South America:
Porto Alegre, Brazil | Lease | Office space | Marketing and Data Services
| | | | Sao Paulo, Brazil | Lease | Office space | Marketing and Data Services | | | | |
The Company is involved in various claims and legal matters that arise in the ordinary course of the business. None of these, however, are believed to be material in their nature or scope. Listed below is a matter pending against the Company and one of its subsidiarysubsidiaries for which the potential exposure is considered material. While the ultimate results of this matter cannot be determined, it is not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.
On August 16, 2012, a putative class action styled Henderson, et al. v. Acxiom Risk Mitigation, Inc., et al. was filed in the United States District Court for the Eastern District of Virginia against the Company, Acxiom Information Security Systems, a former subsidiary of the Company that was sold to another company in fiscal 2012, and Acxiom Risk Mitigation, Inc. (now known as Acxiom Identity Solutions, LLC, a Colorado limited liability company), a subsidiary of the Company. The action seeks to certify nationwide classes of persons who requested a consumer file from any Acxiom entity from 2007 forward; who were the subject of an Acxiom report sold to a third party that contained information not obtained directly from a governmental entity and who did not receive a timely copy of the report; who were the subject of an Acxiom report and about whom Acxiom adjudicated the hire/no hire decision on behalf of the employer; who, from 2010 forward, disputed an Acxiom report and Acxiom did not complete the investigation within 30 days; or who, from 2007 forward, were the subject of an Acxiom report for which no permissible purpose existed. The complaint alleges various violations of the Fair Credit Reporting Act and seeks injunctive relief, an unspecified amount of statutory, compensatory and punitive damages, attorneys’ fees and costs. The parties have reached a tentative settlement agreement and the Company has accrued $3.7 million as its estimate of theits probable loss associated with this matter. On April 21, 2015, the Court preliminarily approved the class action settlement. A hearing on whether to grant final approval of the settlement is tentatively scheduled for July 29, 2015. The Company believes the chances of additional loss are remote.
Not applicable.
PART II
Market Information
The outstanding shares of Acxiom’s common stock are listed and traded on the NASDAQ Global Select Market and trade under the symbol ACXM.“ACXM.” The following table reflects the range of high and low sales prices of Acxiom’s common stock as reported by NASDAQ Online for each quarter in fiscal 20142015 and 2013.2014.
Fiscal 2014 | High | | Low | | | | Fiscal 2015 | | | High | | | Low | | Fourth Quarter | $ 39.30 | | $ 32.01 | | | | $ | 20.53 | | | $ | 17.72 | | Third Quarter | 38.71 | | 28.29 | | | | | 21.25 | | | | 16.04 | | Second Quarter | 29.26 | | 22.89 | | | | | 22.32 | | | | 16.53 | | First Quarter | 22.99 | | 18.41 | | | | | 35.74 | | | | 20.30 | |
Fiscal 2013 | High | | Low | | | | Fiscal 2014 | | | High | | | Low | | Fourth Quarter | $ 20.46 | | $ 16.43 | | | | $ | 39.30 | | | $ | 32.01 | | Third Quarter | 18.98 | | 16.18 | | | | | 38.71 | | | | 28.29 | | Second Quarter | 18.99 | | 15.13 | | | | | 29.26 | | | | 22.89 | | First Quarter | 15.14 | | 12.66 | | | | | 22.99 | | | | 18.41 | |
Holders
As of May 23, 201422, 2015 the approximate number of record holders of the Company’s common stock was 1,500.2,155.
Dividends
The Company has not paid dividends on its common stock in the past two fiscal years. The Board of Directors may consider paying dividends in the future but has no plans to pay dividends in the short term.
Performance Graph
The graph below matchescompares Acxiom Corporation's cumulative 5-year total shareholder return on common stock with the cumulative total returns of the NASDAQ Composite index and the NASDAQ Computer & Data Processing index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from March 31, 20092010 to March 31, 2014.2015. | | | | | | | | | | | | | 3/09 | 3/10 | 3/11 | 3/12 | 3/13 | 3/14 | | 3/10 | 3/11 | 3/12 | 3/13 | 3/14 | 3/15 | | | | | Acxiom Corporation | | 100.00 | 242.43 | 193.92 | 198.38 | 275.68 | 464.80 | | 100.00 | 79.98 | 81.82 | 113.70 | 191.70 | 103.05 | | NASDAQ Composite | | 100.00 | 158.32 | 185.39 | 210.13 | 226.02 | 296.17 | | 100.00 | 116.88 | 132.91 | 143.55 | 188.17 | 219.78 | | NASDAQ Computer & Data Processing | | 100.00 | 158.57 | 176.14 | 199.59 | 205.39 | 288.37 | | 100.00 | 110.50 | 125.59 | 129.15 | 181.52 | 202.84 | | | | |
The performance graph and the related chart and text, are being furnished solely to accompany this Annual Report on Form 10-K pursuant to Item 201(e) of Regulation S-K, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of ours, whether made before or after the date hereof, regardless of any general incorporation language in such filing. The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The table below provides information regarding purchases by Acxiom of its common stock during the periods indicated.
Period | | Total Number of Shares Purchased | | | Average Price Paid Per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | | 1/1/14 – 1/31/14 | | | 0 | | | | n/a | | | | 0 | | | $ | 57,423,742 | | 2/1/14 – 2/28/14 | | | 0 | | | | n/a | | | | 0 | | | | 57,423,742 | | 3/1/14 – 3/31/14 | | | 0 | | | | n/a | | | | 0 | | | | 57,423,742 | | Total | | | 0 | | | | n/a | | | | 0 | | | $ | 57,423,742 | |
The repurchases listed above were made pursuant to a repurchase program adopted by the Board of Directors on August 29, 2011. That program was subsequently modified and expanded on the following dates: December 5, 2011, May 24, 2012, February 5, 2013, and November 18, 2013. Under the modified common stock repurchase program, the Company may purchase up to $250 million worth of its common stock through the period ending November 18, 2014. Through March 31, 2014, the Company had repurchased 12.3 million shares of its stock for $192.6 million.
For information pertaining to selected financial data of Acxiom, refer to page F-2 of the Financial Supplement, which is attached hereto and incorporated herein by reference.
The information required by this item appears in the Financial Supplement at pp.pages F-3 – F-21,F-20, which is attached hereto and incorporated herein by reference.
Acxiom’s earnings are affected by changes in short-term interest rates primarily as a result of its term loan agreement and its revolving credit agreement, which bear interest at a floating rate. Acxiom currently uses an interest rate swap agreement to mitigate the interest rate risk on $50 million of its floating-rate debt. Risk can be estimated by measuring the impact of a near-term adverse movement of one percentage point in short-term market interest rates. If short-term market interest rates increase one percentage point during the next four quarters compared to the previous four quarters, there would be no material adverse impact on Acxiom’s results of operations. Acxiom has no material future earnings or cash flow expenses from changes in interest rates related to its other long-term debt obligations, as substantially all of Acxiom’s remaining long-term debt instruments have fixed rates. At both March 31, 20142015 and 2013,2014, the fair value of the Company’s fixed rate long-term obligations approximated carrying value.
Acxiom has a presence in the United Kingdom, France, Germany, Poland, Australia, China and Brazil. 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. Therefore, exchange rate movements of foreign currencies may have an impact on Acxiom’s future costs or on future cash flows from foreign investments. Acxiom 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.
The financial statements required by this item appear in the Financial Supplement at pp. F-23F-24 – F-59,F-62, which is attached hereto and incorporated herein by reference.
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and President (our principal executive officer) and our Chief Financial Officer and Executive Vice President (our principal financial and accounting officer), evaluated the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended). Based on this evaluation, our principal executive officer and our principal financial and accounting officer concluded that as of March 31, 2014,2015, our disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
Management’s report on Acxiom’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Securities Exchange Act of 1934, as amended), and the related report of Acxiom’s independent public accounting firm, are included in the Financial Supplement on pages F-22F-21 and F-24,F-23, respectively, and are incorporated herein by reference.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 20142015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Not applicable.
PART III
Please see the information concerning our executive officers contained in Part I of this Annual Report on Form 10-K under the caption “Executive Officers of the Registrant” which is included there pursuant to Instruction 3 to Item 401(b) of the SEC’s Regulation S-K.
The Acxiom Board of Directors has adopted a codecodes of ethics applicable to our principal executive, financial and accounting officers and all other persons performing similar functions. A copyCopies of this codethese codes of ethics isare posted on Acxiom’s website at www.acxiom.com under the Corporate Governance“About – Codes of Ethics” section of the site. The remaining information required by this item appears under the captions “Election of Directors,” “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” in Acxiom's 20142015 Proxy Statement, which information is incorporated herein by reference.
