15.6 million, in fiscal 2011,and $14.5 million in fiscal 2012, 2011, and 2010, and $27.2 million in fiscal 2009.respectively. Some of these purchased software 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 necessary,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. While the Company believes current license lives are appropriate and material changes in amortization periods are not anticipated, changes in relevant factors cannot be predicted.
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, 2011,2012, the Company’s most recent impairment analysis of its purchased and internally developed software indicates that no further 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 ($65.038.5 million at March 31, 2011)2012).
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 quarterquarters ended December 31, 2011 and March 31, 2011, triggering events occurred which requiredin conjunction with goodwill impairment tests, the Company to review the carrying amounts of itsalso tested certain intangible assets in its International operationsthe affected units for impairment. As a result of that review,those reviews, the Company has recorded an impairment chargecharges 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.operations (see note 6).
Valuation of Goodwill– Goodwill represents the excess of acquisition costs over the fair values of net assets acquired in business combinations. 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 such excess, and a corresponding amount is recorded as a charge to operations for the period in which the impairment test is completed. Completion
In order to estimate a valuation for each of the Company’s annualcomponents, management used 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 was 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 were believed to be representative of companies that marketplace participants would use to arrive at comparable multiples for the individual component being tested. These multiples were then used to develop an estimated value for each respective component.
The similar transactions method compared 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 were then used to develop an estimated value for that component.
In order to arrive at an estimated value for each component, management used 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 was reconciled to the actual market value of Acxiom Corporation 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 test duringat the quarter ended June 30, 2010 indicated no potential impairmentreporting unit level, which is defined as either an operating segment or one step below 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 of the change in the segments as noted in Note 17, Segment Information, these segments have been revised since the goodwill test was performed at the beginning of the year. Previously, the Company reported results in two segments, the Information Services segment and the Information Products segment. Because each of these segments contained both U.S. and International components, and there were differences in economic characteristics between the components in the different geographic regions, management tested a total of seven components at the beginning of the year. The goodwill amounts as of April 1, 2011 included in each component tested were: U.S. Information Services, $306.3 million; Europe Information Services, $13.4 million; APAC Information Services, $10.8 million; Brazil Information Services, $16.9 million; U.S. Information Products, $51.2 million; Europe Information Products, $9.1 million; and APAC Information Products, $10.0 million.
The goodwill previously associated with the Information Products segment is re-allocated among the Marketing and Data Services segment and the Other Services segment. The goodwill previously associated with the Information Services segment is re-allocated among the Marketing and Data Services segment, the IT Information Management segment and the Other Services segment. The allocation of goodwill is a complex process that requires, among other things, that management determine the fair value of each reporting unit. Management has allocated goodwill among the new segments based on their relative fair values as of December 31, 2011. In addition to the goodwill allocated to the segments above, management has allocated $19.7 million to the discontinued operations of AISS, which were a part of the Other Services segment prior to being segregated in the discontinued operations.
Goodwill by component included in Marketing and Data Services as of March 31, 2012 is U.S., $264.6 million; Europe, $19.5 million; Australia, $14.9 million; China, $6.0 million; and Brazil, $1.1 million. Goodwill for the IT Infrastructure Management segment as of March 31, 2012 is $71.5 million and goodwill for the Other Services segment as of March 31, 2012 is $4.7 million. The estimated fair value of each of the components exceeds its carrying value by a significant margin, except for the Brazil component, for which the excess was 19%, and the Other Services segment, for which the excess was 21%. As of April 1, 2011, each of the components had an estimated fair value in excess of its goodwill balances.carrying value, indicating no impairment.
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. The re-allocation of goodwill among segments referred to above did not impact the remaining goodwill assigned to the Brazil component.
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. The Company had not previously recorded any goodwill impairment, so the amount of goodwill impairment recorded in fiscal 2011 is also the cumulative amount of goodwill impairment as of March 31, 2011.
Goodwill is tested for impairment atPrior to the reporting unit level, which is defined as either an operating segment or one step below operating segment, known as a component. Acxiom’s two operating segments are the Information Services segment and the Information Products segment. Because each of these segments contains both a US component and an International component, and there are some differences in economic characteristics between the US and International components, management tested a total of four components in its annual impairment test performed during the firstfourth quarter of fiscal 2011. The goodwill amounts as of April 1, 2010 included in each component tested were US Information Services, $306.1 million; US Information Products, $51.2 million; International Information Services, $42.0 million; and International Information Products $71.0 million.
In order to estimate a valuation for each of the four components tested, management used 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 income approach involved projecting cash flows for each component into the future and discounting these cash flows at an appropriate discount rate. Management used budget figures for the first year of the projection model, and then projected those figures out into the future years using management’s best estimates of future revenue growth, operating margins, and other cash flow assumptions. The discount rates used for each component in order to arrive at an estimated fair value were estimated as the weighted-average cost of capital which a marketplace participant would use to value each component. These weighted-average costs of capital rates included a market risk factor, added to a risk-free rate of return, and a size premium that was specific to the component being tested. The resulting cost of equity was then weighted-averaged with the after-tax cost of debt.
The public company market multiple method was 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 were believed to be representative of companies that marketplace participants would use to arrive at comparable multiples for the individual component being tested. These multiples were then used to develop an estimated value for that component.
The similar transactions method compared 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 were then used to develop an estimated value for that component.
In order to arrive at an estimated value for each component, management used 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 was reconciled to the actual market value of Acxiom Corporation stock as of the April 1, 2010 valuation date. This reconciliation indicated an implied control premium. Management believes this control premium was reasonable compared to historical control premiums observed in actual transactions.
As of April 1, 2010, each of the components had an estimated fair value in excess of its carrying value, indicating no impairment. All of the components had a significant excess fair value, except for the International Information Products component, for which the excess fair value was 12%.
As described above,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-USnon-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 in the current fiscal year 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. The remaining goodwill for all current components, as of March 31, 2011, is USwas U.S. Information Services, $306.3 million; Europe Information Services, $13.4 million; APAC Information Services, $10.8 million; Brazil Information Services, $16.9 million; USU.S. Information Products, $51.2 million; Europe Information Products, $9.1 million; and APAC Information Products, $10.0 million.
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 20122013 at which time the Company will perform step-one testing on all of its components (including the US and Brazil components which were not tested in the fourth quarter of fiscal 2011). Given the current market conditions and continued economic uncertainty, 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 current 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 additional 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 under client contracts.phase. All deferred costs and billings deferred 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, 20112012 are $81.8$62.0 million. Of that amount, $62.8$50.3 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 kindtype 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 postemployment 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 postemployment 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 would impact net income in the period any adjustment was recorded.
New Accounting Pronouncements
In September 2011, the 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 for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption was permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period had not yet been issued. The Company did not early adopt the provisions of this update.
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. The update is effective for public entities for fiscal years and interim periods within those years beginning after December 15, 2011.
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 for interim and annual periods beginning after December 15, 2011. The Company does not expect the impact of adopting this update to have a material effect on the Company's consolidated financial statements, but the adoption may require additional disclosures.
The FASB’s Emerging Issues Task Force has issued new accounting guidance for revenue arrangements with multiple deliverables. Under previous accounting guidance, one of the requirements for recognition of revenue for a delivered item under a multiple element arrangement was that there must be objective and verifiable evidence of the standalone selling price of the undelivered item. The new guidance eliminateseliminated that requirement and requires an entity to estimate the selling price of each element in the arrangement. In addition, absent specific software revenue guidance, the residual method of allocating arrangement consideration is no longer permitted. Under the new guidance, a multiple-deliverable arrangement is separated into more than one unit of accounting if the delivered items have value to the client on a stand-alone basis and, if the arrangement includes a general right of return related to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. If these criteria are not met, the arrangement is accounted for as one unit of accounting, which would result in revenue being recognized ratably over the contract term or being deferred until the earlier of when those criteria are met or when the last undelivered item is delivered. If the arrangement is separated into multiple units of accounting, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative selling price.
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.
As allowed, the Company has elected to early-adopt the provisions of the guidance as of April 1, 2010 on a prospective basis for new arrangements entered into or materially modified on or after that date. The impact of the new accounting standard is not expected to be material going forward, nor would it have had a material impact if it had been applied to the previous fiscal year. There was also no material impact from implementation of the guidance in the year ended March 31, 2011.
The FASB has also issued guidance which amended the scope of existing software revenue recognition guidance. Tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality are no longer within the scope of software revenue guidance and are accounted for based on other applicable revenue recognition guidance. In addition, the amendments require that hardware components of a tangible product containing software components are always excluded from the software revenue guidance. This guidance must be adopted in the same period that the Company adopts the amended guidance for arrangements with multiple deliverables. Therefore, the Company elected to early-adopt this guidance as of April 1, 2010 on a prospective basis for all new or materially modified arrangements entered into on or after that date. The adoption of this guidance did not have a material impact on the consolidated financial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations,” (“SFAS 141R”), which replaces SFAS 141. SFAS 141R has subsequently been codified in the FASB Accounting Standards Codification Topic 805 (“ASC 805”). ASC 805 requires most assets acquired and liabilities assumed in a business combination, contingent consideration, and certain acquired contingencies to be measured at their fair values as of the date of acquisition. The new standard also requires that acquisition-related costs and restructuring costs be recognized separately from the business combination. The new standard was adopted by the Company as of April 1, 2009 and is effective prospectively for business combinations entered into after that date.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interest in Consolidated Financial Statements,” (“SFAS 160”). SFAS 160 has subsequently been codified in the FASB Accounting Standards Codification Topic 810 (“ASC 810”). The new standard amends previous accounting standards to establish new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The new standard was adopted by the Company as of April 1, 2009. As a result of adoption of this standard, the Company classifies noncontrolling interests as a component of equity and the results of operations attributable to noncontrolling interests is reported as a part of net earnings.
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, 2011.2012. 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, 2011.2012.
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, 2011.2012.
Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Acxiom Corporation: We have audited the accompanying consolidated balance sheets of Acxiom Corporation and subsidiaries (the Company) as of March 31, 20112012 and 2010,2011, and the related consolidated statements of operations, equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended March 31, 2011.2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Acxiom Corporation and subsidiaries as of March 31, 20112012 and 2010,2011, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2011,2012, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Acxiom Corporation’s internal control over financial reporting as of March 31, 2011,2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated May 27, 201125, 2012 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. As discussed in note 1 to the consolidated financial statements, the Company has changed their method of accounting for noncontrolling interests as of April 1, 2009 due to the adoption of FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements (included in FASB ASC Topic 810, Consolidation). In addition, as discussed in note 1 to the consolidated financial statements, the Company changed its method of accounting for business combinations as of April 1, 2009 due to the adoption of FASB Statement No. 141R, Business Combinations (included in FASB ASC Topic 805, Business Combinations).
KPMG LLP
Dallas, Texas May 27, 201125, 2012
Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Acxiom Corporation: We have audited Acxiom Corporation’s (the Company) internal control over financial reporting as of March 31, 2011,2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Acxiom Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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 evaluation 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. In our opinion, Acxiom Corporation maintained, in all material respects, effective internal control over financial reporting as of March 31, 2011,2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Acxiom Corporation and subsidiaries as of March 31, 20112012 and 2010,2011, and the related consolidated statements of operations, equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended March 31, 2011,2012, and our report dated May 27, 201125, 2012 expressed an unqualified opinion on those consolidated financial statements.
KPMG LLP
Dallas, Texas May 27, 201125, 2012 ACXIOM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 20112012 AND 20102011 (Dollars in thousands) | | 2011 | | | 2010 | | | 2012 | | | 2011 | | | ASSETS | | | | | | | | | | | Current assets: | | | | | | | | | | | Cash and cash equivalents | | $ | 207,023 | | | $ | 224,104 | | | $ | 229,648 | | | $ | 206,973 | | Trade accounts receivable, net | | | 176,654 | | | | 168,522 | | | | 169,446 | | | | 171,252 | | Deferred income taxes | | | 12,480 | | | | 11,874 | | | | 15,107 | | | | 12,480 | | Refundable income taxes | | | 7,402 | | | | - | | | | - | | | | 7,402 | | Other current assets | | | 55,691 | | | | 54,205 | | | | 57,804 | | | | 55,668 | | Assets from discontinued operations | | | | - | | | | 26,501 | | Total current assets | | | 459,250 | | | | 458,705 | | | | 472,005 | | | | 480,276 | | Property and equipment, net of accumulated depreciation and amortization | | | 255,307 | | | | 236,839 | | | | 253,373 | | | | 254,670 | | Software, net of accumulated amortization of $214,713 in 2011 and $198,410 in 2010 | | | 26,412 | | | | 38,845 | | | Software, net of accumulated amortization of $227,280 in 2012 and $214,713 in 2011 | | | | 13,211 | | | | 26,030 | | Goodwill | | | 417,654 | | | | 470,261 | | | | 382,285 | | | | 397,989 | | Purchased software licenses, net of accumulated amortization of $257,029 in 2011 and $253,434 in 2010 | | | 38,583 | | | | 51,356 | | | Purchased software licenses, net of accumulated amortization of $276,692 in 2012 and $257,029 in 2011 | | | | 25,294 | | | | 38,472 | | Deferred costs, net | | | 81,837 | | | | 68,914 | | | | 61,977 | | | | 81,837 | | Data acquisition costs, net | | | 17,627 | | | | 21,931 | | | | 15,009 | | | | 17,627 | | Other assets, net | | | 9,955 | | | | 16,569 | | | | 3,697 | | | | 9,724 | | | | $ | 1,306,625 | | | $ | 1,363,420 | | | $ | 1,226,851 | | | $ | 1,306,625 | | LIABILITIES AND EQUITY | | | | | | | | | | | | | | | | | Current liabilities: | | | | | | | | | | | | | | | | | Current installments of long-term debt | | $ | 27,978 | | | $ | 42,106 | | | $ | 26,336 | | | $ | 27,978 | | Trade accounts payable | | | 27,507 | | | | 42,774 | | | | 31,030 | | | | 27,530 | | Accrued expenses | | | | | | | | | | | | | | | | | Payroll | | | 42,236 | | | | 36,517 | | | | 54,839 | | | | 41,784 | | Other | | | 75,852 | | | | 75,632 | | | | 77,062 | | | | 73,840 | | Deferred revenue | | | 55,921 | | | | 55,567 | | | | 59,949 | | | | 55,921 | | Income taxes | | | - | | | | 2,460 | | | Income taxes payable | | | | 16,400 | | | | - | | Liabilities from discontinued operations | | | | - | | | | 2,441 | | Total current liabilities | | | 229,494 | | | | 255,056 | | | | 265,616 | | | | 229,494 | | Long-term debt | | | 394,260 | | | | 458,629 | | | | 251,886 | | | | 394,260 | | Deferred income taxes | | | 84,360 | | | | 61,284 | | | | 93,039 | | | | 84,360 | | Other liabilities | | | 7,478 | | | | 9,954 | | | | 4,455 | | | | 7,478 | | Commitments and contingencies | | | | | | | | | | | | | | | | | Equity: | | | | | | | | | | | | | | | | | Common stock, $0.10 par value (authorized 200 million shares; issued 117.8 million and 116.6 million shares at March 31, 2011 and 2010, respectively) | | | 11,777 | | | | 11,662 | | | Common stock, $0.10 par value (authorized 200 million shares; issued 120.0 million and 117.8 million shares at March 31, 2012 and 2011, respectively) | | | | 12,003 | | | | 11,777 | | Additional paid-in capital | | | 837,439 | | | | 814,929 | | | | 860,165 | | | | 837,439 | | Retained earnings | | | 459,096 | | | | 482,243 | | | | 536,359 | | | | 459,096 | | Accumulated other comprehensive income (loss) | | | 15,991 | | | | 4,167 | | | Treasury stock, at cost (37.2 million shares at March 31, 2011 and 2010) | | | (739,125 | ) | | | (738,601 | ) | | Accumulated other comprehensive income | | | | 13,601 | | | | 15,991 | | Treasury stock, at cost (43.2 million and 37.2 million shares at March 31, 2012 and 2011, respectively) | | | | (810,381 | ) | | | (739,125 | ) | Total Acxiom stockholders' equity | | | 585,178 | | | | 574,400 | | | | 611,747 | | | | 585,178 | | Noncontrolling interest | | | 5,855 | | | | 4,097 | | | | 108 | | | | 5,855 | | Total equity | | | 591,033 | | | | 578,497 | | | | 611,855 | | | | 591,033 | | | | $ | 1,306,625 | | | $ | 1,363,420 | | | $ | 1,226,851 | | | $ | 1,306,625 | | See accompanying notes to consolidated financial statements. | | | | | | | | | | | | | | | | |
ACXIOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED MARCH 31, 2012, 2011 2010 AND 20092010 (Dollars in thousands, except per share amounts)
| | 2011 | | | 2010 | | | 2009 | | | 2012 | | | 2011 | | | 2010 | | | | | | | | | | | | | | | | | | | | | Revenue: | | | | | | | | | | | Services | | $ | 893,594 | | | $ | 849,432 | | | $ | 920,262 | | | Products | | | 266,376 | | | | 249,803 | | | | 356,311 | | | Total revenue | | | 1,159,970 | | | | 1,099,235 | | | | 1,276,573 | | | Revenues | | | $ | 1,130,624 | | | $ | 1,113,755 | | | $ | 1,063,598 | | Operating costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Cost of revenue | | | | | | | | | | | | | | | 869,794 | | | | 853,163 | | | | 808,812 | | Services | | | 694,988 | | | | 654,659 | | | | 694,340 | | | Products | | | 189,900 | | | | 184,610 | | | | 280,846 | | | Total cost of revenue | | | 884,888 | | | | 839,269 | | | | 975,186 | | | Selling, general and administrative | | | 159,884 | | | | 162,097 | | | | 169,960 | | | | 144,826 | | | | 151,141 | | | | 158,188 | | Impairment of goodwill and other intangibles | | | 79,674 | | | | - | | | | - | | | | 17,803 | | | | 79,674 | | | | - | | Gains, losses and other items, net | | | 4,600 | | | | (944 | ) | | | 38,566 | | | | 12,638 | | | | 4,600 | | | | (944 | ) | Total operating costs and expenses | | | 1,129,046 | | | | 1,000,422 | | | | 1,183,712 | | | | 1,045,061 | | | | 1,088,578 | | | | 966,056 | | Income from operations | | | 30,924 | | | | 98,813 | | | | 92,861 | | | | 85,563 | | | | 25,177 | | | | 97,542 | | Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | | Interest expense | | | (23,823 | ) | | | (22,480 | ) | | | (32,596 | ) | | | (17,448 | ) | | | (23,823 | ) | | | (22,480 | ) | Other, net | | | (1,466 | ) | | | 425 | | | | 1,949 | | | | (1,369 | ) | | | (1,466 | ) | | | 425 | | Total other income (expense) | | | (25,289 | ) | | | (22,055 | ) | | | (30,647 | ) | | | (18,817 | ) | | | (25,289 | ) | | | (22,055 | ) | Earnings before income taxes | | | 5,635 | | | | 76,758 | | | | 62,214 | | | Income tax expense | | | 34,077 | | | | 32,599 | | | | 24,710 | | | Earnings (loss) from continuing operations before income taxes | | | | 66,746 | | | | (112 | ) | | | 75,487 | | Income taxes | | | | 29,129 | | | | 31,726 | | | | 32,060 | | Net earnings (loss) from continuing operations | | | | 37,617 | | | | (31,838 | ) | | | 43,427 | | Earnings from discontinued operations, net of tax | | | | 33,899 | | | | 3,396 | | | | 732 | | Net earnings (loss) | | | (28,442 | ) | | | 44,159 | | | | 37,504 | | | | 71,516 | | | | (28,442 | ) | | | 44,159 | | Less: Net loss attributable to noncontrolling interest | | | (5,295 | ) | | | (390 | ) | | | - | | | | (5,747 | ) | | | (5,295 | ) | | | (390 | ) | Net earnings (loss) attributable to Acxiom | | $ | (23,147 | ) | | $ | 44,549 | | | $ | 37,504 | | | $ | 77,263 | | | $ | (23,147 | ) | | $ | 44,549 | | | | | | | | | | | | | | | | | | | | | | | | | | | Earnings (loss) per share: | | | | | | | | | | | | | | Basic | | $ | (0.36 | ) | | $ | 0.56 | | | $ | 0.48 | | | Diluted | | $ | (0.36 | ) | | $ | 0.55 | | | $ | 0.48 | | | Basic earnings (loss) per share: | | | | | | | | | | | | | | Net earnings (loss) from continuing operations | | | $ | 0.47 | | | $ | (0.40 | ) | | $ | 0.55 | | Net earnings from discontinued operations | | | | 0.43 | | | | 0.04 | | | | 0.01 | | Net earnings (loss) | | | $ | 0.90 | | | $ | (0.36 | ) | | $ | 0.56 | | | | | | | | | | | | | | | | | | | | | | | | | | | Earnings (loss) per share attributable to Acxiom stockholders: | | | | | | | | | | | | | | Basic | | $ | (0.29 | ) | | $ | 0.56 | | | $ | 0.48 | | | Diluted | | $ | (0.29 | ) | | $ | 0.56 | | | $ | 0.48 | | | Net earnings (loss) attributable to Acxiom stockholders | | | $ | 0.97 | | | $ | (0.29 | ) | | $ | 0.56 | | | | | | | | | | | | | | | | Diluted earnings (loss) per share: | | | | | | | | | | | | | | Net earnings (loss) from continuing operations | | | $ | 0.47 | | | $ | (0.40 | ) | | $ | 0.54 | | Net earnings from discontinued operations | | | | 0.42 | | | | 0.04 | | | | 0.01 | | Net earnings (loss) | | | $ | 0.89 | | | $ | (0.36 | ) | | $ | 0.55 | | | | | | | | | | | | | | | | Net earnings (loss) attributable to Acxiom stockholders | | | $ | 0.96 | | | $ | (0.29 | ) | | $ | 0.56 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | See accompanying notes to consolidated financial statements. | | | | | | | | | | | | | | | | | | | | | | | | |
ACXIOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS) YEARS ENDED MARCH 31, 2012, 2011 2010 AND 20092010 (Dollars (Dollars in thousands) | | Common Stock | | | | | | Treasury stock | | |
| | Number of shares | | | Amount | | | Additional paid-in capital | | | Comprehensive income (loss) | | | Retained earnings | | | Accumulated other comprehensive income (loss) | | | Number of shares | | | Amount | | | Noncontrolling interest | | | Total equity | | | Number of shares | | | Amount | | | Additional paid-in capital | | | Comprehensive income (loss) | | | Retained earnings | | | Accumulated other comprehensive income (loss) | | | Number of shares | | | Amount | | | Noncontrolling interest | | | Total equity | | Balances at March 31, 2008 | | | 114,280,599 | | | $ | 11,428 | | | $ | 779,815 | | | | - | | | $ | 409,502 | | | $ | 33,976 | | | | (36,996,236 | ) | | $ | (738,465 | ) | | $ | - | | | $ | 496,256 | | | Employee stock awards, benefit plans and other issuances | | | 1,143,308 | | | | 115 | | | | 10,751 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 10,866 | | | Tax impact of stock options, warrants and restricted stock | | | - | | | | - | | | | 34 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 34 | | | Non-cash share-based compensation | | | - | | | | - | | | | 9,527 | | | | - | | | | - | | | | - | | | | 53,869 | | | | 815 | | | | - | | | | 10,342 | | | Restricted stock units vested | | | 332,969 | | | | 33 | | | | (33 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | Acquisition of treasury stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (282,500 | ) | | | (2,062 | ) | | | - | | | | (2,062 | ) | | Dividends | | | - | | | | - | | | | - | | | | - | | | | (9,312 | ) | | | - | | | | - | | | | - | | | | - | | | | (9,312 | ) | | Comprehensive loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | | - | | | | - | | | | - | | | | (36,163 | ) | | | - | | | | (36,163 | ) | | | - | | | | - | | | | - | | | | (36,163 | ) | | Unrealized loss on interest rate swap | | | - | | | | - | | | | - | | | | (3,956 | ) | | | - | | | | (3,956 | ) | | | - | | | | - | | | | - | | | | (3,956 | ) | | Unrealized loss on marketable securities | | | - | | | | - | | | | - | | | | (95 | ) | | | - | | | | (95 | ) | | | - | | | | - | | | | - | | | | (95 | ) | | Net earnings | | | - | | | | - | | | | - | | | | 37,504 | | | | 37,504 | | | | - | | | | - | | | | - | | | | - | | | | 37,504 | | | Total comprehensive loss | | | | | | | | | | | | | | $ | (2,710 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balances at March 31, 2009 | | | 115,756,876 | | | $ | 11,576 | | | $ | 800,094 | | | | | | | $ | 437,694 | | | $ | (6,238 | ) | | | (37,224,867 | ) | | $ | (739,712 | ) | | $ | - | | | $ | 503,414 | | | | 115,756,876 | | | $ | 11,576 | | | $ | 800,094 | | | | | | $ | 437,694 | | | $ | (6,238 | ) | | | (37,224,867 | ) | | $ | (739,712 | ) | | $ | - | | | $ | 503,414 | | Employee stock awards, benefit plans and other issuances | | | 559,348 | | | | 56 | | | | 5,869 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 5,925 | | | | 559,348 | | | | 56 | | | | 5,869 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 5,925 | | Tax impact of stock options, warrants and restricted stock | | | - | | | | - | | | | (683 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (683 | ) | | | - | | | | - | | | | (683 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (683 | ) | Non-cash share-based compensation | | | - | | | | - | | | | 9,679 | | | | - | | | | - | | | | - | | | | 70,631 | | | | 1,111 | | | | - | | | | 10,790 | | | | - | | | | - | | | | 9,679 | | | | - | | | | - | | | | - | | | | 70,631 | | | | 1,111 | | | | - | | | | 10,790 | | Restricted stock units vested | | | 303,458 | | | | 30 | | | | (30 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 303,458 | | | | 30 | | | | (30 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Purchase of MENA | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 4,030 | | | | 4,030 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 4,030 | | | | 4,030 | | Noncontrolling interest equity contributions | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 457 | | | | 457 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 457 | | | | 457 | | Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | | - | | | | - | | | | - | | | | 9,674 | | | | - | | | | 9,674 | | | | - | | | | - | | | | - | | | | 9,674 | | | | - | | | | - | | | | - | | | | 9,674 | | | | - | | | | 9,674 | | | | - | | | | - | | | | - | | | | 9,674 | | Unrealized gain on interest rate swap | | | - | | | | - | | | | - | | | | 758 | | | | - | | | | 758 | | | | - | | | | - | | | | - | | | | 758 | | | | - | | | | - | | | | - | | | | 758 | | | | - | | | | 758 | | | | - | | | | - | | | | - | | | | 758 | | Unrealized loss on marketable securities | | | - | | | | - | | | | - | | | | (27 | ) | | | - | | | | (27 | ) | | | - | | | | - | | | | - | | | | (27 | ) | | | - | | | | - | | | | - | | | | (27 | ) | | | - | | | | (27 | ) | | | - | | | | - | | | | - | | | | (27 | ) | Net earnings | | | - | | | | - | | | | - | | | | 44,549 | | | | 44,549 | | | | | | | | - | | | | - | | | | (390 | ) | | | 44,159 | | | | - | | | | - | | | | - | | | | 44,549 | | | | 44,549 | | | | | | | | - | | | | - | | | | (390 | ) | | | 44,159 | | Total comprehensive income | | | - | | | | - | | | | - | | | $ | 54,954 | | | | | | | | | | | | | | | | | | | | | | | | | | | | - | | | | - | | | | - | | | $ | 54,954 | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | 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 | | | | 662,988 | | | | 66 | | | | 9,778 | | | | - | | | | - | | | | - | | | | (29,538 | ) | | | (524 | ) | | | - | | | | 9,320 | | Tax impact of stock options, warrants and restricted stock | | | - | | | | - | | | | (316 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (316 | ) | | | - | | | | - | | | | (316 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (316 | ) | Non-cash share-based compensation | | | - | | | | - | | | | 13,097 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 13,097 | | | | - | | | | - | | | | 13,097 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 13,097 | | Restricted stock units vested | | | 484,865 | | | | 49 | | | | (49 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 484,865 | | | | 49 | | | | (49 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Purchase of GoDigital | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 6,573 | | | | 6,573 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 6,573 | | | | 6,573 | | Noncontrolling interest equity contribution | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 480 | | | | 480 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 480 | | | | 480 | | Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | | - | | | | - | | | | - | | | | 9,518 | | | | - | | | | 9,518 | | | | - | | | | - | | | | - | | | | 9,518 | | | | - | | | | - | | | | - | | | | 9,518 | | | | - | | | | 9,518 | | | | - | | | | - | | | | - | | | | 9,518 | | Unrealized gain on interest rate swap | | | - | | | | - | | | | - | | | | 2,306 | | | | - | | | | 2,306 | | | | - | | | | - | | | | - | | | | 2,306 | | | | - | | | | - | | | | - | | | | 2,306 | | | | - | | | | 2,306 | | | | - | | | | - | | | | - | | | | 2,306 | | Net loss | | | - | | | | - | | | | - | | | | (23,147 | ) | | | (23,147 | ) | | | | | | | - | | | | - | | | | (5,295 | ) | | | (28,442 | ) | | | - | | | | - | | | | - | | | | (23,147 | ) | | | (23,147 | ) | | | | | | | - | | | | - | | | | (5,295 | ) | | | (28,442 | ) | Total comprehensive loss | | | - | | | | - | | | | - | | | $ | (11,323 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | - | | | | - | | | | - | | | $ | (11,323 | ) | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | 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 | ) | | | - | | | | - | | | | - | | | | (2,219 | ) | Unrealized loss on interest rate swap | | | | - | | | | - | | | | - | | | | (171 | ) | | | - | | | | (171 | ) | | | - | | | | - | | | | - | | | | (171 | ) | Net earnings (loss) | | | | - | | | | - | | | | - | | | | 77,263 | | | | 77,263 | | | | - | | | | - | | | | - | | | | (5,747 | ) | | | 71,516 | | Total comprehensive loss | | | | - | | | | - | | | | - | | | $ | 74,873 | | | | | | | | | | | | | | | | | | | | | | | | | | Balances at March 31, 2012 | | | | 120,027,013 | | | $ | 12,003 | | | $ | 860,165 | | | | | | | $ | 536,359 | | | $ | 13,601 | | | | (43,213,027 | ) | | $ | (810,381 | ) | | $ | 108 | | | $ | 611,855 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| See accompanying notes to consolidated financial statements |
ACXIOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 2012, 2011 2010 AND 20092010 (Dollars in thousands)