The information required by this item appears under the heading “Executive Compensation” in Acxiom's 20142015 Proxy Statement, which information is incorporated herein by reference.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table contains information about our common stock which may be issued upon the exercise of options under our existing equity compensation plans as of the end of fiscal 20132015 (March 31, 2013)2015):
Plan category | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | | | (a) | (b) | (c) | | (a) | (b) | (c) | Equity compensation plans approved by shareholders | Equity compensation plans approved by shareholders | 4,317,4121 | $20.63 | 4,999,457 | Equity compensation plans approved by shareholders | 4,671,9401 | $15.17 | 3,219,299 | Equity compensation plans not approved by shareholders | Equity compensation plans not approved by shareholders | 221,1062 | 13.74 | 47,500 | Equity compensation plans not approved by shareholders | 221,1062 | 13.74 | 47,500 | Total | Total | 4,538,518 | $20.30 | 5,046,957 | Total | 4,893,046 | $15.11 | 3,266,799 | | | | | | 1 | This figure represents stock options issued under shareholder-approved stock option plans, of which 3,669 options were assumed in connection with our acquisitions of Digital Impact, Inc. in 2006. | This figure represents stock options issued under shareholder-approved stock option plans, of which 1,001 options were assumed in connection with our acquisition of Digital Impact, Inc. in 2006 and 1,055,710 options were assumed in connection with our acquisition of LiveRamp in fiscal 2015. | 2 | Issued pursuant to the Company’s 2011 Nonqualified Equity Compensation Plan described below, which does not require shareholder approval under the exception provided for in NASDAQ Marketplace Rule 5635(c)(4). | Issued pursuant to the Company’s 2011 Nonqualified Equity Compensation Plan described below, which does not require shareholder approval under the exception provided for in NASDAQ Marketplace Rule 5635(c)(4). |
Equity Compensation Plan Not Approved By Security Holders The Company adopted the 2011 Nonqualified Equity Compensation Plan of Acxiom Corporation (the “2011 Plan”) for the purpose of making equity grants to induce new key executives to join the Company. The awards that may be made under the 2011 Plan include stock options, stock appreciation rights, restricted stock awards, RSU awards, performance awards, or other stock unit awards. In order to receive such an award, a person must be newly employed with the Company with the award being provided as an inducement material to their employment, provided the award is first properly approved by the board of directors or an independent committee of the board. The board of directors and its compensation committee are the administrators of the 2011 Plan, and as such, determine all matters relating to awards granted under the 2011 Plan, including the eligible recipients, whether and to what extent awards are to be granted, the number of shares to be covered by each grant and the terms and conditions of the awards. The 2011 Plan has not been approved by the Company’s shareholders.
The remaining information required by this item appears under the heading “Stock Ownership” in Acxiom's 20142015 Proxy Statement, which information is incorporated herein by reference.
The information required by this item appears under the headings “Related-Party Transactions” and “Corporate Governance - Board and Committee Matters” in Acxiom's 20142015 Proxy Statement, which information is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this item appears under the heading “Ratification of Independent Registered Public Accountant - Fees Billed for Services Rendered by Independent Auditor” in Acxiom's 20142015 Proxy Statement, which information is incorporated herein by reference.
(a) The following documents are filed as a part of this report:
The following consolidated financial statements of the registrant and its subsidiaries included in the Financial Supplement and the Independent Auditors' Reports thereof are attached hereto. Page references are to page numbers in the Financial Supplement.
| | | Page | Reports of Independent Registered Public Accounting Firm | | | F-22 - F-23 - F-24 | | | | | Consolidated Balance Sheets as of March 31, 20142015 and 20132014 | | | F-25F-24 | | | | | Consolidated Statements of Operations for the years ended March 31, 2015, 2014 2013 and 20122013 | | | F-26F-25
| | | | | Consolidated Statements of Comprehensive Income (Loss) for the years ended March 31, 2015, 2014, 2013, and 20122013 | | | F-27F-26
| | | | | Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2015, 2014 2013 and 20122013 | | | F-28F-27
| | | | | Consolidated Statements of Cash Flows for the years ended March 31, 2015, 2014 2013 and 20122013 | | | F-28 - F-29 - F-30 | | | | | Notes to the Consolidated Financial Statements | | | F-31F-30 - F-60F-62 | | | | | | | | |
| 2. Financial Statement Schedules. |
All schedules are omitted because they are not applicable or not required or because the required information is included in the consolidated financial statements or notes thereto.
The following exhibits are filed with this report or are incorporated by reference to previously filed material: Exhibit No.
Exhibit No.2.1 | Merger Agreement, dated May 12, 2014, by and among Acxiom Corporation, Big Sky Sub Acquisition, Inc., LiveRamp, Inc., and The Brenner Group (previously filed on May 14, 2014, as Exhibit 2.1 to Acxiom Corporation’s Current Report on Form 8-K, and incorporated herein by reference) |
2.2 | Contribution and Stock Purchase Agreement, dated as of May 19, 2015, by and among Aspen Holdco, Inc., Acxiom Corporation, Acxiom IT Outsourcing, Inc., Acxiom Limited, Aspen Hivedown Limited, Acxiom Global Service Center Polska sp. z.o.o., Acxiom Polska sp. z.o.o. w likwidacji, and Acxiom ITO Polska sp. z.o.o. (previously filed on May 20, 2015, as Exhibit 2.1 to Acxiom Corporation’s Current Report on Form 8-K, and incorporated herein by reference) |
3.1 | Amended and Restated Certificate of Incorporation (previously filed as Exhibit 3(i) to Acxiom Corporation's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996, Commission File No. 0-13163, and incorporated herein by reference) |
3.2 | Amended and Restated Bylaws (previously filed on August 20, 2012, as Exhibit 3(a) to Acxiom Corporation’s Current Report on Form 8-K, and incorporated herein by reference) |
10.1 | 2005 Stock Purchase Plan of Acxiom Corporation (previously filed as Appendix B to Acxiom Corporation’s Proxy Statement dated June 24, 2005, Commission File No. 0-13163, and incorporated herein by reference) |
10.2 | First Amendment to the 2005 Stock Purchase Plan of Acxiom Corporation |
10.3 | Amended and Restated Key Associate Stock Option Plan of Acxiom Corporation (previously filed as Exhibit 10(e) to Acxiom Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2000, Commission File No. 0-13163, and incorporated herein by reference) |
10.310.4 | Amended and Restated 2005 Equity Compensation Plan of Acxiom Corporation (previously filed as Exhibit 10.1 to Acxiom Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, and incorporated herein by reference) |
10.410.5 | Acxiom Corporation U.K. Share Option Scheme (previously filed as Exhibit 10(f) to Acxiom Corporation's Annual Report on Form 10-K for the fiscal year ended March 31, 1997, Commission File No. 0-13163, and incorporated herein by reference) |
10.510.6 | Amended and Restated 2010 Executive Cash Incentive Plan of Acxiom Corporation (previously filed as Exhibit 10(g) to Acxiom Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2010, Commission File No. 0-13163, and incorporated herein by reference) |
10.6 | 2010 Executive Officer Severance Policy, as amended (previously filed on May 27, 2014, as Exhibit 10.2 to Acxiom Corporation’s Current Report on Form 8-K, and incorporated herein by reference) |
10.7 | Amended and Restated 2010 Executive Officer Severance Policy |
10.8 | Form of Performance Unit Award Agreement under the Amended and Restated 2005 Equity Compensation Plan of Acxiom Corporation |
10.9 | Form of Stock Option Grant Agreement under the Amended and Restated 2005 Equity Compensation Plan of Acxiom Corporation |
10.10 | Form of Restricted Stock Unit Award Agreement under the Amended and Restated 2005 Equity Compensation Plan of Acxiom Corporation |
10.11 | 2011 Nonqualified Equity Compensation Plan of Acxiom Corporation (previously filed on July 27, 2011, as Exhibit 10.2 to Acxiom Corporation’s Current Report on Form 8-K, and incorporated herein by reference) |
10.810.12 | Form of Performance Unit Award Agreement under the 2011 Nonqualified Equity Compensation Plan of Acxiom Corporation (previously filed on July 27, 2011, as Exhibit 10.3 to Acxiom Corporation’s Current Report on Form 8-K, and incorporated herein by reference) |
10.910.13 | Form of Stock Option Grant Agreement under the 2011 Nonqualified Equity Compensation Plan of Acxiom Corporation (previously filed on July 27, 2011, as Exhibit 10.4 to Acxiom Corporation’s Current Report on Form 8-K, and incorporated herein by reference) |
10.1010.14 | Form of Restricted Stock Unit Award Agreement under the 2011 Nonqualified Equity Compensation Plan of Acxiom Corporation (previously filed on July 27, 2011, as Exhibit 10.5 to Acxiom Corporation’s Current Report on Form 8-K, and incorporated herein by reference) |
10.1110.15 | General Electric Capital Corporation Master Lease Agreement, dated as of September 30, 1999 (previously filed as Exhibit 10(m) to Acxiom Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2001, Commission File No. 0-13163, and incorporated herein by reference) |
10.1210. 16 | Amendment to General Electric Capital Corporation Master Lease Agreement dated as of December 6, 2002 (previously filed as Exhibit 10 (j) to Acxiom Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2003, Commission File No. 0-13163, and incorporated herein by reference) |
10.1310.17 | Fifth Amended and Restated Credit Agreement dated as of October 9, 2013, among Acxiom Corporation, a Delaware corporation, the lenders party thereto and JPMorgan Chase Bank, N.A. (previously filed on October 15, 2013, as Exhibit 10.1 to Acxiom Corporation’s Current Report on Form 8-K, and incorporated herein by reference) |
10.1410.18 | Amendment No. 1 to Fifth Amended and Restated Credit Agreement, effective as of May 19, 2015, by and among Acxiom Corporation, the Lenders party thereto and JPMorgan Chase Bank, N.A. (previously filed on May 21, 2015, as Exhibit 10.1 to Acxiom Corporation’s Current Report on Form 8-K, and incorporated herein by reference) |
10.19 | Assignment of Head Lease dated as of February 10, 2003, by and between Wells Fargo Bank Northwest, National Association, as Owner Trustee under the AC Trust 2001-1 (“Assignor”) and Acxiom Corporation, assigning all of Assignor’s rights, title and interest in that certain Head Lease Agreement dated as of May 1, 2000, between the City of Little Rock, AR and Assignor, each relating to the lease of an office building in downtown Little Rock which was previously financed pursuant to a terminated synthetic real estate facility (previously filed as Exhibit 10 (l) to Acxiom Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2003, Commission File No. 0-13163, and incorporated herein by reference) |
10.15 | Employment Agreement by and between Acxiom Corporation and Scott E. Howe dated as of July 26, 2011 (previously filed on July 27, 2011 as Exhibit 10.1 to Acxiom Corporation’s Current Report on Form 8-K, and incorporated herein by reference) |
10.1610.20 | Employment Agreement by and between Acxiom Corporation and Scott E. Howe dated as of July 26, 2014 (previously filed on May 27, 2014 as Exhibit 10.1 to Acxiom Corporation’s Current Report on Form 8-K, and incorporated herein by reference) |
10.1710.21 | Employment Agreement by and between Acxiom Corporation and Warren C. Jenson dated as of January 11, 2012March 27, 2015 (previously filed on January 11, 2012March 27, 2015 as Exhibit 10.1 to Acxiom Corporation’s Current Report on Form 8-K, and incorporated herein by reference) |
10.1810.22 | Employment Offer Letter dated January 30, 2012, between Acxiom Corporation and Nada C. Stirratt (previously filed as Exhibit 10.23 to Acxiom Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2012, and incorporated herein by reference) |
10.1910.23 | Separation Agreement between Acxiom Corporation and Nada C. Stirratt effective March 31, 2015 |
10.24 | Employment Offer Letter dated April 19, 2012, between Acxiom Corporation and Philip L. Mui (previously filed as Exhibit 10.24 to Acxiom Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2012, and incorporated herein by reference) |
10.2010.25 | Deferred Compensation Plan between Acxiom Corporation and Philip L. Mui dated as of March 31, 2014 |
(previously filed as Exhibit 10.20 to Acxiom Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014, and incorporated herein by reference)
10.2110.26 | Form of director indemnity agreement (previously filed as Exhibit 10(x) to Acxiom Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2010, Commission File No. 0-13163,, and incorporated herein by reference) |
10.2210.27 | Form of officer and director indemnity agreement (previously filed as Appendix C to Acxiom Corporation’s Proxy Statement dated January 22, 1987, Commission File No. 0-13163, and incorporated herein by reference) |
10.2310.28 | Acxiom Corporation Non-Qualified Deferral Plan, amended and restated effective January 1, 2009 (previously filed as Exhibit 10.27 to Acxiom Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013, and incorporated herein by reference) |
10.2410.29 | First Amendment to the Acxiom Corporation Non-Qualified Deferral Plan, effective July 1, 2009 (previously filed as Exhibit 10.28 to Acxiom Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013, and incorporated herein by reference) |
10.2510.30 | Acxiom Corporation Non-Qualified Matching Contribution Plan, amended and restated effective January 1, 2009 (previously filed as Exhibit 10.29 to Acxiom Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013, and incorporated herein by reference) |
10.2610.31 | First Amendment to the Acxiom Corporation Non-Qualified Matching Contribution Plan, effective July 1, 2009 (previously filed as Exhibit 10.30 to Acxiom Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013, and incorporated herein by reference) |
10.32 | LiveRamp, Inc. 2006 Equity Incentive Plan (previously filed as Exhibit 99.1 to Acxiom Corporation’s Registration Statement on Form S-8, Commission File No. 333-197463, and incorporated herein by reference) |
21 | Subsidiaries of Acxiom Corporation |
31.1 | Certification of Chief Executive Officer pursuant to SEC Rule 13a-14(a)/15d-14(a), as adopted pursuant to Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 |
31.2 | Certification of Chief Financial Officer pursuant to SEC Rule 13a-14(a)/15d-14(a), as adopted pursuant to Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101 | The following financial information from our Annual Report on Form 10-K for the fiscal year ended March 31, 2014,2015, formatted in XBRL: (i) Consolidated Balance Sheets as of March 31, 20142015 and 2013;2014; (ii) Consolidated Statements of Operations for the fiscal years ended March 31, 2015, 2014 2013 and 2012;2013; (iii) Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended March 31, 2015, 2014 2013 and 2012;2013; (iv) Consolidated Statements of Stockholders’ Equity for the fiscal years ended March 31, 2015, 2014 2013 and 2012;2013; (v) Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2015, 2014 2013 and 2012;2013; and (vi) Notes to the Consolidated Financial Statements |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 28, 201427, 2015 | By: | /s/Warren C. Jenson | |
| Warren C. Jenson Chief Financial Officer & Executive Vice President |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
| John L. Battelle* | Director | May 28, 201427, 2015 |
| Timothy R. Cadogan* | Director | May 28, 201427, 2015 |
| William T. Dillard II* | Director | May 28, 201427, 2015 |
| Richard P. Fox* | Director | May 28, 201427, 2015 |
| Jerry D. Gramaglia* | Director (Non-Executive Chairman of the Board) | May 28, 201427, 2015 |
| Ann Die Hasselmo* | Director | May 28, 201427, 2015 |
| William J. Henderson* | Director | May 28, 201427, 2015 |
| Scott E. Howe* | Director, CEO & President (principal executive officer) | May 28, 201427, 2015 |
| Clark M. Kokich* | Director | May 28, 201427, 2015 |
| /s/Warren C. Jenson | Chief Financial Officer & Executive Vice President (principal financial and accounting officer) | May 28, 201427, 2015 |
*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-22F-21 | Reports of Independent Registered Public Accounting Firm | F-23F-22 | Annual Financial Statements: | | Consolidated Balance Sheets as of March 31, 20142015 and 20132014 | F-25F-24 | Consolidated Statements of Operations for the years ended March 31, 2015, 2014 2013 and 20122013 | F-26F-25 | Consolidated Statements of Comprehensive Income (Loss) for the years ended March 31, 2015, 2014 2013 and 20122013 | F-27F-26 | Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2015, 2014 2013 and 20122013 | F-28F-27 | Consolidated Statements of Cash Flows for the years ended March 31, 2015, 2014 2013 and 20122013 | F-29F-28 | Notes to the Consolidated Financial Statements | F-31F-30 |
ACXIOM CORPORATION SELECTED FINANCIAL DATA (In thousands, except per share data)