| | 2011 | | | 2010 | | | 2009 | | | 2012 | | | 2011 | | | 2010 | | | | | | | | | | | | | | | | | | | | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | Net earnings (loss) | | $ | (28,442 | ) | | $ | 44,159 | | | $ | 37,504 | | | $ | 71,516 | | | $ | (28,442 | ) | | $ | 44,159 | | Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | Impairment of goodwill and other intangibles | | | 79,674 | | | | - | | | | - | | | | 17,803 | | | | 79,674 | | | | - | | Depreciation, amortization and impairment of long-lived assets | | | 146,355 | | | | 167,564 | | | | 198,684 | | | | 134,662 | | | | 146,355 | | | | 167,564 | | Gain on disposal of assets, net | | | 3,883 | | | | 417 | | | | 22,658 | | | Loss (gain) on disposal of assets, net | | | | (48,197 | ) | | | 3,883 | | | | 417 | | Deferred income taxes | | | 18,579 | | | | 32,810 | | | | 16,423 | | | | 2,228 | | | | 18,579 | | | | 32,810 | | Non-cash share-based compensation expense | | | 13,097 | | | | 10,790 | | | | 10,342 | | | | 8,970 | | | | 13,097 | | | | 10,790 | | Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Accounts receivable, net | | | (13,024 | ) | | | 10,295 | | | | 16,100 | | | | (947 | ) | | | (13,024 | ) | | | 10,295 | | Other assets | | | (2,394 | ) | | | 2,171 | | | | 12,347 | | | | (4,907 | ) | | | (2,394 | ) | | | 2,171 | | Deferred costs | | | (29,385 | ) | | | (20,289 | ) | | | (4,743 | ) | | | (2,301 | ) | | | (29,385 | ) | | | (20,289 | ) | Accounts payable and other liabilities | | | (22,899 | ) | | | (8,215 | ) | | | (32,006 | ) | | | 46,624 | | | | (22,899 | ) | | | (8,215 | ) | Deferred revenue | | | 775 | | | | (420 | ) | | | (8,468 | ) | | | 4,000 | | | | 775 | | | | (420 | ) | Net cash provided by operating activities | | | 166,219 | | | | 239,282 | | | | 268,841 | | | | 229,451 | | | | 166,219 | | | | 239,282 | | Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | | | Payments for the disposition of operations | | | (1,079 | ) | | | - | | | | - | | | Payments from (for) the disposition of operations | | | | 72,425 | | | | (1,079 | ) | | | - | | Proceeds received from the disposition of assets | | | - | | | | 1,058 | | | | 24,174 | | | | - | | | | - | | | | 1,058 | | Capitalized software development costs | | | (4,555 | ) | | | (8,257 | ) | | | (16,239 | ) | | | (5,262 | ) | | | (4,555 | ) | | | (8,257 | ) | Capital expenditures | | | (59,021 | ) | | | (57,908 | ) | | | (31,449 | ) | | | (51,591 | ) | | | (59,021 | ) | | | (57,908 | ) | Payments received (paid) for investments | | | 175 | | | | (2,000 | ) | | | 2,599 | | | | 370 | | | | 175 | | | | (2,000 | ) | Data acquisition costs | | | (13,366 | ) | | | (18,808 | ) | | | (30,561 | ) | | | (12,312 | ) | | | (13,366 | ) | | | (18,808 | ) | Net cash paid in acquisitions | | | (12,927 | ) | | | (3,428 | ) | | | (15,903 | ) | | | (255 | ) | | | (12,927 | ) | | | (3,428 | ) | Cash collected from the sale and license of software | | | - | | | | - | | | | 2,000 | | | Net cash used in investing activities | | | (90,773 | ) | | | (89,343 | ) | | | (65,379 | ) | | Net cash provided by (used in) investing activities | | | | 3,375 | | | | (90,773 | ) | | | (89,343 | ) | Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | | | | | Payments of debt | | | (102,101 | ) | | | (104,521 | ) | | | (86,772 | ) | | | (154,876 | ) | | | (102,101 | ) | | | (104,521 | ) | Fees for debt refinancing | | | - | | | | (4,564 | ) | | | - | | | | - | | | | - | | | | (4,564 | ) | Dividends paid | | | - | | | | - | | | | (9,312 | ) | | Sale of common stock | | | 9,320 | | | | 5,925 | | | | 10,866 | | | | 12,205 | | | | 9,320 | | | | 5,925 | | Acquisition of treasury stock | | | - | | | | (306 | ) | | | (1,756 | ) | | | (65,535 | ) | | | - | | | | (306 | ) | Noncontrolling interests equity contributions | | | 480 | | | | 457 | | | | - | | | | - | | | | 480 | | | | 457 | | Contingent consideration paid for prior acquisitions | | | | (326 | ) | | | - | | | | - | | Income tax impact of stock options, warrants and restricted stock | | | (316 | ) | | | (683 | ) | | | 34 | | | | (1,310 | ) | | | (316 | ) | | | (683 | ) | Net cash used in financing activities | | | (92,617 | ) | | | (103,692 | ) | | | (86,940 | ) | | | (209,842 | ) | | | (92,617 | ) | | | (103,692 | ) | Effect of exchange rate changes on cash | | | 90 | | | | 691 | | | | (2,017 | ) | | | (309 | ) | | | 90 | | | | 691 | | Net increase in cash and cash equivalents | | | (17,081 | ) | | | 46,938 | | | | 114,505 | | | Net change in cash and cash equivalents | | | | 22,675 | | | | (17,081 | ) | | | 46,938 | | Cash and cash equivalents at beginning of period | | | 224,104 | | | | 177,166 | | | | 62,661 | | | | 206,973 | | | | 224,054 | | | | 177,116 | | Cash and cash equivalents at end of period | | $ | 207,023 | | | $ | 224,104 | | | $ | 177,166 | | | $ | 229,648 | | | $ | 206,973 | | | $ | 224,054 | | See accompanying notes to consolidated financial statements | | | | | | | | | | | | | | | | | | | | | | | | |
ACXIOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) YEARS ENDED MARCH 31, 2012, 2011 2010 AND 20092010 (Dollars in thousands)
| | 2011 | | | 2010 | | | 2009 | | | 2012 | | | 2011 | | | 2010 | | Supplemental cash flow information: | | | | | | | | | | | | | | | | | | | Cash paid (received) during the period for: | | | | | | | | | | | | | | | | | | | Interest | | $ | 23,886 | | | $ | 21,337 | | | $ | 33,138 | | | $ | 19,059 | | | $ | 23,886 | | | $ | 21,337 | | Income taxes | | | 25,339 | | | | (7,549 | ) | | | (3,189 | ) | | | 20,765 | | | | 25,339 | | | | (7,549 | ) | Payments on capital leases and installment payment arrangements | | | 22,357 | | | | 29,697 | | | | 40,789 | | | | 18,331 | | | | 22,357 | | | | 29,697 | | Payments on software and data license liabilities | | | 5,316 | | | | 7,526 | | | | 23,217 | | | | 2,916 | | | | 5,316 | | | | 7,526 | | Prepayment of debt | | | 66,000 | | | | 57,500 | | | | 14,500 | | | | 125,000 | | | | 66,000 | | | | 57,500 | | Other debt payments, excluding line of credit | | | 8,428 | | | | 9,798 | | | | 8,266 | | | | 8,629 | | | | 8,428 | | | | 9,798 | | Noncash investing and financing activities: | | | | | | | | | | | | | | | | | | | | | | | | | Acquisition of property and equipment under capital leases and installment payment arrangements | | | 23,753 | | | | 24,193 | | | | 11,040 | | | | 11,242 | | | | 23,753 | | | | 24,193 | | Enterprise software licenses and maintenance acquired under software obligation | | | - | | | | 2,171 | | | | 9,955 | | | See accompanying notes to consolidated financial statements. | | | | | | | | | | | | | | | | | | | | | | | | |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 2010 AND 20092010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business -
Acxiom is a recognized leader in marketing servicestechnology and technologyservices that enable marketers to successfully manage audiences, personalize consumer experiences and create profitable customer relationships. Our superior industry-focused, consultative approach combines consumer data and analytics, databases, data integration and consulting solutions for personalized, multichannel marketing strategies. Acxiom leverages over 40 years of experience inof data management to deliver high-performance, highly secure, reliable information management services. 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 Asia-Pacific and the Middle East.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 will be 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, and litigation loss accruals.
Reclassifications -
Certain amounts reported in previous periods have been reclassified to conform to the current presentation.
Adoption of New Accounting Standards -
In December 2007,September 2011, the FASB issued Statementan 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 Financial Accounting Standards No. 141(R), “Business Combinations,” (“SFAS 141R”), which replaces SFAS 141. SFAS 141R has subsequently been codifieda 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 FASB Accounting Standards Codification Topic 805 (“ASC 805”). ASC 805 requires most assets acquiredfirst 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 for annual and liabilities assumed in a business combination, contingent consideration,interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption was permitted, including for annual and certain acquired contingencies to be measured at their fair valuesinterim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the datemost recent annual or interim period had not yet been issued. The Company did not early adopt the provisions of acquisition. The new standard also requires that acquisition-related costs and restructuring costs be recognized separately from the business combination. The new standard was adopted by the Company as of April 1, 2009 and is effective prospectively for business combinations entered into after that date.this update.
In December 2007,June 2011, the FASB issued Statementan update, Presentation of Financial Accounting Standards No. 160, “Noncontrolling InterestComprehensive 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 Consolidated Financial Statements,” (“SFAS 160”). SFAS 160 has subsequently been codifieda 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, 2012, 2011 AND 2010 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 Accounting Standards Codification Topic 810 (“ASC 810”).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. The new standard amends previous accounting standardsupdate is effective for public entities for fiscal years and interim periods within those years beginning after December 15, 2011.
In May 2011, the FASB issued an update, Amendments to establish new accountingAchieve Common Fair Value Measurement and reporting standardsDisclosure 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 noncontrolling interest inCompany for interim and annual periods beginning after December 15, 2011. The Company does not expect the impact of adopting this update to have a subsidiary and formaterial effect on the deconsolidation of a subsidiary. The new standard was adopted byCompany's consolidated financial statements, but the Company as of April 1, 2009. As a result of adoption of this standard, the Company classifies noncontrolling interests as a component of equity and the results of operations attributable to noncontrolling interests is reported as a part of net earnings.may require additional disclosures.
The FASB’s Emerging Issues Task Force has issued new accounting guidance for revenue arrangements with multiple deliverables. Under previous accounting guidance, one of the requirements for recognition of revenue for a delivered item under a multiple element arrangement was that there must be objective and verifiable evidence of the standalone selling price of the undelivered item. The new guidance eliminateseliminated that requirement and requires an entity to estimate the selling price of each element in the arrangement. In addition, absent specific software revenue guidance, the residual method of allocating arrangement consideration is no longer permitted. Under the new guidance, a multiple-deliverable arrangement is separated into more than one unit of accounting if the delivered items have value to the client on a stand-alone basis and, if the arrangement includes a general right of return related to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. If these criteria are not met, the arrangement is accounted for as one unit of accounting, which would result in revenue being recognized ratably over the contract term or being deferred until the earlier of when those criteria are met or when the last undelivered item is delivered. If the arrangement is separated into multiple units of accounting, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative selling price.
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.
As allowed, the Company has elected to early-adopt the provisions of the guidance as of April 1, 2010 on a prospective basis for new arrangements entered into or materially modified on or after that date. The impact of the new accounting standard is not expected to be material going forward, nor would it have had a material impact if it had been applied to the previous fiscal year. There was also no material impact from implementation of the guidance in the year ended March 31, 2011.
The FASB has also issued guidance which amended the scope of existing software revenue recognition guidance. Tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality are no longer within the scope of software revenue guidance and are accounted for based on other applicable revenue recognition guidance. In addition, the amendments require that hardware components of a tangible product containing software components are always excluded from the software revenue guidance. This guidance must be adopted in the same period that the Company adopts the amended guidance for arrangements with multiple deliverables. Therefore, the Company elected to early-adopt this guidance as of April 1, 2010 on a prospective basis for all new or materially modified arrangements entered into on or after that date. The adoption of this guidance did not have a material impact on the consolidated financial statements.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010
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 $24.8$19.8 million and $19.8$24.8 million, respectively, at March 31, 20112012 and 2010.2011.
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, 2 - 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 obligations.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 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 both internally developed and purchased 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.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010 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 -
Goodwill represents theThe excess of acquisition coststhe purchase price over the fair valuesvalue of net identifiable assets and liabilities of an acquired in business combinations. Goodwill is reviewed(“goodwill”) and other indefinite-lived intangible assets are not amortized, but rather tested for impairment, at least annuallyannually. The Company tests for goodwill and indefinite-lived intangible asset impairment under a two-part test. Part oneduring the first quarter of its fiscal year.
The Company assesses the goodwill impairment test involves a determinationrecoverability of whether the total book value of each reporting unit of the Company (generally defined as the carrying value of assets minusgoodwill 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 liabilities)goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the reporting unit’s estimated fair value. In the event that part one of the impairment test indicates an excess of book value over the estimatedimplied fair value of netthe 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 performance of part twoassociated with the reporting unit may require additional impairment testing.
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 test is required, whereby estimated fair values are assignedand the Company recorded an impairment charge of $13.8 million during fiscal 2012 (see note 6). The Company expects to identifiable assets with any residual fair value assigned to goodwill. Impairment exists to the extent that the reporting unit’s recorded goodwill exceeds the residual fair value assigned to such goodwill. Any impairment that results from the completion of the two-part test is recorded as a charge to operations during the period in which the impairment test is completed. Completion of the Company’s most recentcomplete its next annual impairment test during the quarter ended ending June 30, 2010 indicated that no potential impairment of its goodwill balances existed.2012. 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 has recorded an impairment charge of $77.3 million to those unitsduring fiscal 2011 (see note 6). The Company expects to complete its next annual impairment test during the quarter ending June 30, 2011.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011, 2010 AND 2009
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 quarterquarters ended December 31, 2011 and March 31, 2011, in conjunction with the goodwill impairment testtests noted above, the Company also tested certain intangible assets in its International operationsthe affected units for impairment. As a result of that review,those reviews, the Company has recorded an impairment chargecharges 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 ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010 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 under client contracts.phase. All deferred costs and billings deferred 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 kindtype 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.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011, 2010 AND 2009
Deferred Revenue -
Deferred revenue consists of amounts billed in excess of revenue recognized on sales of data licenses, services and equipment.recognized. Deferred revenues are subsequently recorded as revenue in accordance with the Company’s revenue recognition policies.
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 the case of database management contracts, the customer does not acquire any ownership rights to the Company’s intellectual property used in the database and the database itself provides no benefit to the customer outside of the utilization of the system during the term of the database management arrangement. 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 and amortized on a straight-line basis over the service term of the contract. 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 over the remaining service term of the contract. In situations where the arrangement does not require customer acceptance before the Company begins providing services, revenue is recognized over the contract period 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.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010 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.
The Company does not provide end-users with price-protection or rights of return. 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.
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.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010
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 $4.5 million, $7.6 million $8.1 million and $10.7$8.1 million for the years ended March 31, 2012, 2011 2010 and 2009,2010, 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, including any guarantees issued in connection with its synthetic equipment leasing arrangements. However, these provisions are applied only on a prospective basis to guarantees issued or modified after December 31, 2002.guarantees. The Company’s liability for the fair value of guarantees is not material.material (see note 11).