Years ended March 31, | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | Statement of operations data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenue | | $ | 1,097,545 | | | $ | 1,099,359 | | | $ | 1,130,624 | | | $ | 1,113,755 | | | $ | 1,063,598 | | | $ | 1,020,059 | | | $ | 1,062,278 | | | $ | 1,068,158 | | | $ | 1,101,517 | | | $ | 1,083,872 | | Net earnings (loss) from continuing operations | | $ | 8,803 | | | $ | 57,119 | | | $ | 37,617 | | | $ | (31,838 | ) | | $ | 43,427 | | | $ | (9,147 | ) | | $ | 10,992 | | | $ | 55,825 | | | $ | 37,049 | | | $ | (33,632 | ) | Net earnings from discontinued operations, net of tax | | | - | | | | - | | | | 33,899 | | | | 3,396 | | | | 732 | | | Net earnings (loss) from discontinued operations, net of tax | | | | (1,884 | ) | | | (2,189 | ) | | | 1,294 | | | | 34,467 | | | | 5,190 | | Net earnings (loss) | | $ | 8,803 | | | $ | 57,119 | | | $ | 71,516 | | | $ | (28,442 | ) | | $ | 44,159 | | | $ | (11,031 | ) | | $ | 8,803 | | | $ | 57,119 | | | $ | 71,516 | | | $ | (28,442 | ) | Net earnings (loss) attributable to Acxiom | | $ | 8,863 | | | $ | 57,607 | | | $ | 77,263 | | | $ | (23,147 | ) | | $ | 44,549 | | | $ | (11,031 | ) | | $ | 8,863 | | | $ | 57,607 | | | $ | 77,263 | | | $ | (23,147 | ) | Basic earnings (loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net earnings (loss) from continuing operations | | $ | 0.12 | | | $ | 0.76 | | | $ | 0.47 | | | $ | (0.40 | ) | | $ | 0.55 | | | $ | (0.12 | ) | | $ | 0.15 | | | $ | 0.75 | | | $ | 0.47 | | | $ | (0.42 | ) | Net earnings from discontinued operations | | | - | | | | - | | | | 0.43 | | | | 0.04 | | | | 0.01 | | | Net earnings (loss) from discontinued operations | | | | (0.02 | ) | | | (0.03 | ) | | | 0.02 | | | | 0.43 | | | | 0.06 | | Net earnings (loss) | | $ | 0.12 | | | $ | 0.76 | | | $ | 0.90 | | | $ | (0.36 | ) | | $ | 0.56 | | | $ | (0.14 | ) | | $ | 0.12 | | | $ | 0.76 | | | $ | 0.90 | | | $ | (0.36 | ) | Net earnings (loss) attributable to Acxiom | | $ | 0.12 | | | $ | 0.77 | | | $ | 0.97 | | | $ | (0.29 | ) | | $ | 0.56 | | | $ | (0.14 | ) | | $ | 0.12 | | | $ | 0.77 | | | $ | 0.97 | | | $ | (0.29 | ) | Diluted earnings (loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net earnings (loss) from continuing operations | | $ | 0.11 | | | $ | 0.75 | | | $ | 0.47 | | | $ | (0.40 | ) | | $ | 0.54 | | | $ | (0.12 | ) | | $ | 0.14 | | | $ | 0.73 | | | $ | 0.46 | | | $ | (0.42 | ) | Net earnings from discontinued operations | | | - | | | | - | | | | 0.42 | | | | 0.04 | | | | 0.01 | | | Net earnings (loss) from discontinued operations | | | | (0.02 | ) | | | (0.03 | ) | | | 0.02 | | | | 0.43 | | | | 0.06 | | Net earnings (loss) | | $ | 0.11 | | | $ | 0.75 | | | $ | 0.89 | | | $ | (0.36 | ) | | $ | 0.55 | | | $ | (0.14 | ) | | $ | 0.11 | | | $ | 0.75 | | | $ | 0.89 | | | $ | (0.36 | ) | Net earnings (loss) attributable to Acxiom | | $ | 0.12 | | | $ | 0.75 | | | $ | 0.96 | | | $ | (0.29 | ) | | $ | 0.56 | | | $ | (0.14 | ) | | $ | 0.12 | | | $ | 0.75 | | | $ | 0.96 | | | $ | (0.29 | ) | Cash dividend per common share | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | | | | | | | Acxiom has paid no cash dividends for any of the periods reported. | | Acxiom has paid no cash dividends for any of the periods reported. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of March 31, | | | 2014 | | | | 2013 | | | | 2012 | | | | 2011 | | | | 2010 | | | | 2015 | | | | 2014 | | | | 2013 | | | | 2012 | | | | 2011 | | Balance sheet data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current assets | | $ | 665,525 | | | $ | 461,096 | | | $ | 472,005 | | | $ | 480,276 | | | $ | 458,705 | | | $ | 414,054 | | | $ | 665,525 | | | $ | 461,096 | | | $ | 472,005 | | | $ | 480,276 | | Current liabilities | | $ | 249,469 | | | $ | 224,576 | | | $ | 256,401 | | | $ | 229,494 | | | $ | 255,056 | | | $ | 248,015 | | | $ | 249,469 | | | $ | 224,576 | | | $ | 256,401 | | | $ | 229,494 | | Total assets | | $ | 1,323,301 | | | $ | 1,187,706 | | | $ | 1,232,777 | | | $ | 1,306,625 | | | $ | 1,363,420 | | | $ | 1,322,424 | | | $ | 1,323,301 | | | $ | 1,187,706 | | | $ | 1,232,777 | | | $ | 1,306,625 | | Long-term debt, excluding current installments | | $ | 289,043 | | | $ | 237,400 | | | $ | 251,886 | | | $ | 394,260 | | | $ | 458,629 | | | $ | 254,539 | | | $ | 289,043 | | | $ | 237,400 | | | $ | 251,886 | | | $ | 394,260 | | Total equity | | $ | 682,857 | | | $ | 619,368 | | | $ | 611,855 | | | $ | 591,033 | | | $ | 578,497 | | | $ | 703,257 | | | $ | 682,857 | | | $ | 619,368 | | | $ | 611,855 | | | $ | 591,033 | |
The selected financial data for the periods reported above has been derived from the consolidated financial statements. statements and, unless otherwise indicated, reflect the Company’s continuing operations. Refer to Note 4 – Discontinued Operations for additional information regarding discontinued operations.
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.notes contained in this report. Previously reported amounts have been reclassified to conform to the presentation in the current year. The historical results are not necessarily indicative of results to be expected in any future period.
Some earnings (loss) per share amounts may not add due to rounding.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction and Overview
Acxiom Corporation (“we”, “us”, “our”, “Acxiom”, or “the Company”) is an enterprise data, analytics and software-as-a-service company. For over 4045 years, Acxiom has been an innovator in harnessing the powerful potential of data to strengthen connections between people, businesses and their partners. We focus on creating better connections that enable better living for people and better results for the businesses who serve them.
Founded in 1969, Acxiom is headquartered in Little Rock, Arkansas, USA and serves clients around the worlda global client base from locations in the United States, Europe, South America and the Asia-Pacific region.
During fiscal 2014,2015, the Company realigned its business segments to better reflect the way management assesses the business. The e-mail fulfillment business was moved from the Other services segment to the Marketing and data services segment. Our 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 (including the Audience Operating System), and E-mail Fulfillment and Agency Services. The IT Infrastructure management segment develops and delivers IT outsourcing and transformational solutions. The Other services segment now consists solely of the UK fulfillment business. The results of all prior periods reported are adjusted to reflect segment reporting on a consistent basis. 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 as well as selling, general and administrative costs associated with separating the Marketing and data services and IT Infrastructure businesses are excluded from segment results.
During fiscal 2012 we announcedcompleted the sale of our background screening unit, Acxiom Information Security Systems (AISS). This transaction closed on February 1, 2012. AISSits U.K. call center operation, 2Touch, to Parseq Ltd., a European business process outsourcing service provider. The business qualified for treatment as discontinued operations during fiscal 2015. Accordingly, the results are presentedof operations, cash flows, and the balance sheet amounts pertaining to 2Touch, for all periods reported, have been classified as discontinued operations in 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.financial statements. 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 announced in fiscal 2012 we continue to significantly invest in product innovation which management believes will help drive revenue growth forDuring fiscal 2015, and beyond.the Company acquired all of the outstanding shares of LiveRamp, Inc. (“LiveRamp”), a leading service provider for onboarding customer data into digital marketing applications. As a result of this transaction, LiveRamp is now a wholly-owned subsidiary of the Company. The Company launchedacquired LiveRamp to, among other things, provide clients with solutions for bringing offline customer data online with better matching, more connectivity, and faster onboarding. The Company has included the Acxiomfinancial results of LiveRamp in the consolidated financial statements from the date of acquisition. LiveRamp is included in the Marketing and Data Services segment. Under the terms of the merger agreement, the Company paid $265.7 million, net of cash acquired, in cash for all outstanding LiveRamp shares. The purchase price for the acquisition also included certain replacement stock options issued to LiveRamp employees resulting in an acquisition date total fair value of consideration transferred for LiveRamp of approximately $272.7 million.