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011, 2010 AND 2009
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, 2012, 2011 AND 2010
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) | | 2011 | | | 2010 | | | 2009 | | Basic earnings (loss) per share: | | | | | | | | | | Numerator – net earnings (loss) | | $ | (28,442 | ) | | $ | 44,159 | | | $ | 37,504 | | Denominator – weighted-average shares outstanding | | | 80,111 | | | | 78,974 | | | | 77,892 | | Basic earnings (loss) per share | | $ | (0.36 | ) | | $ | 0.56 | | | $ | 0.48 | | Diluted earnings (loss) per share: | | | | | | | | | | | | | Numerator – net earnings (loss) | | $ | (28,442 | ) | | $ | 44,159 | | | $ | 37,504 | | Denominator: | | | | | | | | | | | | | Weighted-average shares outstanding | | | 80,111 | | | | 78,974 | | | | 77,892 | | Dilutive effect of common stock options, warrants, and restrictive stock as computed under the treasury stock method | | | - | | | | 751 | | | | 333 | | | | | 80,111 | | | | 79,725 | | | | 78,225 | | Diluted earnings (loss) per share | | $ | (0.36 | ) | | $ | 0.55 | | | $ | 0.48 | | | | | | | | | | | | | | | Basic earnings (loss) per share attributable to Acxiom stockholders: | | | | | | | | | | | | | Numerator – net earnings (loss) attributable to Acxiom | | $ | (23,147 | ) | | $ | 44,549 | | | $ | 37,504 | | Denominator – weighted-average shares outstanding | | | 80,111 | | | | 78,974 | | | | 77,892 | | Basic earnings (loss) per share attributable to Acxiom stockholders | | $ | (0.29 | ) | | $ | 0.56 | | | $ | 0.48 | | Diluted earnings (loss) per share attributable to Acxiom stockholders: | | | | | | | | | | | | | Numerator – net earnings (loss) attributable to Acxiom | | $ | (23,147 | ) | | $ | 44,549 | | | $ | 37,504 | | Denominator: | | | | | | | | | | | | | Weighted-average shares outstanding | | | 80,111 | | | | 78,974 | | | | 77,892 | | Dilutive effect of common stock options, warrants, and restrictive stock as computed under the treasury stock method | | | - | | | | 751 | | | | 333 | | | | | 80,111 | | | | 79,725 | | | | 78,225 | | Diluted earnings (loss) per share attributable to Acxiom stockholders | | $ | (0.29 | ) | | $ | 0.56 | | | $ | 0.48 | | | | | | | | | | | | | | |
(dollars in thousands) | | 2012 | | | 2011 | | | 2010 | | Basic earnings per share: | | | | | | | | | | Net earnings (loss) from continuing operations | | $ | 37,617 | | | $ | (31,838 | ) | | $ | 43,427 | | Net earnings from discontinued operations | | | 33,899 | | | | 3,396 | | | | 732 | | Net earnings (loss) | | $ | 71,516 | | | $ | (28,442 | ) | | $ | 44,159 | | Net loss attributable to noncontrolling interest | | | (5,747 | ) | | | (5,295 | ) | | | (390 | ) | Net earnings (loss) attributable to Acxiom | | $ | 77,263 | | | $ | (23,147 | ) | | $ | 44,549 | | | | | | | | | | | | | | | Basic weighted-average shares outstanding | | | 79,483 | | | | 80,111 | | | | 78,974 | | Basic earnings (loss) per share: | | | | | | | | | | | | | Continuing operations | | $ | 0.47 | | | $ | (0.40 | ) | | $ | 0.55 | | Discontinued operations | | | 0.43 | | | | 0.04 | | | | 0.01 | | Net earnings (loss) | | $ | 0.90 | | | $ | (0.36 | ) | | $ | 0.56 | | Net loss attributable to noncontrolling interest | | | (0.07 | ) | | | (0.07 | ) | | | 0.00 | | Net earnings (loss) attributable to Acxiom | | $ | 0.97 | | | $ | (0.29 | ) | | $ | 0.56 | | | | | | | | | | | | | | | Diluted earnings per share: | | | | | | | | | | | | | Basic weighted-average shares outstanding | | | 79,483 | | | | 80,111 | | | | 78,974 | | Dilutive effect of common stock options, warrants, and restricted stock as computed under the treasury stock method | | | 911 | | | | - | | | | 751 | | Diluted weighted-average shares outstanding | | | 80,394 | | | | 80,111 | | | | 79,725 | | Diluted earnings (loss) per share: | | | | | | | | | | | | | Continuing operations | | $ | 0.47 | | | $ | (0.40 | ) | | $ | 0.54 | | Discontinued operations | | | 0.42 | | | | 0.04 | | | | 0.01 | | Net earnings (loss) | | $ | 0.89 | | | $ | (0.36 | ) | | $ | 0.55 | | Net loss attributable to noncontrolling interest | | | (0.07 | ) | | | (0.07 | ) | | | 0.00 | | Net earnings (loss) attributable to Acxiom | | $ | 0.96 | | | $ | (0.29 | ) | | $ | 0.56 | |
F-34Some earnings per share amounts may not add due to rounding.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011, 2010 AND 2009
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 for fiscal 2011 since the impact on the calculation was anti-dilutive. In addition, options, warrants and restricted stock units to purchase shares of common stock 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):
| | 2011 | | | 2010 | | | 2009 | | | 2012 | | | 2011 | | | 2010 | | Number of shares outstanding under options, warrants and restricted stock units | | | 5,938 | | | | 8,839 | | | | 10,773 | | | | 9,344 | | | | 5,938 | | | | 8,839 | | Range of exercise prices for options and warrants | | $ | 16.71-$75.55 | | | $ | 11.87-$268.55 | | | $ | 10.66-$268.55 | | | $ | 13.14-$62.06 | | | $ | 16.71-$75.55 | | | $ | 11.87-$268.55 | |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010
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 earnings 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, 2011.2012.
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.
Derivatives and Hedging -
The Company has entered into an interest rate swap 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. 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 perfect 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. 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, 2012, 2011 AND 2010
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,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, 2009, 2010, 2011 and 20112012 (dollars in thousands):
| | Associate-related reserves | | | Ongoing contract costs | | | Other accruals | | | Total | | | Associate-related reserves | | | Ongoing contract costs | | | Total | | March 31, 2008 | | $ | 13,648 | | | $ | 26,880 | | | $ | 357 | | | $ | 40,885 | | | Fiscal year 2009 restructuring plan amount | | | 12,434 | | | | 3,210 | | | | - | | | | 15,644 | | | Adjustments | | | (1,246 | ) | | | 752 | | | | (39 | ) | | | (533 | ) | | Payments | | | (16,603 | ) | | | (6,910 | ) | | | (318 | ) | | | (23,831 | ) | | March 31, 2009 | | $ | 8,233 | | | $ | 23,932 | | | $ | - | | | $ | 32,165 | | | $ | 8,233 | | | $ | 23,932 | | | $ | 32,165 | | Adjustments | | | 1,026 | | | | (1,336 | ) | | | - | | | | (310 | ) | | | 1,026 | | | | (1,336 | ) | | | (310 | ) | Payments | | | (6,389 | ) | | | (9,692 | ) | | | - | | | | (16,081 | ) | | | (6,389 | ) | | | (9,692 | ) | | | (16,081 | ) | March 31, 2010 | | $ | 2,870 | | | $ | 12,904 | | | $ | - | | | $ | 15,774 | | | $ | 2,870 | | | $ | 12,904 | | | $ | 15,774 | | Fiscal year 2011 restructuring plan amount | | | 6,064 | | | | - | | | | - | | | | 6,064 | | | Fiscal year 2011 restructuring plan | | | | 6,064 | | | | - | | | | 6,064 | | Adjustments | | | (291 | ) | | | (1,338 | ) | | | - | | | | (1,629 | ) | | | (291 | ) | | | (1,338 | ) | | | (1,629 | ) | Payments | | | (3,081 | ) | | | (2,024 | ) | | | - | | | | (5,105 | ) | | | (3,081 | ) | | | (2,024 | ) | | | (5,105 | ) | March 31, 2011 | | $ | 5,562 | | | $ | 9,542 | | | $ | - | | | $ | 15,104 | | | $ | 5,562 | | | $ | 9,542 | | | $ | 15,104 | | Fiscal year 2012 restructuring plan | | | | 9,855 | | | | 2,652 | | | | 12,507 | | Adjustments | | | | 271 | | | | - | | | | 271 | | Payments | | | | (6,091 | ) | | | (1,145 | ) | | | (7,236 | ) | March 31, 2012 | | | $ | 9,597 | | | $ | 11,049 | | | $ | 20,646 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The above balances are included in accrued expenses on the consolidated balance sheet.
Restructuring Plans
In the current fiscal year,2012, the Company recorded $4.4a 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 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. Of the $3.4 million accrued, $2.8 million remained accrued at March 31, 2011. These amounts are expected to be paid out during fiscal 2012.
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.
In fiscal 2009, the Company recorded a total of $42.3 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 $12.4$9.9 million, lease accruals of $3.2 million, asset disposal and write-offs of $26.5$2.6 million, and adjustments to the fiscal 20082011 restructuring plan of $0.2$0.3 million. Included in the asset disposal was a $24.6 million loss incurred as a result of the Company terminating a software contract.
The associate-related paymentsaccruals of $12.4$9.9 million relate to the termination of associates in the United States, Australia, Europe, and Europe. All of these costs had been paidBrazil. Of the amount accrued, $9.5 million remained accrued as of March 31, 2011.2012. These costs are expected to be paid out in fiscal 2013.
The lease accruals of $3.2$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, 2009,2012, the Company ceased using certain leased office facilities. The Company attemptsintends 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 ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010 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, 2012 is $2.6 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. Of the $3.4 million accrued, $0.1 million remained accrued at March 31, 2012. These amounts are expected to be paid out during fiscal 2013.
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 a total of $22.2 million in lease accruals included in gains, losses and other items in the consolidated statement of operations. 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’properties terms, of which the longest continues through August 2015.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 these leases, which would impact net income in the period the adjustment is recorded. The remaining amount accrued at March 31, 20112012 is $1.2$8.5 million.
In fiscal 2008, the Company recorded a total of $75.1 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 $19.3 million, of which $0.1 million remain to be paid at March 31, 2011; lease accruals of $19.0 million, of which $8.3 million remain to be paid over the remainder of the lease terms, of which the longest continues through November 2021; contract accruals of $6.7 million, all of which had been paid by March 31, 2011; asset disposal and write-offs of $29.6 million, and other related costs of $0.5 million.
Disposition of Operations in France
In fiscal 2008, the Company sold its GIS operations in France. Adjustments regarding the final calculated purchase price were recorded in fiscal 2009 and 2010 resulting in gains of $2.1 million and $0.7 million, respectively.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011, 2010 AND 2009
Gains, Losses and Other Items
Gains, losses and other items for each of the years presented are as follows (dollars in thousands):
| | 2011 | | | 2010 | | | 2009 | | | 2012 | | | 2011 | | | 2010 | | Gain on disposition of operations in France | | | - | | | | (677 | ) | | | (2,083 | ) | | Loss on disposition of operations in Portugal (see note 4) | | | 828 | | | | - | | | | - | | | Loss (gain) on disposition of operations in Portugal (see note 4) | | | $ | (7 | ) | | $ | 828 | | | $ | - | | Loss on disposition of operations in Netherlands (see note 4) | | | 2,511 | | | | - | | | | - | | | | 30 | | | | 2,511 | | | | - | | Loss on disposition of operations in MENA (see note 4) | | | | 2,505 | | | | - | | | | - | | Legal contingency | | | (2,125 | ) | | | - | | | | 1,000 | | | | - | | | | (2,125 | ) | | | - | | Restructuring plan charges and adjustments | | | 4,435 | | | | (1,292 | ) | | | 42,340 | | | | 12,778 | | | | 4,435 | | | | (1,292 | ) | Leased airplane disposals | | | - | | | | - | | | | (110 | ) | | Earnout liability adjustment (see note 3) | | | (1,058 | ) | | | - | | | | - | | | | (2,598 | ) | | | (1,058 | ) | | | - | | Other | | | 9 | | | | 1,025 | | | | (2,581 | ) | | | (70 | ) | | | 9 | | | | 348 | | | | $ | 4,600 | | | $ | (944 | ) | | $ | 38,566 | | | $ | 12,638 | | | $ | 4,600 | | | $ | (944 | ) |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010
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 may pay up to an additional $9.3 million based on the results of the acquired business over approximately the next two years. The acquired business hashad 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 the current fiscal period,2011, the Company has estimated the value of the earnout to have decreased by $1.1 million and has 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 is no expectation of an earnout payment. The valuefinal determination of the earnout liability will continueoccur after the quarter ended June 30, 2012.
Also during the quarter ended December 31, 2011, triggering events occurred which required the Company to be adjustedtest 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 its estimated value untilgoodwill and $4.0 million was related to other intangible assets. Approximately 30% of this charge is attributable to the completion of the earnout period.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 givesprovided the Company additional market opportunities in this region. The Company paid $1.8 million in cash, net of cash acquired, and not including amounts if any, to be paid under an earnout agreement in which the Company may pay up to an additional $0.6 million if the acquired business achieves a revenue target over the next two years. The valueCompany has paid approximately $0.3 million of the earnout, is estimatedwith a remaining liability of $0.3 million at $0.5 million.March 31, 2012. The acquired business hashad 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.
In December 2009, the Company acquired a 51% interest in Direct Marketing Services (“DMS”), with operations in Saudi Arabia and the United Arab Emirates. Subsequently, Acxiom’s ownership has increased to 57%. Upon acquisition DMS was reorganized as a limited liability company registered under the laws and regulations of the Kingdom of Saudi Arabia and renamed Acxiom Middle East and North Africa, LTD (“MENA”). The purchase price for DMS was $3.8 million in cash, not including the amount, if any, to be paid pursuant to an earnout agreement where additional payment iswas contingent on MENA’s financial performance for the period ending on December 31, 2012. Financial performance under the earnout will be measured based on MENA’s calculation of earnings before interest, taxes, depreciation and amortization (“EBITDA”). The actual EBITDA will be divided by $18.3 million and that percentage multiplied by $6.1 million to determine the earnout payment. There will be no earnout payment if the actual EBITDA does not exceed $12.8 million. The Company has omitted pro forma disclosures related to this acquisition as the pro forma effect of this acquisition is not material to the Company’s consolidated results for any period presented. DMS hashad annual revenue of less than $5 million. The results of operations for MENA are included in the Company’s consolidated results beginning December 1, 2009.
During the year ended March 31, 2011, triggering events occurred which required the Company to test the goodwill and other intangible assets of MENA for impairment (see note 6). Management concluded that all of the goodwill and other intangibles were impaired. A total impairment charge of $7.2 million was recorded in impairment of goodwill and other intangibles on the consolidated statement of operations, of which $4.8 million was related to goodwill and $2.4 million related to other intangible assets. Approximately 43% of this charge is attributable to the noncontrolling interest.
On November 7, 2008,July 12, 2011, the Company acquiredentered into a transaction with MENA’s minority partners to fully dispose of its interest in its MENA subsidiary. The terms of the assetsdisposal included a $1.0 million cash payment to MENA and the release of Quinetia, LLC, a Rochester, New York-based provider of analytics and predictive modeling for large and medium size businesses. The acquisition providesany claims that the acquirer may have against the Company additional consumer insight capabilities that enable clientsand an agreement to more effectively retain and grow their customer base and optimize pricing. The Company paid $2.7 million, net of cash acquired, for the acquisition not including amounts paid pursuant to an earnout agreement. The earnout agreement allows for payment of up to $1.2 million if the acquired business achieves certain earnings before interest, tax, depreciation and amortization goals. Payments under the earnout agreement are determined based on results in the target measurement periods ending March 31, 2009, 2010 and 2011. The first earnout payment of $0.2 million in fiscal 2009 and the second earnout payment of $0.2 million in fiscal 2010 have been added to the purchase price. The final earnout payment of $0.3 million was added to the purchase price in fiscal 2011. The acquired business has annual revenues of less than $5.0 million. The Company has omitted pro forma disclosures related to this acquisition as the pro forma effect of this acquisition is not material to the Company’s consolidated results for any period presented. Quinetia’s results of operations are included in the Company’s consolidated results beginning November 7, 2008.
On September 15, 2008,hold the Company acquired the direct marketing technology unit of Alvion, LLC. The acquisition allowed the Company to obtain a proven online marketing list fulfillment platform that can be used by small and medium-size businesses that need immediate access to marketing information through a software-as-service environment. The Company paid $3.6 million in cash, net of cash acquired,harmless from any future liabilities. See note 4 for the acquisition. The acquired business has annual revenues of less than $5.0 million. The Company has omitted pro forma disclosures related to this acquisition as the pro forma effect of this acquisition is not material to the Company’s consolidated results for any period presented. Alvion’s results of operations are included in the Company’s consolidated results beginning September 15, 2008.