During fiscal 2011, the Company completed the acquisition of a 70% interest in GoDigital Tecnologia E Participacoes, Ltda. (“GoDigital”), a Brazilian marketing services business. The interest that was not Acxiom-owned was reflected as noncontrolling interest in the Company’s consolidated financial statements. During fiscal 2014, the Company acquired the balance of the outstanding equity interests it did not already own in GoDigital. As a result, GoDigital is now wholly owned by the Company.
Prior to fiscal 2015, the Company’s business segments consisted of Marketing and Data Services, IT Infrastructure Management, and Other Services. The Other Services segment consisted solely of 2Touch. As a result of the 2Touch disposal in the fiscal 2015, the 2Touch business unit is excluded from segment results and segregated as discontinued operations. The Marketing and Data Services segment includes the Company’s global lines of business for Customer Data Integration (CDI), Consumer Insight Solutions, Marketing Management Services (including the Audience Operating System (AOS)and LiveRamp on-boarding services), E-mail Fulfillment Services and Consulting and Agency Services. The IT Infrastructure Management segment develops and delivers IT outsourcing and transformational solutions. The results of all prior periods reported are adjusted to reflect segment reporting on September 24, 2013.a consistent basis. The AOS is an innovative new technology that powers more effective marketing decisions through better data, valuable insightssegment results do not include any inter-company transactions. Additionally, items reported as impairment expense or gains, losses, and powerful applications. It presents marketers with a comprehensive viewother items, net on the consolidated statement of their audiencesoperations as well as certain business separation and allows one-to-one marketing capabilities at scale across all channelstransformation expenses reported in selling, general and devices. The Company also recently launched a new consumer portal, AboutTheData.com, which is the first online consumer portal which allows individuals to view and update marketing data that Acxiom’s clients use for digital marketing.administrative costs are excluded from segment results.
In fiscal 2014 we substantially completed the internal separation of our Marketing and data services unit from our IT Infrastructure management services unit and are now focused on the continued growth of Marketing and data services.
A summary of the most recently completed fiscal year is presented below.
· | Revenue of $1.098was $1.020 billion, which is flat compared to $1.099a 4.0% decrease from $1.062 billion in the prior fiscal year. |
· | Income from operations was $48.3 million compared to $102.7 million in the prior fiscal year.2014. |
· | Total operating costs and expenses were $1,049$1,021 million compared to $997$1,012 million in the prior fiscal year.2014. |
· | The Company recorded $28.8 millionTotal operating costs and expenses in impairment charges related to goodwill and certain other long-lived assets related to the European Marketing and data services reporting unit and the Other services reporting unit. |
· | The Company recorded $22.1fiscal 2015 include $23.8 million of legal accruals and restructuring plan charges and adjustments recorded in gains, losses and other items, net. |
· | Operatingnet, stock-based compensation expense of $28.9 million recorded in both cost of revenue and selling, general and administrative expenses, include $14.0intangible asset amortization expense of $11.4 million recorded in cost of revenue, and business separation and transformation costs associated with separating the Marketingexpenses of $36.5 million recorded in selling, general and data services and IT Infrastructure management businesses. |
· | Diluted earnings per share from continuing operations was $0.12 compared to $0.75 in the prior fiscal year. |
· | Operating cash flow was $165.0 million compared to $150.1 million in the prior fiscal year.administrative expenses. Fiscal 2014 also included similar charges. |
· | The Company refinanced its debt facilityDiluted loss per share from continuing operations was $0.12 compared to consistdiluted earnings per share of a $300$0.14 in fiscal 2014. |
· | Operating cash flow was $104.8 million term loan and a $300compared to $163.2 million revolving credit facility.in fiscal 2014. |
· | The Company acquired $52.7$9.9 million of its stock as part of a stock repurchase program. |
· | The Company acquired the remaining noncontrolling interest in Acxiom Brazil for $0.6 million. |
The summary above is intended to identify to the reader some of the more significant events and transactions of the Company during the fiscal year ended March 31, 2014.2015. However, this summary is not intended to be a full discussion of the Company’s 20142015 fiscal year. This summary 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.
Recent Developments
Subsequent to March 31, 2014, the Company announced its intent to acquire privately-held LiveRamp, Inc., a leading service provider for onboarding customer data into digital marketing applications, for approximately $310 million in cash. The transaction, which is subject to customary closing conditions, is expected to close mid-summer.
Results of Operations
A summary of selected financial information for each of the years in the three-year period ended March 31, 20142015 is presented below (dollars in millions, except per share amounts): | | 2014 | | | 2013 | | | 2012 | | | % Change 2014-2013 | | | % Change 2013-2012 | | | 2015 | | | 2014 | | | 2013 | | | % Change 2015-2014 | | | % Change 2014-2013 | | Revenues | | $ | 1,097.5 | | | $ | 1,099.4 | | | $ | 1,130.6 | | | | - | | | | (3 | )% | | $ | 1,020.1 | | | $ | 1,062.3 | | | $ | 1,068.2 | | | | (4 | )% | | | (1 | )% | Total operating costs and expenses | | | 1,049.2 | | | | 996.7 | | | | 1,045.0 | | | | 5 | % | | | (5 | ) | | | 1,020.7 | | | | 1,011.8 | | | | 967.2 | | | | 1 | | | | 5 | | Income from operations | | $ | 48.3 | | | $ | 102.7 | | | $ | 85.6 | | | | (53 | )% | | | 20 | % | | Income (loss) from operations | | | $ | (0.6 | ) | | $ | 50.5 | | | $ | 101.0 | | | | (101 | )% | | | (50 | )% | Diluted earnings (loss) per share attributable to Acxiom stockholders | | $ | 0.12 | | | $ | 0.75 | | | $ | 0.96 | | | | (84 | )% | | | (22 | )% | | $ | (0.12 | ) | | $ | 0.14 | | | $ | 0.73 | | | | (185 | )% | | | (81 | )% |
Revenues The following table presents the Company’s revenue for each of the years in the three-year period ended March 31, 20142015 (dollars in millions): | | 2014 | | | 2013 | | | 2012 | | | % Change 2014-2013 | | | % Change 2013-2012 | | Revenues | | | | | | | | | | | | | | | | Marketing and data services | | $ | 805.1 | | | $ | 788.7 | | | $ | 798.8 | | | | 2 | % | | | (1 | )% | IT Infrastructure management services | | | 257.1 | | | | 275.5 | | | | 291.5 | | | | (7 | ) | | | (6 | ) | Other services | | | 35.3 | | | | 35.2 | | | | 40.3 | | | | - | | | | (13 | ) | Total revenues | | $ | 1,097.5 | | | $ | 1,099.4 | | | $ | 1,130.6 | | | | - | | | | (3 | )% | | | | | | | | | | | | | | | | | | | | | |
| | 2015 | | | 2014 | | | 2013 | | | % Change 2015-2014 | | | % Change 2014-2013 | | Revenues | | | | | | | | | | | | | | | | Marketing and Data Services | | $ | 804.9 | | | $ | 805.2 | | | $ | 792.7 | | | | - | | | | 2 | % | IT Infrastructure Management | | | 215.2 | | | | 257.1 | | | | 275.5 | | | | (16 | )% | | | (7 | ) | Total revenues | | $ | 1,020.1 | | | $ | 1,062.3 | | | $ | 1,068.2 | | | | (4 | )% | | | (1 | )% | | | | | | | | | | | | | | | | | | | | | |
Total revenue remained relatively flat at $1,097.5was $1,020.1 million in fiscal 2015, a $42.2 million decrease from fiscal 2014. The revenue decrease resulted primarily from a $41.9 million decrease in the IT Infrastructure Management segment. Total revenue was $1,062.3 million in fiscal 2014, a $1.8$5.9 million decrease from fiscal 2013. Revenue in fiscal 2014 was impacted by an $18.3 milliona decrease in the IT Infrastructure management servicesManagement segment which wasof $18.4 million, partially offset by a $16.4$12.5 million increase in the Marketing and data servicesData Services segment.
Total revenue decreased 2.8%, or $31.3 million, to $1,099.4 million in fiscal 2013. Revenue in fiscal 2012 included $1.3 million related to the disposed MENA operations. Excluding the impact of the disposed operation and the unfavorable impact of foreign currency translation of $4.1 million, revenue decreased 2.3% in fiscal 2013.