In July 2008, the Company acquired the database marketing unit of ChoicePoint Precision Marketing, LLC (“Precision Marketing”). The Company paid $9.0 million, of which $4.5 million was paid into two escrow accounts which were subject to escrow arrangements which were finally resolved during fiscal 2010. A total of $0.5 million of one of the escrow funds was released to reimburse the Company for costs incurred. Of the remaining $4.0 million escrow fund, $3.6 million was paid to the sellers and approximately $0.4 million was returned to the Company. The $4.0 million placed into escrow was originally treated as purchase price, therefore the $0.4 million returned to the Company was recorded as a reduction of purchase price and the $3.6 million was charged to goodwill. The acquired business had annual revenue of approximately $16.0 million. The Company has omitted pro forma disclosures related to this acquisition as the pro forma effect of this acquisition is not material to the Company’s consolidated results for any period presented. Precision Marketing’s results of operations are included in the Company’s consolidated results beginning July 1, 2008.further discussion.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 2010 AND 20092010
The following table shows the allocation of GoDigital, XYZ, MENA, Quinetia, Alvion, and Precision MarketingMENA purchase prices to assets acquired and liabilities assumed (dollars in thousands):
| | GoDigital | | | XYZ | | | MENA | | | Quinetia | | | Alvion | | | Precision Marketing | | | GoDigital | | | XYZ | | | MENA | | Assets acquired: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash | | $ | 776 | | | $ | 547 | | | $ | 40 | | | $ | 138 | | | $ | 368 | | | $ | - | | | $ | 776 | | | $ | 547 | | | $ | 40 | | Goodwill | | | 15,546 | | | | 1,446 | | | | 4,824 | | | | 2,024 | | | | 873 | | | | 5,715 | | | | 15,546 | | | | 1,446 | | | | 4,824 | | Other intangible assets | | | 6,500 | | | | 779 | | | | 3,250 | | | | 900 | | | | 1,860 | | | | 2,300 | | | | 6,500 | | | | 779 | | | | 3,250 | | Other current and noncurrent assets | | | 1,178 | | | | 184 | | | | 2,139 | | | | 606 | | | | 1,049 | | | | 2,806 | | | | 1,178 | | | | 184 | | | | 2,139 | | | | | 24,000 | | | | 2,956 | | | | 10,253 | | | | 3,668 | | | | 4,150 | | | | 10,821 | | | | 24,000 | | | | 2,956 | | | | 10,253 | | Accounts payable, accrued expenses and capital leases assumed | | | 2,091 | | | | 120 | | | | 2,027 | | | | 191 | | | | 150 | | | | 2,178 | | | | 2,091 | | | | 120 | | | | 2,027 | | Net assets acquired | | | 21,909 | | | | 2,836 | | | | 8,226 | | | | 3,477 | | | | 4,000 | | | | 8,643 | | | | 21,909 | | | | 2,836 | | | | 8,226 | | Less: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash acquired | | | 776 | | | | 547 | | | | 40 | | | | 138 | | | | 368 | | | | - | | | | 776 | | | | 547 | | | | 40 | | Earnout liability | | | 3,611 | | | | 532 | | | | 371 | | | | - | | | | - | | | | - | | | | 3,611 | | | | 532 | | | | 371 | | Noncontrolling interest | | | 6,573 | | | | - | | | | 4,030 | | | | - | | | | - | | | | - | | | | 6,573 | | | | - | | | | 4,030 | | Net cash paid | | $ | 10,949 | | | $ | 1,757 | | | $ | 3,785 | | | $ | 3,339 | | | $ | 3,632 | | | $ | 8,643 | | | $ | 10,949 | | | $ | 1,757 | | | $ | 3,785 | |
The fair values of the noncontrolling interests in GoDigital and MENA in the table above were 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 two years to seven years. The following table shows the amortization activity of thesepurchased intangible assets (dollars in thousands):
| | 2011 | | | 2010 | | | 2009 | | | Database assets, gross | | $ | - | | | $ | 10,040 | | | $ | 10,040 | | | Accumulated amortization | | | - | | | | (10,040 | ) | | | (10,040 | ) | | Net database assets | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | 2012 | | | 2011 | | | 2010 | | Developed technology assets, gross | | $ | 21,165 | | | $ | 20,990 | | | $ | 19,590 | | | $ | 18,417 | | | $ | 21,165 | | | $ | 20,990 | | Accumulated amortization | | | (15,679 | ) | | | (16,615 | ) | | | (12,650 | ) | | | (17,557 | ) | | | (15,679 | ) | | | (16,615 | ) | Net developed technology assets | | $ | 5,486 | | | $ | 4,375 | | | $ | 6,940 | | | $ | 860 | | | $ | 5,486 | | | $ | 4,375 | | | | | | | | | | | | | | | | | | | | | | | | | | | Customer/trademark assets, gross | | $ | 25,042 | | | $ | 30,015 | | | $ | 28,165 | | | $ | 24,946 | | | $ | 25,042 | | | $ | 30,015 | | Accumulated amortization | | | (18,146 | ) | | | (20,294 | ) | | | (16,586 | ) | | | (23,421 | ) | | | (18,146 | ) | | | (20,294 | ) | Net customer/trademark assets | | $ | 6,896 | | | $ | 9,721 | | | $ | 11,579 | | | $ | 1,525 | | | $ | 6,896 | | | $ | 9,721 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total intangible assets, gross | | $ | 46,207 | | | $ | 61,045 | | | $ | 57,795 | | | $ | 43,363 | | | $ | 46,207 | | | $ | 51,005 | | Total accumulated amortization | | | (33,825 | ) | | | (46,949 | ) | | | (39,276 | ) | | | (40,978 | ) | | | (33,825 | ) | | | (36,909 | ) | Net intangible assets | | $ | 12,382 | | | $ | 14,096 | | | $ | 18,519 | | | $ | 2,385 | | | $ | 12,382 | | | $ | 14,096 | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization expense | | $ | 6,950 | | | $ | 7,673 | | | $ | 7,929 | | | $ | 5,512 | | | $ | 6,950 | | | $ | 7,673 | |
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 and $2.4 million in 2011 for intangible assets of MENA.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 2010 AND 20092010
The following table shows a projection of amortization expense associated with the above assets for the next five years (dollars in thousands):
Year ending March 31, | | Projected amortization expense | | | Projected amortization expense | | 2012 | | | 5,880 | | | 2013 | | | 2,972 | | | $ | 1,636 | | 2014 | | | 1,803 | | | | 415 | | 2015 | | | 1,202 | | | | 183 | | 2016 | | | 463 | | | | 88 | | 2017 | | | | 26 | | Thereafter | | | 62 | | | | 37 | |
The amounts allocated to intangible assets for GoDigital and goodwill for the Quinetia, Alvion, and Precision Marketing acquisitionsXYZ are not expected to be deductible for income tax purposes. The amounts allocated to intangible assets for GoDigital, XYZ and MENA are not expected to be deductible.
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.
5. OTHER CURRENT AND NONCURRENT ASSETS: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, gain on disposal, and the balance sheet amounts pertaining to the AISS business have been classified as discontinued operations in the consolidated financial statements.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010 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 current assets consistServices segment. However, the AISS business unit is excluded from segment results and segregated as discontinued operations.
Summary results of operations of the followingAISS 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):
| | March 31, 2011 | | | March 31, 2010 | | Current portion of unbilled and notes receivable | | $ | 738 | | | $ | 907 | | Prepaid expenses | | | 40,501 | | | | 40,420 | | Non-trade receivables | | | 1,409 | | | | 1,188 | | Assets of non-qualified retirement plan (note 15) | | | 12,840 | | | | 11,564 | | Other miscellaneous assets | | | 203 | | | | 126 | | Other current assets | | $ | 55,691 | | | $ | 54,205 | |
| | 2012 | | | 2011 | | | 2010 | | Revenues | | $ | 42,819 | | | $ | 46,215 | | | $ | 35,637 | | | | | | | | | | | | | | | Earnings from discontinued operations before income taxes | | $ | 4,907 | | | $ | 5,747 | | | $ | 1,271 | | Gain on sale of discontinued operations before income taxes | | | 48,380 | | | | - | | | | - | | Income taxes | | | (19,388 | ) | | | (2,351 | ) | | | (539 | ) | Income from discontinued operations, net of tax | | $ | 33,899 | | | $ | 3,396 | | | $ | 732 | | | | | | | | | | | | | | |
Other noncurrent assets consistPrior to February 1, 2012, the carrying amounts of the followingmajor classes of assets and liabilities of the AISS business unit were segregated and included in assets from discontinued operations and liabilities from discontinued operations in the consolidated balance sheets and are as follows (dollars in thousands):
| | March 31, 2011 | | | March 31, 2010 | | Acquired intangible assets, net | | $ | 6,896 | | | $ | 9,721 | | Other miscellaneous noncurrent assets | | | 2,748 | | | | 4,975 | | Noncurrent portion of unbilled and notes receivable | | | 311 | | | | 1,873 | | Noncurrent assets | | $ | 9,955 | | | $ | 16,569 | |
| | March 31, 2012 | | | March 31, 2011 | | Cash and cash equivalents | | $ | - | | | $ | 50 | | Trade accounts receivable, net | | | - | | | | 5,402 | | Other current assets | | | - | | | | 23 | | Property and equipment, net | | | - | | | | 637 | | Software, net of accumulated amortization | | | - | | | | 382 | | Goodwill | | | - | | | | 19,665 | | Purchased software licenses, net of accumulated amortization | | | - | | | | 111 | | Other assets, net | | | - | | | | 231 | | Assets from discontinued operations | | $ | - | | | $ | 26,501 | | | | | | | | | | | Trade accounts payable and accrued expenses | | $ | - | | | $ | 2,441 | | Liabilities from discontinued operations | | $ | - | | | $ | 2,441 | | | | | | | | | | |
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.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 2010 AND 20092010
5. OTHER CURRENT AND NONCURRENT ASSETS:
Other current assets consist of the following (dollars in thousands):
| | March 31, 2012 | | | March 31, 2011 | | Prepaid expenses | | $ | 43,768 | | | $ | 40,478 | | Assets of non-qualified retirement plan | | | 13,344 | | | | 12,840 | | Other miscellaneous assets | | | 692 | | | | 2,350 | | Other current assets | | $ | 57,804 | | | $ | 55,668 | |
Other noncurrent assets consist of the following (dollars in thousands):
| | March 31, 2012 | | | March 31, 2011 | | Acquired intangible assets, net | | $ | 1,525 | | | $ | 6,896 | | Other miscellaneous noncurrent assets | | | 2,172 | | | | 2,828 | | Noncurrent assets | | $ | 3,697 | | | $ | 9,724 | |
6. GOODWILL:
Goodwill represents the excess of acquisition costs over the fair values of net assets acquired in business combinations. 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 such excess, and a corresponding amount is recorded as a charge to operations for the period in which the impairment test is completed. Completion
The carrying amount of goodwill, by operating segment, at March 31, 2012, 2011 and 2010, 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, 2010 | | $ | 370,104 | | | $ | 71,508 | | | $ | 8,984 | | | $ | 450,596 | | Acquisition of XYZ | | | 1,446 | | | | - | | | | - | | | | 1,446 | | Acquisition of GoDigital | | | 15,546 | | | | - | | | | - | | | | 15,546 | | Purchase adjustments | | | 244 | | | | - | | | | - | | | | 244 | | Goodwill impairment | | | (72,500 | ) | | | - | | | | (4,824 | ) | | | (77,324 | ) | Change in foreign currency translation adjustment | | | 6,932 | | | | - | | | | 549 | | | | 7,481 | | 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 | |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010 Goodwill by component included in Marketing and Data Services as of March 31, 2012 is US, $264.6 million; Europe, $19.5 million; Australia, $14.9 million; China, $6.0 million; and Brazil, $1.1 million.
In order to estimate a valuation for each of the Company’s annualcomponents, management used 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 was 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 were believed to be representative of companies that marketplace participants would use to arrive at comparable multiples for the individual component being tested. These multiples were then used to develop an estimated value for each respective component.
The similar transactions method compared 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 were then used to develop an estimated value for that component.
In order to arrive at an estimated value for each component, management used 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 was reconciled to the actual market value of Acxiom Corporation 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 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 of the change in the segments as noted in Note 17, Segment Information, these segments have been revised since the goodwill test duringwas performed at the quarter ended June 30,beginning of the year. Previously, the Company reported results in two segments, the Information Services segment and the Information Products segment. Because each of these segments contained both U.S. and International components, and there were differences in economic characteristics between the components in the different geographic regions, management tested a total of seven components at the beginning of the year. The goodwill amounts as of April 1, 2011 included in each component tested were: U.S. Information Services, $306.3 million; Europe Information Services, $13.4 million; APAC Information Services, $10.8 million; Brazil Information Services, $16.9 million; U.S. Information Products, $51.2 million; Europe Information Products, $9.1 million; and APAC Information Products, $10.0 million.
The goodwill previously associated with the Information Products segment is re-allocated among the Marketing and Data Services segment and the Other Services segment. The goodwill previously associated with the Information Services segment is re-allocated among the Marketing and Data Services segment, the IT Information Management segment and the Other Services segment. The allocation of goodwill is a complex process that requires, among other things, that management determine the fair value of each reporting unit. Management has allocated goodwill among the new segments based on their relative fair values as of December 31, 2011. In addition to the goodwill allocated to the segments above, management has allocated $19.7 million to the discontinued operations of AISS, which were a part of the Other Services segment prior to being segregated in the discontinued operations. ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010 indicated no potential impairment As of April 1, 2011, each of the components had an estimated fair value in excess of its goodwill balances.carrying value, indicating no impairment.
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. The re-allocation of goodwill among segments referred to above did not impact the remaining goodwill assigned to the Brazil component.
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. The Company had not previously recorded any goodwill impairment, so the amount of goodwill impairment recorded in fiscal 2011 is also the cumulative amount of goodwill impairment as of March 31, 2011.
The carrying amount of goodwill, by operating segment, at March 31, 2011, 2010 and 2009, andPrior to the changes in those balances are presented in the following table.
(dollars in thousands) | | Information Services | | | Information Products | | | Total | | Balance at March 31, 2009 | | $ | 336,406 | | | $ | 118,538 | | | $ | 454,944 | | Acquisition of MENA | | | 4,824 | | | | - | | | | 4,824 | | Purchase adjustments | | | 5,295 | | | | - | | | | 5,295 | | Change in foreign currency translation adjustment | | | 1,559 | | | | 3,639 | | | | 5,198 | | Balance at March 31, 2010 | | $ | 348,084 | | | $ | 122,177 | | | $ | 470,261 | | Acquisition of XYZ | | | 1,446 | | | | - | | | | 1,446 | | Acquisition of GoDigital | | | 15,546 | | | | - | | | | 15,546 | | Purchase adjustments | | | 244 | | | | - | | | | 244 | | Goodwill impairment | | | (20,224 | ) | | | (57,100 | ) | | | (77,324 | ) | Change in foreign currency translation adjustment | | | 2,315 | | | | 5,166 | | | | 7,481 | | Balance at March 31, 2011 | | $ | 347,411 | | | $ | 70,243 | | | $ | 417,654 | |
Goodwill is tested for impairment at the reporting unit level, which is defined as either an operating segment or one step below operating segment, known as a component. Acxiom’s two operating segments as presented above are the Information Services segment and the Information Products segment. Because each of these segments contains both a US component and an International component, and there are some differences in economic characteristics between the US and International components, management tested a total of four components in its annual impairment test performed during the firstfourth quarter of fiscal 2011. The goodwill amounts as of April 1, 2010 included in each component tested were US Information Services, $306.1 million; US Information Products, $51.2 million; International Information Services, $42.0 million; and International Information Products $71.0 million.
In order to estimate a valuation for each of the four components tested, management used 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 income approach involved projecting cash flows for each component into the future and discounting these cash flows at an appropriate discount rate. Management used budget figures for the first year of the projection model, and then projected those figures out into the future years using management’s best estimates of future revenue growth, operating margins, and other cash flow assumptions. The discount rates used for each component in order to arrive at an estimated fair value were estimated as the weighted-average cost of capital which a marketplace participant would use to value each component. These weighted-average costs of capital rates included a market risk factor, added to a risk-free rate of return, and a size premium that was specific to the component being tested. The resulting cost of equity was then weighted-averaged with the after-tax cost of debt.
The public company market multiple method was 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 were believed to be representative of companies that marketplace participants would use to arrive at comparable multiples for the individual component being tested. These multiples were then used to develop an estimated value for that component.
The similar transactions method compared 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 were then used to develop an estimated value for that component.
In order to arrive at an estimated value for each component, management used 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 was reconciled to the actual market value of Acxiom Corporation stock as of the April 1, 2010 valuation date. This reconciliation indicated an implied control premium. Management believes this control premium was reasonable compared to historical control premiums observed in actual transactions.
As of April 1, 2010, each of the components had an estimated fair value in excess of its carrying value, indicating no impairment. All of the components had a significant excess fair value, except for the International Information Products component, for which the excess fair value was 12%.
As described above,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-USnon-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 in the current fiscal year 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.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010
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. The remaining goodwill for all current components, as of March 31, 2011, is USwas U.S. Information Services, $306.3 million; Europe Information Services, $13.4 million; APAC Information Services, $10.8 million; Brazil Information Services, $16.9 million; USU.S. Information Products, $51.2 million; Europe Information Products, $9.1 million; and APAC Information Products, $10.0 million.
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 20122013 at which time the Company will perform step-one testing on all of its components (including the US and Brazil components which were not tested in the fourth quarter of fiscal 2011). Given the current market conditions and continued economic uncertainty, 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 current 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 additional impairment charges.
7. SOFTWARE AND RESEARCH AND DEVELOPMENT COSTS:
The Company recorded amortization expense related to internally developed computer software of $15.2 million, $20.5 million, $23.6 million, and $21.1$23.6 million for fiscal 2012, 2011, 2010, and 2009,2010, respectively, and amortization of purchased software licenses of $13.5 million, $15.6 million and $14.5 million in 2012, 2011 and $27.2 million in 2011, 2010, and 2009, respectively. Additionally, research and development costs of $5.5 million, $11.6 million $6.8 million and $19.4$6.8 million were charged to cost of revenue during 2012, 2011 2010 and 2009,2010, respectively. Amortization expense related to both internally developed and purchased software is included in cost of revenue in the accompanying consolidated statements of operations.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 2010 AND 20092010
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, 2011 | | | March 31, 2010 | | | March 31, 2012 | | | March 31, 2011 | | Land | | $ | 6,737 | | | $ | 6,737 | | | $ | 6,737 | | | $ | 6,737 | | Buildings and improvements | | | 250,193 | | | | 223,861 | | | | 263,115 | | | | 250,065 | | Data processing equipment | | | 566,948 | | | | 528,737 | | | | 583,696 | | | | 566,197 | | Office furniture and other equipment | | | 64,839 | | | | 64,749 | | | | 59,525 | | | | 63,968 | | | | | 888,717 | | | | 824,084 | | | | 913,073 | | | | 886,967 | | Less accumulated depreciation and amortization | | | 633,410 | | | | 587,245 | | | | 659,700 | | | | 632,297 | | | | $ | 255,307 | | | $ | 236,839 | | | $ | 253,373 | | | $ | 254,670 | |
Depreciation expense on property and equipment (including amortization of property and equipment under capitalized leases) was $62.4 million, $64.1 million $60.7 million and $69.4$60.7 million for the years ended March 31, 2012, 2011 2010 and 2009,2010, respectively.