Marketing and data servicesData Services (MDS) revenue increased $16.4remained flat in fiscal 2015 at $804.9 million. On a geographic basis, International MDS revenue decreased $16.6 million, or 2.1%14.7%, and U.S. MDS revenue increased $16.3 million, or 2.4%. The LiveRamp acquisition contributed $27.0 million to U.S. MDS revenue in fiscal 2015. International revenue decreases were primarily in Europe (down $13.3 million), resulting from our recent restructuring and exit from the transactional data business, and in Australia (down $4.5 million), resulting from lower project revenue and new business. In the U.S., decreases from volume reductions and lost business in the Information Intensive (down $7.1 million), Automotive (down $1.5 million), Media and Publishing (down $6.3 million), Communications (down $5.7 million), Financial Services (down $6.9 million) and Retail (down $5.3 million) industries were offset by increases in Technology (up $5.3 million) and Partner/Resellers (up $17.9 million) industries from new business and volume increases, as well as the LiveRamp acquisition ($27.0 million).
By lines of business, revenue increases in Marketing Management Services (up $25.4 million, or 7.1%) and E-mail and Agency Services (up $4.5 million, or 6.3%) were offset by revenue decreases in Consumer Insights Solutions (down $22.2 million or 10.3%) and CDI (down $6.5 million or 5.7%). Consumer Insight Solutions was impacted by the restructuring in Europe and CDI was impacted by lower volumes in the U.S. Marketing Management revenue increases resulted from increasing gross media royalties and the LiveRamp acquisition.
MDS revenue increased $12.5 million, or 1.6%, to $805.1$805.2 million in fiscal 2014. On a geographic basis, International MDS revenue decreased $1.2 million, or 1.1%, and U.S. MDS revenue increased $17.6$13.7 million, or 2.6%2.0%. International MDS revenue decreased $2.4 million in Europe and Australia primarily due to decreased revenue volumes from existing customers and lost business, partially offset by revenue increases in China. The increase in U.S. MDS revenue primarily resulted from increases in business activity in the Financial Services ($6.9(up $6.4 million), Retail ($7.7(up $8.3 million), and Technology ($6.6(up $5.8 million) industries, partially offset by volume and project revenue decreases in the Information Management and Automotive industries.
By lines of business, MDS revenue increases in fiscal 2014 in Marketing Management ($25.7Services (up $25.6 million, or 7.8%7.6%) and Consumer Insight Solutions ($3.4Consulting (up $0.7 million, or 1.6%) were partially offset by decreases in CDI ($8.3(down $8.3 million, or 6.8%) and E-mail Fulfillment and Agency Services ($5.0(down $5.0 million, or 6.6%). The CDI revenue decrease primarily resulted from lower project revenue in the U.S., Brazil, and Australia. The E-mail Fulfillment and Agency Services revenue decrease primarily resulted from lost business. The increase in Marketing Management resulted primarily from revenue increases from existing customers and new business that was closed in fiscal 2013. Marketing Management also benefitted from hardware sales and contract termination fees of approximately $7.5 million.
MDSIT Infrastructure Management (IM) revenue decreased $10.1$41.9 million, or 1.3%16.3%, to $788.7$215.2 million in fiscal 2013. On a geographic basis, International MDS2015. The decrease primarily resulted from the $55.1 million revenue decreased $16.5 million, or 12.7%, and U.S. MDS revenue increased $6.4 million, or 1.0%. Excluding the impact of unfavorable foreign currency translation, International MDScontract losses during fiscal 2014. The decrease was partially offset by higher project revenue decreased $12.9 million primarily due to decreased revenue volumes from existing customers and lost business in Europe and Australia. The increase in U.S. MDS revenue primarily resulted from new business and one-time project revenues in the Financial Services, Technology, and Travel industries offset by a $9.5 million revenue decrease in the Healthcare industry resulting from the termination of a contract. business.
By lines of business, the MDS revenue increase in fiscal 2013 in Marketing Management ($12.4 million, or 3.8%) was offset by decreases in CDI and Consumer Insight Solutions ($16.4 million, or 4.7%) and Email Fulfillment and Agency Services ($6.7 million, or 8.1%). The CDI revenue decrease resulted from the expiration of a Healthcare industry contract. The Consumer Insight Solutions revenue decline resulted from decreases in Europe and Australia. E-mail Fulfillment and Agency Services were impacted by a lost contract.
IT Infrastructure management services (IM)IM revenue decreased $18.3$18.4 million, or 6.7%, to $257.1 million in fiscal 2014. The IM revenue decrease primarily resulted from decreases in project revenue from existing customers and contract losses. The decrease was partially offset by $6.0 million of contract termination fees.
IM revenue decreased $16.0 million, or 5.5%, to $275.5 million inDuring fiscal 2013. IM revenue decreased $15.6 million as a result of2014, the loss of a large contract during the third quarter of fiscal 2012. IM revenue also decreased from a contract renegotiation and lower project work with existing customers during the fourth quarter of fiscal 2013.
During the past year, the Company has received notices of termination from five existing customers in the IM segment. These customers represented approximately $69 million in revenue in fiscal 2014. The Company expects to recognizerecorded revenue of approximately $9$12 million and $69 million, including termination fees, in fiscal years 2015 and 2014, respectively from these contracts in fiscal 2015.customers as their services wound down.
Other services (OS) revenue remained relatively flat at $35.3 million in fiscal 2014, a $0.1 million increase from fiscal 2013. Revenue in the UK fulfillment operation increased $4.1 million from new business but was substantially offset by a $3.9 million revenue decrease resulting from the Company transitioning U.S. Risk customers to a third-party partner as part of the plan to exit that line of business.
OS revenue decreased $5.2 million, or 12.8%, to $35.2 million in fiscal 2013. Excluding the impact of the MENA disposal in fiscal 2012, OS revenue decreased approximately $3.8 million. The Company transitioned Risk customers to a third-party partner as part of the plan to exit that line of business, resulting in a $5.9 million revenue decrease. The decrease was partially offset by a $2.1 million increase in UK fulfillment operation revenue from new business.
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, 20142015 (dollars in millions): | | 2014 | | | 2013 | | | 2012 | | | % Change 2014-2013 | | | % Change 2013-2012 | | | 2015 | | | 2014 | | | 2013 | | | % Change 2015-2014 | | | % Change 2014-2013 | | Cost of revenue | | $ | 829.0 | | | $ | 840.7 | | | $ | 857.5 | | | | (1 | )% | | | (2 | )% | | $ | 807.5 | | | $ | 795.5 | | | $ | 811.4 | | | | 2 | % | | | (2 | )% | Selling, general and administrative | | | 169.3 | | | | 154.0 | | | | 157.1 | | | | 10 | | | | (2 | ) | | | 188.6 | | | | 169.4 | | | | 154.0 | | | | 11 | | | | 10 | | Impairment of goodwill and other assets | | | 28.8 | | | | - | | | | 17.8 | | | | 100 | | | | (100 | ) | | | - | | | | 25.0 | | | | - | | | | (100 | ) | | | 100 | | Gains, losses and other items, net | | | 22.1 | | | | 2.0 | | | | 12.6 | | | | 988 | | | | (84 | ) | | | 24.6 | | | | 21.9 | | | | 1.8 | | | | 12 | | | | 1,152 | | Total operating costs and expenses | | $ | 1,049.2 | | | $ | 996.7 | | | $ | 1,045.0 | | | | 5 | % | | | (5 | )% | | $ | 1,020.7 | | | $ | 1,011.8 | | | $ | 967.2 | | | | 1 | % | | | 5 | % |
Cost of revenue increased 1.5%, or $12.0 million, to $807.5 million in fiscal 2015. The primary reasons for the increase were accelerated software amortization of $4.3 million in fiscal 2015 related to the integration of LiveRamp and the Audience Operating System, acquired intangible asset amortization of $11.4 million in fiscal 2015 compared to $0.3 million in fiscal 2014, and an increase in non-cash share-based compensation expense of $14.0 million, both of which increased as a result of the LiveRamp acquisition. All other cost of revenue decreased approximately $12.7 million. Gross margins decreased from 25.1% to 20.8%. U.S. gross margins decreased from 25.4% to 21.1%, and International gross margins decreased from 22.6% to 18.2%. U.S. margins were impacted by declining IM margins as a result of contract terminations. International margins were impacted by declines in Australia and Brazil.