9. LONG-TERM DEBT:
Long-term debt consists of the following (dollars in thousands):
| | March 31, 2011 | | | March 31, 2010 | | | March 31, 2012 | | | March 31, 2011 | | Term loan credit agreement | | $ | 355,000 | | | $ | 427,000 | | | $ | 224,000 | | | $ | 355,000 | | 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 twelve years | | | 43,195 | | | | 41,788 | | | Software license liabilities payable over terms up to three years; effective interest rates ranging from approximately 4% to 7% | | | 4,686 | | | | 10,001 | | | 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 ten years | | | | 35,726 | | | | 43,195 | | Software license liabilities | | | | 1,768 | | | | 4,686 | | Other debt and long-term liabilities | | | 19,357 | | | | 21,946 | | | | 16,728 | | | | 19,357 | | Total long-term debt and capital leases | | | 422,238 | | | | 500,735 | | | | 278,222 | | | | 422,238 | | Less current installments | | | 27,978 | | | | 42,106 | | | | 26,336 | | | | 27,978 | | Long-term debt, excluding current installments | | $ | 394,260 | | | $ | 458,629 | | | $ | 251,886 | | | $ | 394,260 | | | | | | | | | | | | | | | | | | |
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 $200$120 million.
In November 2009, the Company entered into an amendment to its term loan credit facility (the “Amendment”). Under the terms of the Amendment, certain of the lenders agreed to extend the maturity date of the existing term loan, becoming Tranche 2 Term Lenders. Lenders who did not agree to extend the maturity date became Tranche 1 Term Lenders. Certain lenders also agreed to extend the maturity date of the existing revolving loan commitment, becoming Tranche 2 Revolving Lenders. Lenders who did not agree to extend the maturity date of the revolving loan commitment became Tranche 1 Revolving Lenders. Of the $355.0 million balance of the term loan as of March 31, 2011, all of the balance is held by Tranche 2 Term Lenders. The remaining Tranche 1 term loan balance was prepaid in full during fiscal 2011. Of the $200 million revolving loan commitment, $80 million is held by Tranche 1 Revolving Lenders and $120 million is held by Tranche 2 Revolving Lenders.
The term loan is payable in quarterly installments of approximately $1.5 million each, through December 31, 2014, with a final payment of approximately $332.5$207.5 million due March 15, 2015. The Tranche 1 revolving loan commitment expires September 15, 2011 and the Tranche 2 revolving loan commitment expires March 15, 2014.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010
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 1.5% for Tranche 1 and 2.75% for Tranche 2.. There were no revolving credit borrowings outstanding at March 31, 20112012 or March 31, 2010.2011. Term loan borrowings bear interest at LIBOR plus a credit spread which is 1.75% for Tranche 1, andof 3.00% for Tranche 2.. The weighted-average interest rate on term loan borrowings at March 31, 20112012 was 4.1%3.8%. Outstanding letters of credit at March 31, 20112012 were $0.5$2.5 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, 2011,2012, 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).
In fiscal 2009, the Company entered into an interest rate swap agreement. The agreement providesprovided for the Company to pay interest through July 25, 2011 at a fixed rate of 3.25% plus the applicable credit spread on $95.0 million notional amount while receiving interest for the same period at the LIBOR rate on the same notional amount. The fair market value of the derivative was zero at inception and at maturity. The Company recognized no gains or losses associated with this derivative.
On July 25, 2011, the Company entered into a new 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, 20112012 was 0.30%0.56%. 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 March 31, 2011. 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 March 31, 2011,2012, the hedge relationship qualified as an effective hedge under applicable accounting standards. Consequently, all changes in fair value of the derivative arewill 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 $0.9$1.1 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, 2011.2012.
The Company’s future obligations, excluding interest, under its long-term debt at March 31, 20112012 are as follows (dollars in thousands):
Year ending March 31, | | | | | | | 2012 | | | 27,978 | | | 2013 | | | 23,597 | | | $ | 26,336 | | 2014 | | | 11,532 | | | | 15,298 | | 2015 | | | 339,414 | | | | 216,862 | | 2016 | | | 8,171 | | | | 8,181 | | 2017 | | | | 1,583 | | Thereafter | | | 11,546 | | | | 9,962 | | | | $ | 422,238 | | | $ | 278,222 | |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 2010 AND 20092010
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 | | | 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 | | 2009: | | | | | | | | | | | | | | | | | Allowance for doubtful accounts, returns and credits | | $ | 10,011 | | | $ | 4,068 | | | $ | (1,253 | ) | | $ | (2,788 | ) | | $ | 10,038 | | | 2010: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for doubtful accounts, returns and credits | | $ | 10,038 | | | $ | 3,820 | | | $ | (872 | ) | | $ | (6,645 | ) | | $ | 6,341 | | | $ | 10,038 | | | $ | 3,820 | | | $ | (872 | ) | | $ | (6,645 | ) | | $ | 6,341 | | 2011: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for doubtful accounts, returns and credits | | $ | 6,341 | | | $ | 940 | | | $ | 198 | | | $ | (1,857 | ) | | $ | 5,622 | | | $ | 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 | |
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 thosethese 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 claims made 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.
On April 26, 2011 a lawsuit styled Macomb County Employees’ Retirement System v. Acxiom Corporation, et al was filed in the United States District Court for the Eastern District of Arkansas against the Company and certain current and former officers and a director of the Company. The action seeks to be certified as a class action covering persons who acquired Acxiom stock between October 27, 2010 and March 30, 2011. The action purports to assert claims that the defendants violated federal securities laws by not properly disclosing that the Company was experiencing a significant decline in its International operations and that the Company failed to properly and timely account for impaired assets related to its International operations. The Company and the individual defendants dispute such allegations and intend to vigorously contest the case.
Richard Fresco, et al. v. R.L. Polk and Company and Acxiom Corporation, (U.S. Dist. Court, S.D. Florida, 07-60695) formerly, Linda Brooks and Richard Fresco v. Auto Data Direct, Inc., et al., (U.S. Dist. Court, S.D. Florida, 03-61063) is a putative class action lawsuit, removed to federal court in May 2003, filed against Acxiom and several other information providers. The plaintiffs alleged that the defendants obtained and used drivers’ license data in violation of the federal Drivers Privacy Protection Act. Among other things, the plaintiffs sought injunctive relief, statutory damages, and attorneys’ fees. Acxiom has agreed to settle the case and the court approved the settlement on July 27, 2010. The settlement became effective January 18, 2011. During fiscal 2008 and 2009 Acxiom accrued $5.0 million for the settlement and ancillary costs to obtain final approval and previously paid $2.5 million of this amount into an escrow fund established for the settlement, and paid approximately $0.4 million in ancillary costs. The remaining accrual of $2.1 million was reversed during fiscal 2011. Two companion cases, Sharon Taylor, et al., v. Acxiom, et al., (U.S. District Court, E.D. Texas, 207CV001) and Sharon Taylor, et al. v. Biometric Access Company, et al., (U.S. District Court, E.D. Texas, 2:07-CV-00018), were filed in January 2007. Both Taylor cases were dismissed by the District Court and the dismissal was upheld on appeal on July 14, 2010. The plaintiffs sought review by the U.S. Supreme Court, which declined to consider the matter on January 10, 2011, bringing both to final resolution.
The Company is involved in various other claims and legal actions in the ordinary course of business. In the opinion of management, the ultimate disposition of all of these other 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 or licenses data processing equipment, software, office furniture and equipment, land and office space under noncancellable operating leases or licenses. The Company has a future commitment for lease or license payments over the next 2928 years of $135.7$129.7 million.
Total rental expense on operating leases and software licenses was $23.9 million, $34.3 million $35.7 million and $45.5$35.7 million for the years ended March 31, 2012, 2011 2010 and 2009,2010, respectively. Future minimum lease payments under all noncancellable operating leases and software licenses for the five years ending March 31, 2016,2017, are as follows: 2012, $21.5 million; 2013, $19.8$22.9 million; 2014, $17.7$21.8 million; 2015, $13.7$15.9 million; 2016, $13.1 million; and 2016, $11.1 million.2017, $12.4 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 loansa lease for the buyers 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 on this indebtedness, the Company would be required to perform under these guarantees. Substantially allA portion of the third-party indebtednessguaranteed amount is collateralized by various pieces of real property. At March 31, 20112012 the Company’s maximum potential future payments under these guarantees of third-party indebtedness were $1.4$3.7 million.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010 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, 2011:2012: | | 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 | |
In conjunction withOn August 29, 2011, the acquisitionboard of ChinaLOOP in fiscal 2005,directors adopted a common stock repurchase program for a twelve-month period ending August 23, 2012. Under the repurchase program, the Company issued a warrantcould purchase up to $50 million worth of its common stock. Subsequently, the board of directors authorized the expansion of this existing stock repurchase program, effective December 5, 2011. Under the expanded program, the Company may purchase 100,000up to an additional $39.1 million worth of its common stock, bringing the total amount authorized under the stock repurchase plan to $89.1 million through the period ending December 5, 2012. Through March 31, 2012, the Company had repurchased 5.8 million shares of its common stock. The exercise pricestock for the warrant was $15 per share and the warrant could be exercised until October 24, 2014. The warrant also contained a put feature, which gave the holders the right to receive up to an additional $1.5 million in Acxiom common stock if the value of the common stock upon exercise was less than $30 per share. The put feature could only be exercised on or after November 1, 2009, and could only be exercised concurrently with the exercise of the warrant. The warrant and put were exercised by all holders during fiscal 2010. The Company agreed with the holders to pay the value of the warrant in cash, rather than in stock. As a result, the Company paid $1.5 million during fiscal 2010.
During the fiscal year ended March 31, 2009, the Company repurchased 0.3 million shares for $2.1$68.2 million. Cash paid for repurchases of $65.5 million differs from the aggregate purchase price due to trades made at the end of the period which were settled in the following period.subsequent to March 31, 2012.
The Company paid no dividends on its common stock infor any of the amount of $0.12 per share in fiscal 2009. No dividends were paid during fiscal 2011 or 2010.years reported.
Stock Option Activity The Company has stock option and equity compensation plans for which a total of 37.738.2 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, 2011,2012, there were a total of 5.55.6 million shares available for future grants under the plans.
The per-share weighted-average fair value of the stock options granted during 2012 was $5.82. 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 2.2%; 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. The per-share weighted-average fair value of stock options granted during 2010 was $4.61 on the date of grant using a customized binomial lattice option pricing model with the following weighted-average assumptions: dividend yield of 0.0%; risk-free interest rate of 3.5%; expected option life of 5.4 years and expected volatility of 54%. The per-share weighted-average fair value of stock options granted during 2009 was $4.37 on the date of grant using a customized binomial lattice option pricing model with the following weighted-average assumptions: dividend yield of 1.6%; risk-free interest rate of 3.9%; expected option life of 5.6 years and expected volatility of 37%.
Total expense related to stock options was approximately $1.1 million for fiscal 2012, $2.4 million for fiscal 2011 and $2.4 million for fiscal 2010 and $2.2 million for 2009.2010. Future expense for these options is expected to be approximately $3.7$4.4 million in total over the next four years.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010
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) | | | 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, 2010 | | | 10,368,532 | | | $ | 20.33 | | | | | | | | | Outstanding at March 31, 2011 | | | | 9,526,989 | | | $ | 20.75 | | | | | | | | Granted | | | 254,133 | | | | | | | | | | | | | | 884,534 | | | | | | | | | | | | Exercised | | | (375,317 | ) | | | | | | | | | $ | 554 | | | | (723,733 | ) | | | | | | | | | $ | 2,355 | | Forfeited or cancelled | | | (720,359 | ) | | | | | | | | | | | | | | (1,365,713 | ) | | | | | | | | | | | | Outstanding at March 31, 2011 | | | 9,526,989 | | | $ | 20.75 | | | | 4.59 | | | $ | 6,033 | | | Exercisable at March 31, 2011 | | | 8,672,052 | | | $ | 21.35 | | | | 4.30 | | | $ | 4,613 | | | Outstanding at March 31, 2012 | | | | 8,322,077 | | | $ | 20.91 | | | | 4.13 | | | $ | 4,373 | | Exercisable at March 31, 2012 | | | | 7,390,173 | | | $ | 21.84 | | | | 3.49 | | | $ | 3,190 | |
The aggregate intrinsic value for options exercised in fiscal 2009 was $43 thousand, for fiscal 2010 was $1.1 million, and for fiscal 2011 was $0.6 million and for fiscal 2012 was $2.4 million. 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, 2011.2012. 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, 2012:
| | | 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 | | | | | | | | | | | | | | | | | $ | 3.69 - $ 9.62 | | | | 128,457 | | 5.79 years | | $ | 8.61 | | | | 74,457 | | | $ | 8.41 | | $ | 10.22 - $ 15.00 | | | | 2,020,341 | | 6.39 years | | $ | 12.90 | | | | 1,177,151 | | | $ | 12.37 | | $ | 15.10 - $ 19.82 | | | | 2,021,967 | | 3.69 years | | $ | 16.61 | | | | 1,987,253 | | | $ | 16.59 | | $ | 20.12 - $ 25.00 | | | | 2,122,378 | | 3.97 years | | $ | 22.92 | | | | 2,122,378 | | | $ | 22.92 | | $ | 25.98 - $ 29.30 | | | | 1,106,336 | | 2.44 years | | $ | 26.70 | | | | 1,106,336 | | | $ | 26.70 | | $ | 30.93 - $ 39.12 | | | | 679,996 | | 2.19 years | | $ | 35.79 | | | | 679,996 | | | $ | 35.79 | | $ | 40.50 - $ 62.06 | | | | 242,602 | | 2.55 years | | $ | 44.08 | | | | 242,602 | | | $ | 44.08 | | | | | | | 8,322,077 | | 4.13 years | | $ | 20.91 | | | | 7,390,173 | | | $ | 21.84 | |
Restricted Stock Unit Activity Non-vested non performance-based restricted stock units and changes during the year ended March 31, 2012 were as follows:
| | Number of shares | | | Weighted average fair value per share at grant date (in thousands) | | | Weighted-average remaining contractual term (in years) | | Outstanding at March 31, 2011 | | | 1,195,043 | | | $ | 13.42 | | | | 2.16 | | Granted | | | 787,451 | | | $ | 13.26 | | | | | | Vested | | | (513,707 | ) | | $ | 12.51 | | | | | | Forfeited or cancelled | | | (293,626 | ) | | $ | 13.30 | | | | | | Outstanding at March 31, 2012 | | | 1,175,161 | | | $ | 13.40 | | | | 2.21 | |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 2010 AND 20092010
Following is a summary of stock options outstanding as of March 31, 2011:
| | | 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 | | | | | | | | | | | | | | | | | $ | 3.69 - $ 9.62 | | | | 400,649 | | 6.53 years | | $ | 8.72 | | | | 174,399 | | | $ | 8.47 | | $ | 10.22 - $ 15.00 | | | | 1,989,406 | | 4.92 years | | $ | 12.45 | | | | 1,697,500 | | | $ | 12.24 | | $ | 15.10 - $ 19.82 | | | | 2,384,592 | | 5.00 years | | $ | 16.62 | | | | 2,135,311 | | | $ | 16.58 | | $ | 20.12 - $ 25.00 | | | | 2,342,112 | | 4.89 years | | $ | 22.95 | | | | 2,292,112 | | | $ | 22.90 | | $ | 25.98 - $ 29.30 | | | | 1,370,719 | | 3.53 years | | $ | 26.80 | | | | 1,333,219 | | | $ | 26.78 | | $ | 30.93 - $ 39.12 | | | | 780,889 | | 2.89 years | | $ | 35.70 | | | | 780,889 | | | $ | 35.70 | | $ | 40.50 - $ 62.06 | | | | 258,622 | | 3.40 years | | $ | 44.15 | | | | 258,622 | | | $ | 44.15 | | | | | | | 9,526,989 | | 4.59 years | | $ | 20.75 | | | | 8,672,052 | | | $ | 21.35 | |
Restricted Stock Unit Activity
Non-vested restricted stock units and changes during the year ended March 31, 2011 were as follows:
| | Number of shares | | | Weighted average fair value per share at grant date (in thousands) | | | Weighted-average remaining contractual term (in years) | | Outstanding at March 31, 2010 | | | 2,495,641 | | | $ | 11.15 | | | | 2.24 | | Granted | | | 731,519 | | | $ | 19.32 | | | | | | Vested | | | (484,865 | ) | | $ | 10.10 | | | | | | Forfeited or cancelled | | | (960,983 | ) | | $ | 11.18 | | | | | | Outstanding at March 31, 2011 | | | 1,781,312 | | | $ | 14.08 | | | | 1.60 | |
During fiscal 2011,2012, the Company granted non performance-based restricted stock units covering 731,519787,451 shares of common stock with a value at the date of grant of $14.1$10.4 million. Of the restricted stock unitesunits granted duringin the current period, 654,357 vest in equal annual increments over four years and 133,094 vest in one year. During fiscal 2011, the Company granted non performance-based 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. During fiscal 2010, the Company granted non performance-based restricted stock units covering 946,000 shares of common stock with a value at the date of grant of $9.4 million. All of the restricted stock units vest in equal annual increments over four years. Valuation of non performance-based restricted stock units for all periods presented is equal to the quoted market price for the shares on the date of grant.
Non-vested performance-based restricted stock units and changes during the year ended March 31, 2012 were as follows:
| | Number of shares | | | Weighted average fair value per share at grant date (in thousands) | | | Weighted-average remaining contractual term (in years) | | Outstanding at March 31, 2011 | | | 586,269 | | | $ | 15.26 | | | | 0.51 | | Granted | | | 530,137 | | | $ | 10.16 | | | | | | Vested | | | (470,779 | ) | | $ | 13.02 | | | | | | Forfeited or cancelled | | | (133,763 | ) | | $ | 19.63 | | | | | | Outstanding at March 31, 2012 | | | 511,864 | | | $ | 10.91 | | | | 2.31 | |
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 in the current period vest subject to attainment of performance criteria established by the compensation committee of the board of directors. Of the units granted in the current period, 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.
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 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 iswas determined using a Monte Carlo simulation model. Valuation of all other restricted stock units is equal to the quoted market price for the shares on the date of grant.
During fiscal 2010, the Company issuedgranted performance-based restricted stock units covering 1,545,000599,000 shares of common stock with a value at the date of grant of $14.8$5.4 million. Of the 1,545,000 restricted stock units issued during fiscal 2010, 599,000 units were performance units. Performance unitsThe grants vest subject to 1) the Company’s achievement of certain performance criteria and 2) the individual remaining employed by the Company for three years from the date of grant. If both criteria are met the units vest after three years. In fiscal 2011, all of the 599,000 performance units were cancelled as the performance criteria was not met. All other restricted stock units vest in equal annual increments over four years. During fiscal 2009, the Company issued restricted stock units covering 861,532 shares of common stock with a value at the date of grant of $11.1 million. All of these restricted stock units vest in equal annual increments over four years. The value at the date of grant for restricted stock units granted during 2009 and 2010 was equal to the quoted market prices for the shares.
The expense related to restricted stock was $7.8 million in fiscal 2012, $10.7 million in fiscal 2011, and $7.7 million in fiscal 2010 and $6.9 million in fiscal 2009.2010. Future expense for these restricted stock units is expected to be approximately $7.6 million in fiscal 2012, $5.2$7.2 million in fiscal 2013, $2.2$5.3 million in fiscal 2014, $2.4 million in fiscal 2015 and $0.3 million in fiscal 2015.2016.
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. Prior to July 1, 2009 the employees were allowed to purchase shares of stock at 85% of the market price. Subsequent to that date, all purchases by employees have been at the market price. The number of shares available for issuance at March 31, 20112012 was approximately 1.0 million. ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010 Approximately 471,158207,553 shares were purchased under the ESPP during the combined fiscal years 2012, 2011, 2010, and 2009.2010. There was no expense to the Company for the yearyears ended March 31, 2012 and 2011. The expense for 2010 and 2009 for the discount to the market price was $0.1 million and $0.5 million, respectively.million.
Accumulated Other Comprehensive Income The accumulated balances for each component of other comprehensive income are as follows (dollars in thousands):
| | March 31, 2011 | | | March 31, 2010 | | | March 31, 2012 | | | March 31, 2011 | | Foreign currency translation | | $ | 16,883 | | | $ | 7,365 | | | $ | 14,664 | | | $ | 16,883 | | Unrealized loss on interest rate swap | | | (892 | ) | | | (3,198 | ) | | | (1,063 | ) | | | (892 | ) | | | $ | 15,991 | | | $ | 4,167 | | | $ | 13,601 | | | $ | 15,991 | | | | | | | | | | | | | | | | | | |
13. INCOME TAXES:
Total income tax expense (benefit) was allocated as follows (dollars in thousands):
| | 2011 | | | 2010 | | | 2009 | | Income from operations | | $ | 34,077 | | | $ | 32,599 | | | $ | 24,710 | | Stockholders’ equity: | | | | | | | | | | | | | Tax (benefit) expense of stock options, warrants and restricted stock | | | 316 | | | | 683 | | | | (34 | ) | | | $ | 34,393 | | | $ | 33,282 | | | $ | 24,676 | |
| | 2012 | | | 2011 | | | 2010 | | Income from continuing operations | | $ | 29,129 | | | $ | 31,726 | | | $ | 32,060 | | Income from discontinued operations | | | 19,388 | | | | 2,351 | | | | 539 | | Stockholders’ equity: | | | | | | | | | | | | | Tax expense of stock options, warrants and restricted stock | | | 1,310 | | | | 316 | | | | 683 | | | | $ | 49,827 | | | $ | 34,393 | | | $ | 33,282 | |
Income tax expense (benefit) attributable to earnings from continuing operations consists of (dollars in thousands):
| | 2011 | | | 2010 | | | 2009 | | | 2012 | | | 2011 | | | 2010 | | Current: | | | | | | | | | | | | | | | | | | | U.S. Federal | | $ | 12,872 | | | $ | 164 | | | $ | 6,039 | | | $ | 22,919 | | | $ | 10,860 | | | $ | (284 | ) | Non-U.S. | | | 176 | | | | 351 | | | | 20 | | | | 295 | | | | 176 | | | | 351 | | State | | | 2,450 | | | | (726 | ) | | | 2,228 | | | | 3,687 | | | | 2,111 | | | | (817 | ) | | | | 15,498 | | | | (211 | ) | | | 8,287 | | | | 26,901 | | | | 13,147 | | | | (750 | ) | Deferred: | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Federal | | | 19,477 | | | | 31,641 | | | | 15,938 | | | | 900 | | | | 19,477 | | | | 31,641 | | Non-U.S. | | | (264 | ) | | | (1,056 | ) | | | (286 | ) | | | 2,359 | | | | (264 | ) | | | (1,056 | ) | State | | | (634 | ) | | | 2,225 | | | | 771 | | | | (1,031 | ) | | | (634 | ) | | | 2,225 | | | | | 18,579 | | | | 32,810 | | | | 16,423 | | | | 2,228 | | | | 18,579 | | | | 32,810 | | Total | | $ | 34,077 | | | $ | 32,599 | | | $ | 24,710 | | | $ | 29,129 | | | $ | 31,726 | | | $ | 32,060 | |
Deferred income tax expenseIn fiscal year 2012, the Company recorded an additional valuation allowance for 2009 includes expense of $3.1 million, resulting from utilization of acquired deferred tax assets on which full valuation allowances existed and that resulted in reductions in goodwill.a foreign jurisdiction of $5.2 million due to management’s reassessment of projections for the subsidiary. In fiscal 2010, and 2009, the Company reversed valuation allowances previously recorded for certain deferred tax assets, resulting in a deferred tax benefit of $1.1 million and $2.1 million, respectively. In addition, in fiscal 2009, the Company reversed valuation allowances previously recorded for deferred tax assets on certain acquired companies, resulting in an additional $7.4 million reduction in goodwill.million.
Earnings (loss) before income tax attributable to U.S. and non-U.S. continuing operations consist of (dollars in thousands):
| | 2011 | | | 2010 | | | 2009 | | | 2012 | | | 2011 | | | 2010 | | U.S. | | $ | 99,250 | | | $ | 87,507 | | | $ | 63,197 | | | $ | 100,051 | | | $ | 93,503 | | | $ | 86,236 | | Non-U.S. | | | (93,615 | ) | | | (10,749 | ) | | | (983 | ) | | | (33,305 | ) | | | (93,615 | ) | | | (10,749 | ) | Total | | $ | 5,635 | | | $ | 76,758 | | | $ | 62,214 | | | $ | 66,746 | | | $ | (112 | ) | | $ | 75,487 | |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010 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:
| | 2011 | | | 2010 | | | 2009 | | | 2012 | | | 2011 | | | 2010 | | Computed expected tax expense (benefit) | | $ | 1,972 | | | $ | 26,865 | | | $ | 21,775 | | | $ | 23,361 | | | $ | (39 | ) | | $ | 26,420 | | Increase (reduction) in income taxes resulting from: | | | | | | | | | | | | | | | | | | | | | | | | | State income taxes, net of federal benefit, exclusive of benefit of reduction in valuation reserves | | | 2,079 | | | | 2,124 | | | | 1,949 | | | | 1,672 | | | | 1,892 | | | | 2,083 | | Reserves for tax items | | | (3,336 | ) | | | 1,015 | | | | 384 | | | | 37 | | | | (3,336 | ) | | | 1,015 | | Research, experimentation and other tax credits | | | (561 | ) | | | (1,167 | ) | | | - | | | | (555 | ) | | | (561 | ) | | | (1,167 | ) | Impairment of goodwill and intangibles not deductible for tax | | | 28,006 | | | | - | | | | - | | | | 5,031 | | | | 28,006 | | | | - | | Other permanent differences between book and tax expense | | | (58 | ) | | | 1,967 | | | | (4,474 | ) | | Non-U.S. subsidiaries taxed at other than 35% | | | 4,409 | | | | 1,655 | | | | 6,684 | | | Adjustment to valuation reserves | | | 1,312 | | | | (1,149 | ) | | | (2,144 | ) | | Permanent differences between book and tax expense | | | | (9,507 | ) | | | (58 | ) | | | 1,967 | | Non-U.S. subsidiaries taxed at other than 35%, including adjustments to valuation reserves | | | | 8,887 | | | | 4,409 | | | | 1,655 | | Adjustment to U.S. valuation reserves | | | | (619 | ) | | | 1,312 | | | | (1,149 | ) | Other, net | | | 254 | | | | 1,289 | | | | 536 | | | | 822 | | | | 101 | | | | 1,236 | | | | $ | 34,077 | | | $ | 32,599 | | | $ | 24,710 | | | $ | 29,129 | | | $ | 31,726 | | | $ | 32,060 | |
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 discontinued operations: | | 2012 | | | 2011 | | | 2010 | | Computed expected tax expense (benefit) | | $ | 18,650 | | | $ | 2,011 | | | $ | 445 | | Increase (reduction) in income taxes resulting from: | | | | | | | | | | | | | State income taxes, net of federal benefit | | | 737 | | | | 187 | | | | 41 | | Other, net | | | 1 | | | | 153 | | | | 53 | | | | $ | 19,388 | | | $ | 2,351 | | | $ | 539 | |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at March 31, 20112012 and 20102011 are presented below. In accordance with income tax accounting standards, as of March 31, 20112012 the Company has not recognized deferred income taxes on approximately $34.4$33.2 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) | | 2011 | | | 2010 | | | 2012 | | | 2011 | | Deferred tax assets: | | | | | | | | | | | | | Accrued expenses not currently deductible for tax purposes | | $ | 12,531 | | | $ | 11,897 | | | $ | 11,228 | | | $ | 12,531 | | Revenue recognized for tax purposes in excess of revenue for financial reporting purposes | | | 1,718 | | | | - | | | | 3,878 | | | | 1,718 | | Investments, principally due to differences in basis for tax and financial reporting purposes | | | 2,050 | | | | 1,776 | | | | - | | | | 2,050 | | Property and equipment, principally due to differences in depreciation | | | - | | | | 4,728 | | | Net operating loss and tax credit carryforwards | | | 51,489 | | | | 50,943 | | | | 51,153 | | | | 51,489 | | Other | | | 13,554 | | | | 12,994 | | | | 10,410 | | | | 13,554 | | Total deferred tax assets | | | 81,342 | | | | 82,338 | | | | 76,669 | | | | 81,342 | | Less valuation allowance | | | 36,377 | | | | 30,578 | | | | 39,083 | | | | 36,377 | | Net deferred tax assets | | | 44,965 | | | | 51,760 | | | | 37,586 | | | | 44,965 | | Deferred tax liabilities: | | | | | | | | | | | | | | | | | Intangible assets, principally due to differences in amortization | | $ | (68,140 | ) | | $ | (64,854 | ) | | $ | (64,798 | ) | | $ | (68,140 | ) | Costs capitalized for financial reporting purposes in excess of amounts capitalized for tax purposes | | | (33,339 | ) | | | (36,294 | ) | | | (26,072 | ) | | | (33,339 | ) | Property and equipment, principally due to differences in depreciation | | | (15,366 | ) | | | - | | | | (24,648 | ) | | | (15,366 | ) | Revenue recognized for financial reporting purposes in excess of revenue for tax purposes | | | - | | | | (22 | ) | | Total deferred tax liabilities | | | (116,845 | ) | | | (101,170 | ) | | | (115,518 | ) | | | (116,845 | ) | Net deferred tax liability | | $ | (71,880 | ) | | $ | (49,410 | ) | | $ | (77,932 | ) | | $ | (71,880 | ) |
At March 31, 2011,2012, the Company has net operating loss carryforwards of approximately $21.7$15.4 million and $79.6$77.0 million for U.S. federal and state income tax purposes, respectively. These net operating loss carryforwards expire in various amounts from 20112012 through 2028.2030. The Company has foreign net operating loss carryforwards of approximately $135.1$138.5 million. Of this amount, $127.9$132.4 million do not have expiration dates. The remainder expires in various amounts through 2016. The increase in the valuation allowance noted in the table above is due primarily to current year foreign losses.2017.
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 $48.5$38.2 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 assets. The goodwill recorded related to the purchase of certain non-U.S. based subsidiaries includes valuation allowances recorded against their deferred tax assets because these companies had not yet demonstrated consistent and/or sustainable profitability.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010
The following table sets forth changes in the total gross unrecognized tax benefit liabilities, including accrued interest, for the years ended March 31, 2012, 2011, and 2010. The entire liability, if recognized, would reduce the Company’s effective income tax rate in future periods.
(dollars in thousands) | | 2011 | | | 2010 | | | 2009 | | | 2012 | | | 2011 | | | 2010 | | Balance at beginning of period | | $ | 6,379 | | | $ | 5,364 | | | $ | 4,980 | | | $ | 3,043 | | | $ | 6,379 | | | $ | 5,364 | | Additions based on tax positions related to the current year | | | 360 | | | | 566 | | | | - | | | | 189 | | | | 360 | | | | 566 | | Reduction due to lapsing of statute of limitations | | | (3,460 | ) | | | - | | | | - | | | | (94 | ) | | | (3,460 | ) | | | - | | Adjustments to tax positions taken in prior years | | | (236 | ) | | | 449 | | | | 384 | | | | (29 | ) | | | (236 | ) | | | 449 | | Balance at end of period included in other liabilities | | $ | 3,043 | | | $ | 6,379 | | | $ | 5,364 | | | $ | 3,109 | | | $ | 3,043 | | | $ | 6,379 | |
The Company reports accrued interest and penalties related to unrecognized tax benefits in income tax expense. For the fiscal year ended March 31, 2011,2012, the Company recognized $0.3$0.1 million of tax-related interest expense and penalties and had $0.4$0.5 million of accrued interest and penalties at March 31, 2011.2012. During the fiscal year ended March 31, 2011,2012, the expiration of the statute of limitations resulted in a reduction to the unrecognized tax benefits related to certain tax credits by approximately $3.5$0.1 million.