Cost of revenue decreased 1.4%2.0%, or $11.6$15.9 million, to $829.0$795.5 million in fiscal 2014. Gross margins increased from 23.5%24.0% in fiscal 2013 to 24.5%25.1% in fiscal 2014. Gross margins were impacted by improvements in OS gross margins resulting from the Company’s exit from the Risk line of business and the positive impact of IM termination fee revenue. U.S. gross margins increased from 24.5% to 25.4% and International gross margins increased from 17.4%20.4% to 18.5%22.6%. U.S. MDS gross margins decreased approximately 120160 basis points from the impact of increased data and engineering investment spending that was partially offset by improved efficiencies.
Cost of revenue decreased 2.0%, or $16.9 million, to $840.7 million in fiscal 2013. Gross margins decreased from 24.2% in fiscal 2012 to 23.5% in fiscal 2013. Gross margins were impacted by higher costs of delivery and investments in data in the U.S. MDS business which was partially offset by improving IM gross margins and the impact of International cost reduction actions taken in the fourth quarter of fiscal 2012. U.S. gross margins decreased from 25.4% to 24.5%, and International gross margins increased from 15.3% to 17.4% despite decreased revenue due to the cost reduction actions in International markets.
Selling, general and administrative (SGA) expense was $169.3$188.6 million for the year ended March 31, 2015 representing a $19.2 million, or 11.3%, increase over the prior fiscal year. Fiscal 2015 included $36.5 million of expenses related to the separation of the MDS and IM businesses and business transformation costs compared to $14.0 million of similar costs in fiscal 2014. In addition, the non-cash share-based compensation expense component of SGA increased $5.8 million. These increases were partially offset by lower sales and marketing expenses from cost reduction efforts and decreased incentive compensation expense.
SGA expense was $169.4 million for the year ended March 31, 2014 representing a $15.2$15.4 million, or 9.9%10.0%, increase over the prior year. Fiscal 2014 included $14.0 million of expenses related to separating the MDS and IM businesses. Excluding these separation expenses, SGA expense, as a percent of total revenue, was 14.2% compared to 14.0% a year earlier. ThatThe remaining increase primarily results from higher facility costs and other consulting expenses.
The Company continues to execute its plans to create operating independence between its operating segments.segments and to transform the way business is conducted in the future. As the Company executes these plans, it is likely to continue to incur incremental outside consulting and other third-party expenses to create formal documentation of intercompany agreements and to separate IT and network operations.
Selling, general and administrative expense was $154.0 million for the year ended March 31, 2013 representing a $3.1 million, or 2.0%, decrease over the prior year. As a percent of total revenue, these expenses were 14.0% compared to 13.9% a year earlier. Lower selling expense in the U.S. from cost reductions and lower commissions, as well as International costs reductions, were offset by increased incentive and non-cash compensation and legal expenses.
Impairment of goodwill and other assets was $28.8$25.0 million for the year ended March 31, 2014. During the quarter ended March 31, 2014, triggering events occurred which required the Company to test the recoverability of the goodwill associated with its European Marketing and data services reporting unit and its Other servicesData Services reporting unit. The triggering event was the initiation of a restructuring of the European Marketing and data servicesData Services unit. The restructuring includes exiting the analog paper survey business in Europe. The triggering event related to the Other services reporting unit was a potential exit from that business. In addition to testing goodwill, the Company also tested certain other long-lived assets in those units for impairment. The results of the two-step test indicated complete impairment of the goodwill in both of the units as well as impairment for certain other long-lived assets. The amount of impairment for the European Marketing and data servicesData Services unit was $24.9$25.0 million, of which $20.3 million was goodwill and $4.6 million related to data assets. The amount of impairment for the Other services unit was $3.9 million, of which $3.0 million was goodwill and $0.9 million was other assets, primarily property and equipment.
Impairment of goodwill and other assets was $17.8 million for the year ended March 31, 2012. During the third quarter of fiscal 2012, management determined that results for the Brazil operation were likely to be significantly lower than had been projected in the goodwill recoverability test that was performed as of April 1, 2011. Management further determined that the failure of the Brazil operation to meet expectations, combined with the expectation that future budget projections would also be lowered, constituted a triggering event requiring an interim goodwill impairment test. In conjunction with the interim goodwill impairment test, management also tested for impairment all other intangible assets other than goodwill associated with the Brazil operation. This test was performed during the third quarter of fiscal 2012, resulting in a total impairment charge of $17.8 million, of which $13.8 million was recorded as impairment of goodwill and $4.0 million was recorded as impairment of other intangible assets. In addition, the $2.6 million earn-out liability relating to the Brazil acquisition was reduced to zero as there was no future expectation of an earn-out payment. The reduction of the earn-out liability is reflected as a credit to gains, losses and other items, net.
Gains, losses and other items, net for each of the years presented are as follows (dollars in thousands):
| | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | | Restructuring plan charges and adjustments | | $ | 17,810 | | | $ | 2,894 | | | $ | 12,778 | | | $ | 23,794 | | | $ | 17,712 | | | $ | 2,635 | | Legal contingencies | | | 4,202 | | | | - | | | | - | | | | - | | | | 4,202 | | | | - | | Earnout liability adjustment | | | - | | | | - | | | | (2,598 | ) | | LiveRamp acquisition-related costs | | | | 820 | | | | - | | | | - | | Other | | | 84 | | | | (884 | ) | | | 2,458 | | | | 19 | | | | - | | | | (884 | ) | | | $ | 22,096 | | | $ | 2,010 | | | $ | 12,638 | | | $ | 24,633 | | | $ | 21,914 | | | $ | 1,751 | |
Gains, losses and other items, net was $22.1$24.6 million in fiscal 2015. The Company recorded a total of $23.8 million in restructuring charges and adjustments which included $13.8 million of severance and other charges related to the termination of associates in the United States, Australia, China, and Europe, lease accruals of $8.1 million and the write-off of leasehold improvements of $2.0 million. The Company also recorded LiveRamp transaction costs of $0.8 million.
Gains, losses and other items, net was $21.9 million in fiscal 2014. The Company recorded a total of $17.8$17.7 million in restructuring charges and adjustments which included $14.0$13.9 million of severance and other charges related to the termination of associates in the United States, Australia, China, and Europe and lease accruals of $3.8 million. The Company also recorded loss contingency accruals and charges of $4.2 million.
Gains, losses and other items, net was $2.0$1.8 million in fiscal 2013. The Company recorded a total of $2.9$2.6 million in restructuring charges and adjustments which included severance and other associate-related costs of $2.8$2.6 million and lease accruals of $0.1 million.
Gains, losses and other items, net was $12.6 million in fiscal 2012. The Company recorded a total of $12.8 million in restructuring charges and adjustments which included severance and other associate-related costs of $9.9 million, lease accruals of $2.6 million, and adjustments to the fiscal 2011 restructuring plan of $0.3 million. On July 12, 2011, the Company entered into a transaction with MENA’s minority partners to fully dispose of the Company’s interest in its MENA subsidiary. The Company recorded a loss on the MENA disposal of $3.4 million in the statement of operations. Of the $3.4 million loss, $2.5 million is recorded in gains, losses and other items, net and $0.9 million is recorded in net loss attributable to noncontrolling interest. During fiscal 2012, the Company adjusted the value of the earnout related to the Brazil acquisition from $2.6 million to zero through gains, losses and other items, since there is no expectation of an earnout payment.