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 2007.2008. 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.
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. Prior to July 1, 2009, the Company matched 50% of the first 6% of employees’ annual aggregate contributions to both plans and may contribute additional amounts to the plans from the Company’s earnings at the discretion of the board of directors. Effective July 1, 2009, through the remainder of the fiscal year 2010, the Company match was suspended. Effective April 1, 2010, the Company reinstated the match at 25% of the first 6% of employees’ annual aggregate contributions. Effective October 1, 2010, the Company reinstated the full 50% match of the first 6% of employee’s annual aggregate contributions.
Company contributions for the above plans amounted to approximately $6.4 million, $3.9 million $1.7 million and $7.5$1.7 million in fiscal years 2012, 2011 2010 and 2009,2010, respectively. Included in both other current assets and other accrued liabilities are the assets and liabilities of the SNQDC Plan in the amount of $12.8$13.3 million and $11.6$12.8 million at March 31, 20112012 and 2010,2011, respectively.
The Company has one small defined benefit pension plan covering certain European employees.employees in Germany. During fiscal 2010,2011, the Company had threetwo small defined benefit pension plans covering certain European employees,employees; however one plan was discontinued at the end of fiscal 2010 and one plan was transferred to the purchaser of the disposed Netherlands operations.operations at the end of fiscal 2011. Both the projected benefit obligation and accumulated benefit obligation were $0.6 million as of March 31, 20112012 and $3.3$0.6 million as of March 31, 2010.2011.
There was no fair value in the plan assets as of either March 31, 2011 and $2.6 million as of2012 or March 31, 2010.2011. The excess of benefit obligations over plan assets was $0.6 million at both March 31, 20112012 and $0.7 million at March 31, 2010.2011.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010
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 2012, 2011 2010 and 20092010 (dollars in thousands):
Revenue | | 2011 | | | 2010 | | | 2009 | | | 2012 | | | 2011 | | | 2010 | | United States | | $ | 997,857 | | | $ | 940,567 | | | $ | 1,096,022 | | | $ | 969,961 | | | $ | 951,642 | | | $ | 904,930 | | Foreign | | | | | | | | | | | | | | | | | | | | | | | | | Europe | | $ | 118,072 | | | $ | 133,625 | | | $ | 158,058 | | | $ | 118,278 | | | $ | 118,072 | | | $ | 133,625 | | Asia/Pacific | | | 32,282 | | | | 23,375 | | | | 22,493 | | | | 36,158 | | | | 32,282 | | | | 23,375 | | Other | | | 11,759 | | | | 1,668 | | | | - | | | | 6,227 | | | | 11,759 | | | | 1,668 | | All Foreign | | $ | 162,113 | | | $ | 158,668 | | | $ | 180,551 | | | $ | 160,663 | | | $ | 162,113 | | | $ | 158,668 | | | | $ | 1,159,970 | | | $ | 1,099,235 | | | $ | 1,276,573 | | | $ | 1,130,624 | | | $ | 1,113,755 | | | $ | 1,063,598 | |
Long-lived assets excluding financial instruments (dollars in thousands) | | 2011 | | | 2010 | | | 2012 | | | 2011 | | United States | | $ | 751,824 | | | $ | 732,253 | | | $ | 678,044 | | | $ | 730,798 | | Foreign | | | | | | | | | | | | | | | | | Europe | | $ | 43,863 | | | $ | 140,122 | | | $ | 48,315 | | | $ | 43,863 | | Asia/Pacific | | | 26,845 | | | | 21,291 | | | | 26,900 | | | | 26,845 | | Other | | | 24,532 | | | | 9,176 | | | | 1,587 | | | | 24,532 | | All Foreign | | $ | 95,240 | | | $ | 170,589 | | | $ | 76,802 | | | $ | 95,240 | | | | $ | 847,064 | | | $ | 902,842 | | | $ | 754,846 | | | $ | 825,398 | |
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, 2011,2012, 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 (See note 9).
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.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 AND 2010
The following table presents the balances of assets and liabilities measured at fair value as of March 31, 20112012 (dollars in thousands):
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Other current assets | | $ | 12,840 | | | $ | - | | | $ | - | | | $ | 12,840 | | | $ | 13,344 | | | $ | - | | | $ | - | | | $ | 13,344 | | Total assets | | $ | 12,840 | | | $ | - | | | $ | - | | | $ | 12,840 | | | $ | 13,344 | | | $ | - | | | $ | - | | | $ | 13,344 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other current liabilities | | $ | 12,840 | | | $ | - | | | $ | - | | | $ | 12,840 | | | $ | 13,344 | | | $ | - | | | $ | - | | | $ | 13,344 | | Other non current liabilities | | | - | | | | 892 | | | | - | | | | 892 | | | | - | | | | 1,063 | | | | - | | | | 1,063 | | Total liabilities | | $ | 12,840 | | | $ | 892 | | | $ | - | | | $ | 13,732 | | | $ | 13,344 | | | $ | 1,063 | | | $ | - | | | $ | 14,407 | |
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. During the quarter ended December 31, 2011, the Company realigned its business segments to better reflect the way management assesses the business. The Company’s new business segments consist of InformationMarketing and Data Services, IT Infrastructure Management, and Information Products.Other Services. The InformationMarketing and Data Services segment includes the Company’s global lines of business for Customer Data Integration (CDI), MultichannelConsumer Insight Solutions, Marketing Services, Infrastructure Management Services, and Consulting and Agency Services. The Information ProductsIT Infrastructure Management segment is comprised ofdevelops and delivers IT outsourcing and transformational solutions. The Other Services segment includes the Company’s global Consumer Insights and Risk Mitigation Products lines ofe-mail fulfillment business, the U.S. risk business, and the U.S. Background Screening Products lineUK fulfillment business.
Our chief operating decision maker uses the revenues and earnings of business. Beginning in fiscal 2010, the three operating segments, among other factors, for performance evaluation and resource allocation. The Company has revised itsevaluates performance of the segments based on segment operating income. The Company’s calculation of segment operating income to allocatedoes 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 to the segments. Segment results for prior periods have been reclassified to reflect the revisedthis 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. These reclassifications had no effect on consolidated results.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.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 2010 AND 20092010
The following tables present information by business segment (dollars in thousands):
| | 2011 | | | 2010 | | | 2009 | | Revenue: | | | | | | | | | | Information services | | $ | 893,594 | | | $ | 849,432 | | | $ | 920,262 | | Information products | | | 266,376 | | | | 249,803 | | | | 356,311 | | Total revenue | | $ | 1,159,970 | | | $ | 1,099,235 | | | $ | 1,276,573 | | | | | | | | | | | | | | | Income from operations: | | | | | | | | | | | | | Information services | | $ | 91,402 | | | $ | 91,013 | | | $ | 117,397 | | Information products | | | 23,796 | | | | 6,856 | | | | 14,030 | | Other | | | (84,274 | ) | | | 944 | | | | (38,566 | ) | Income from operations | | $ | 30,924 | | | $ | 98,813 | | | $ | 92,861 | | | | | | | | | | | | | | | Depreciation and amortization: | | | | | | | | | | | | | Information services | | $ | 116,467 | | | $ | 132,113 | | | $ | 149,649 | | Information products | | | 29,888 | | | | 35,451 | | | | 49,035 | | Depreciation and amortization | | $ | 146,355 | | | $ | 167,564 | | | $ | 198,684 | | | | | | | | | | | | | | | Total assets: | | | | | | | | | | | | | Information services | | $ | 911,821 | | | $ | 908,554 | | | | | | Information products | | | 144,663 | | | | 191,799 | | | | | | Other | | | 250,141 | | | | 263,067 | | | | | | Total assets | | $ | 1,306,625 | | | $ | 1,363,420 | | | | | |
| | 2012 | | | 2011 | | | 2010 | | Revenue: | | | | | | | | | | Marketing and data services | | $ | 771,721 | | | $ | 736,105 | | | $ | 721,211 | | IT Infrastructure management | | | 291,525 | | | | 302,630 | | | | 276,366 | | Other services | | | 67,378 | | | | 75,020 | | | | 66,021 | | Total revenue | | $ | 1,130,624 | | | $ | 1,113,755 | | | $ | 1,063,598 | | | | | | | | | | | | | | | Income (loss) from operations: | | | | | | | | | | | | | Marketing and data services | | $ | 96,095 | | | $ | 87,254 | | | $ | 79,004 | | IT Infrastructure management | | | 24,988 | | | | 24,467 | | | | 22,293 | | Other services | | | (5,079 | ) | | | (2,270 | ) | | | (4,699 | ) | Corporate | | | (30,441 | ) | | | (84,274 | ) | | | 944 | | Income from operations | | $ | 85,563 | | | $ | 25,177 | | | $ | 97,542 | | | | | | | | | | | | | | | Depreciation and amortization: | | | | | | | | | | | | | Marketing and data services | | $ | 61,443 | | | $ | 69,428 | | | $ | 80,777 | | IT Infrastructure management | | | 66,497 | | | | 67,876 | | | | 70,442 | | Other services | | | 6,722 | | | | 9,051 | | | | 16,345 | | Depreciation and amortization | | $ | 134,662 | | | $ | 146,355 | | | $ | 167,564 | | | | | | | | | | | | | | | Total assets: | | | | | | | | | | | | | Marketing and data services | | $ | 659,103 | | | $ | 711,582 | | | | | | IT Infrastructure management | | | 326,673 | | | | 352,337 | | | | | | Other services | | | 20,293 | | | | 46,516 | | | | | | Corporate | | | 220,782 | | | | 196,190 | | | | | | Total assets | | $ | 1,226,851 | | | $ | 1,306,625 | | | | | |
18. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA:
(dollars in thousands) | | Quarter ended June 30, 2010 | | | Quarter ended September 30, 2010 | | | Quarter ended December 31, 2010 | | | Quarter ended March 31, 2011 | | Revenue | | $ | 270,395 | | | $ | 291,669 | | | $ | 299,110 | | | $ | 298,796 | | Gross profit | | | 59,974 | | | | 67,662 | | | | 72,266 | | | | 75,180 | | Income (loss) from operations | | | 22,076 | | | | 27,310 | | | | 34,575 | | | | (53,037 | ) | Net earnings (loss) | | | 9,436 | | | | 12,697 | | | | 20,414 | | | | (70,989 | ) | Net earnings (loss) attributable to Acxiom | | | 9,805 | | | | 13,281 | | | | 20,823 | | | | (67,056 | ) | Basic earnings (loss) per share | | | 0.12 | | | | 0.16 | | | | 0.25 | | | | (0.88 | ) | Diluted earnings (loss ) per share | | | 0.12 | | | | 0.16 | | | | 0.25 | | | | (0.88 | ) | Basic earnings (loss) per share attributable to Acxiom stockholders | | | 0.12 | | | | 0.17 | | | | 0.26 | | | | (0.83 | ) | Diluted earnings (loss) per share attributable to Acxiom stockholders | | | 0.12 | | | | 0.16 | | | | 0.25 | | | | (0.83 | ) |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2012, 2011 2010 AND 20092010
| | | | | | | | | | | | | (dollars in thousands) | | Quarter ended June 30, 2009 | | | Quarter ended September 30, 2009 | | | Quarter ended December 31, 2009 | | | Quarter ended March 31, 2010 | | Revenue | | $ | 255,981 | | | $ | 271,105 | | | $ | 283,807 | | | $ | 288,342 | | Gross profit | | | 50,486 | | | | 59,184 | | | | 73,874 | | | | 76,422 | | Income from operations | | | 12,496 | | | | 21,247 | | | | 29,859 | | | | 35,211 | | Net earnings (loss) | | | 4,194 | | | | 9,445 | | | | 14,158 | | | | 16,362 | | Net earnings (loss) attributable to Acxiom | | | 4,194 | | | | 9,445 | | | | 14,262 | | | | 16,648 | | Basic earnings (loss) per share | | | 0.05 | | | | 0.12 | | | | 0.18 | | | | 0.21 | | Diluted earnings (loss ) per share | | | 0.05 | | | | 0.12 | | | | 0.18 | | | | 0.20 | | Basic earnings (loss) per share attributable to Acxiom stockholders | | | 0.05 | | | | 0.12 | | | | 0.18 | | | | 0.21 | | Diluted earnings (loss) per share attributable to Acxiom stockholders | | | 0.05 | | | | 0.12 | | | | 0.18 | | | | 0.21 | | | | | | | | | | | | | | | | | | |
18. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA:
(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 | | | 56,240 | | | | 67,320 | | | | 65,425 | | | | 71,845 | | 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 | |
| | | | | | | | | | | | | (dollars in thousands except per-share amounts) | | Quarter ended June 30, 2010 | | | Quarter ended September 30, 2010 | | | Quarter ended December 31, 2010 | | | Quarter ended March 31, 2011 | | Revenue | | $ | 259,179 | | | $ | 279,445 | | | $ | 287,905 | | | $ | 287,226 | | Gross profit | | | 56,379 | | | | 63,174 | | | | 69,431 | | | | 71,608 | | Income (loss) from operations | | | 20,638 | | | | 24,998 | | | | 33,842 | | | | (54,301 | ) | Earnings from discontinued operations, net of tax | | | 863 | | | | 1,387 | | | | 441 | | | | 705 | | Net earnings (loss) | | | 9,436 | | | | 12,697 | | | | 20,414 | | | | (70,989 | ) | Net earnings (loss) attributable to Acxiom | | | 9,805 | | | | 13,281 | | | | 20,823 | | | | (67,056 | ) | | | | | | | | | | | | | | | | | | Basic earnings (loss) per share: | | | | | | | | | | | | | | | | | From continuing operations | | | 0.11 | | | | 0.14 | | | | 0.25 | | | | (0.89 | ) | From discontinued operations | | | 0.01 | | | | 0.02 | | | | 0.01 | | | | 0.01 | | Attributable to Acxiom stockholders | | | 0.12 | | | | 0.17 | | | | 0.26 | | | | (0.83 | ) | | | | | | | | | | | | | | | | | | Diluted earnings (loss ) per share: | | | | | | | | | | | | | | | | | From continuing operations | | | 0.11 | | | | 0.14 | | | | 0.24 | | | | (0.89 | ) | From discontinued operations | | | 0.01 | | | | 0.02 | | | | 0.01 | | | | 0.01 | | Attributable to Acxiom stockholders | | | 0.12 | | | | 0.16 | | | | 0.25 | | | | (0.83 | ) | | | | | | | | | | | | | | | | | |
Some earnings per share amounts may not add due to rounding. 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, 2012, 2011 AND 2010
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.
In the fourth quarter of fiscal 2011 the Company recorded impairment of goodwill and other intangible assets of $79.7 million. Also in the fourth quarter of fiscal 2011 the Company recorded a total of $8.2 million in gains, losses and other items, net in the consolidated statements of operations. The total included $3.3 million related to the disposal of the Netherlands and Portugal operations and $5.5 million of restructuring charges, offset by a credit of $0.6 million related to the reduction of an earnout liability. In the fourth quarter of fiscal 2011 the Company also recorded $1.6 million in other, net related to the impairment of an investment.
In the third quarter of fiscal 2011, the Company recorded adjustments primarily to restructuring and legal accruals totaling $3.6 million recorded in gains, losses and other items, net. In addition, the Company reduced a reserve for unrecognized tax benefits by approximately $3.5 million due to the expiration of the related statute of limitations.
In the fourth quarter of fiscal 2010 the Company recorded a gain of $1.8 million in gains, losses, and other items in the consolidated statement of operations. The reversal of expense was related to a $1.5 million reversal of lease restructuring charges, a $0.2 million reversal of other restructuring charges, and a $0.1 additional gain recorded on the disposition of operations in France.
In the third quarter of fiscal 2010 the Company recorded a total of $0.5 million expense in gains, losses, and other items in the consolidated statement of operations. These charges included a $1.0 million loss recorded on a contingent liability netted against a $0.5 million additional gain recorded on the disposition of operations in France.
In the first quarter of fiscal 2010 the Company recorded $0.3 million expense in gains, losses and other items in the consolidated statement of operations. The adjustments were related to previous restructuring charges.
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