The following table summarizes the balances that were accrued for restructuring plans discussed above, as well as the changes in those balances during the years ended March 31, 2012, 2013, 2014 and 20142015 (dollars in thousands):
| | Associate-related reserves | | | Ongoing contract costs | | | Total | | | Reserves included in other accrued expenses and other liabilities: | | March 31, 2011 | | $ | 5,562 | | | $ | 9,542 | | | $ | 15,104 | | | Restructuring charges and adjustments | | | 10,126 | | | | 2,652 | | | | 12,778 | | | Payments | | | (6,091 | ) | | | (1,145 | ) | | | (7,236 | ) | | | | | Associate-related reserves | | | Lease accruals | | | Total | | March 31, 2012 | | $ | 9,597 | | | $ | 11,049 | | | $ | 20,646 | | | $ | 9,597 | | | $ | 11,049 | | | $ | 20,646 | | Restructuring charges and adjustments | | | 2,836 | | | | 58 | | | | 2,894 | | | | 2,577 | | | | 58 | | | | 2,635 | | Payments | | | (8,744 | ) | | | (2,086 | ) | | | (10,830 | ) | | | (8,485 | ) | | | (2,086 | ) | | | (10,571 | ) | March 31, 2013 | | $ | 3,689 | | | $ | 9,021 | | | $ | 12,710 | | | $ | 3,689 | | | $ | 9,021 | | | $ | 12,710 | | Restructuring charges and adjustments | | | 14,014 | | | | 3,796 | | | | 17,810 | | | | 13,916 | | | | 3,796 | | | | 17,712 | | Payments | | | (11,161 | ) | | | (2,600 | ) | | | (13,761 | ) | | | (11,063 | ) | | | (2,600 | ) | | | (13,663 | ) | March 31, 2014 | | $ | 6,542 | | | $ | 10,217 | | | $ | 16,759 | | | $ | 6,542 | | | $ | 10,217 | | | $ | 16,759 | | Restructuring charges and adjustments | | | | 13,757 | | | | 8,061 | | | | 21,818 | | Payments | | | | (13,088 | ) | | | (4,628 | ) | | | (17,716 | ) | March 31, 2015 | | | $ | 7,211 | | | $ | 13,650 | | | $ | 20,861 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating Profit and Profit Margins The following table presents the Company’s income (loss) from operations and operating profit margin by segment for each of the years in the three-year period ended March 31, 20142015 (dollars in thousands):
| | 2014 | | | 2013 | | | 2012 | | Operating profit and profit margin: | | | | | | | | | | Marketing and data services | | $ | 78,433 | | | $ | 80,017 | | | $ | 95,173 | | | | | 9.7 | % | | | 10.1 | % | | | 11.9 | % | | | | | | | | | | | | | | IT Infrastructure management services | | $ | 32,847 | | | $ | 29,330 | | | $ | 24,970 | | | | | 12.8 | % | | | 10.6 | % | | | 8.6 | % | | | | | | | | | | | | | | Other services | | $ | 1,941 | | | $ | (4,618 | ) | | $ | (4,139 | ) | | | | 5.5 | % | | | (13.1 | )% | | | (10.3 | )% | | | | | | | | | | | | | | Corporate | | $ | (64,937 | ) | | $ | (2,010 | ) | | $ | (30,441 | ) | | | | | | | | | | | | | | Total income from operations | | $ | 48,284 | | | $ | 102,719 | | | $ | 85,563 | | Total operating profit margin | | | 4.4 | % | | | 9.3 | % | | | 7.6 | % |
Fiscal 2014 operating margins were 4.4% compared to 9.3% in fiscal 2013. Fiscal 2014 operating costs and expenses were $1,049 million which included $64.9 million of unusual items compared to $2.0 million of unusual items in fiscal 2013. Current year unusual items included $14.0 million of business separation and transformation expenses included in SGA expenses, $22.1 million of restructuring charges and legal contingency accruals included in gains, losses and other items, net, and $28.8 million of impairment charges included in impairment of goodwill and other assets. Excluding the unusual items in both periods, operating expenses were $984.3 million in fiscal 2014, a $10.4 million, or 1.0%, decline from $994.6 million in fiscal 2013. Excluding the unusual items in both periods, operating margins increased from 9.5% to 10.3%.
Fiscal 2013 operating margins were 9.3% compared to 7.6% in fiscal 2012. Fiscal 2013 operating margin improvement primarily results from the $28.4 million decrease in impairment of goodwill and other intangibles and gains, losses and other items, net from the prior year. | | 2015 | | | 2014 | | | 2013 | | Operating profit and profit margin: | | | | | | | | | | Marketing and Data Services | | $ | 46,728 | | | $ | 78,500 | | | $ | 73,696 | | | | | 5.8 | % | | | 9.7 | % | | | 9.3 | % | | | | | | | | | | | | | | IT Infrastructure Management | | $ | 18,105 | | | $ | 32,847 | | | $ | 29,330 | | | | | 8.4 | % | | | 12.8 | % | | | 10.6 | % | | | | | | | | | | | | | | Corporate | | $ | (65,437 | ) | | $ | (60,874 | ) | | $ | (2,010 | ) | | | | | | | | | | | | | | Total income (loss) from operations | | $ | (604 | ) | | $ | 50,473 | | | $ | 101,016 | | Total operating profit margin | | | (0.1 | )% | | | 4.8 | % | | | 9.5 | % |
MDS income from operations was $78.4$46.7 million, a 5.8% margin, in fiscal 2015 compared to $78.5 million, a 9.7% margin, in fiscal 2014. The primary reason for the decrease was an increase in acquired intangible asset amortization of $11.4 million compared to $0.3 million in fiscal 2014 and non-cash share-based compensation expense of $26.9 million compared to $10.7 million in fiscal 2014. Margins in the U.S. decreased from 11.3% to 7.3% for the same reasons. The remaining U.S. margin decrease primarily resulted from on-going investment initiatives that were partially offset by cost reductions. International MDS losses were approximately $5.0 million in fiscal 2015 compared to breakeven levels in fiscal 2014. Performance improvements in China were offset by increasing losses in Europe, Brazil and Australia.
MDS income from operations was $78.5 million, a 9.7% margin, in fiscal 2014 compared to $80.0$73.7 million, a 10.1%9.3% margin in fiscal 2013. Margins in the U.S. declined from 12.3% towere approximately 11.3% andin both periods. International operating income was flat between the two comparable periods. The U.S. margin decrease primarily resultedimproved to breakeven from costs associated with additional personnel and data costs required to support investment initiatives that were partially offset by the impacta loss of cost reductions as part of the Company’s operating cost and expense reduction initiative announced$3.4 million in Novemberfiscal 2013. International operating improvements primarily resulted from improvements in Brazil, Australia, and China that were partially offset by increased losses in Europe.
MDSIM income from operations was $80.0$18.1 million, a 10.1%an 8.4% margin, in fiscal 20132015 compared to $95.2 million, an 11.9% margin, in fiscal 2012. MDS margins declined primarily due to investment initiatives both in client relationships and products.
IM income from operations was $32.8 million, a 12.8% margin, in fiscal 2014 compared toand $29.3 million, a 10.6% margin, in fiscal 2013, and $25.0 million, an 8.6% margin2013. Margins in fiscal 2012.2015 were impacted by revenue decreases resulting from contract losses in prior years. IM margins benefited from termination fee revenue in fiscal 2014. IM margins improved in fiscal 2013, when compared to 2012, due to ongoing efficiency improvements.
OS income from operations was $1.9 million in fiscal 2014 compared to losses of $4.6 million in fiscal 2013 and $4.1 million in fiscal 2012. The improvement in fiscal 2014 resulted from the Company’s exit from the risk business which lost $6.6 million in fiscal 2013. The disposal of the MENA business in 2012 improved 2013 income from operations by $1.0 million. Additionally, increased profit from the UK fulfillment business in 2013 was offset by a $2.7 million increased loss in the U.S. risk business.
Corporate loss from operations was $64.9$65.4 million, in fiscal 2014,$60.9 million, and $2.0 million in fiscal years 2015, 2014, and 2013, and $30.4 million in fiscal 2012.respectively. The losses for each period consist of items reported as impairment of goodwill and other assets, and gains, losses and other items, net, and the business separation and transformation expenses included in selling, general and administrative expense, and accelerated software amortization included in cost of revenue on the consolidated statementstatements of operations.
Management announced in November 2013 an initiative to reduce its annual operating costs and expenses by roughly $20 to $30 million over the following six to twelve months. This effort is substantially completed. These reductions will not impact the Company’s ongoing investment in the AOS or continued investment in innovation. The initiative seeks to improve the Company’s performance by simplifying the Company’s management structure, centralizing duplicative efforts, and standardizing work flows.
Other Income (Expense), Income Taxes and Other Items Interest expense was $10.1 million in fiscal 2015, a decrease of $1.6 million from $11.7 million in fiscal 2014. The decrease primarily results from lower interest on capital leases and other borrowings. Interest expense on the Company’s term loan decreased from the prior fiscal year. As a result of the Company refinancing its debt facility in fiscal 2014, the average term loan balance increased approximately $30 million in fiscal 2015 compared to fiscal 2014 and the average interest rate decreased approximately 90 basis points.
Interest expense was $11.7 million in fiscal 2014, a decrease of $1.0 million from $12.7 million in fiscal 2013. The decrease primarily results from lower interest on capital leases and other borrowings. Interest expense on the Company’s term loan remained flat compared to the prior fiscal year. During fiscal 2014, the Company refinanced its debt facility and as a result, the average term loan balance increased approximately $34 million in fiscal 2014 compared to fiscal 2013 and the average interest rate decreased approximately 60 basis points.
InterestOther expense was $12.7$1.3 million in fiscal 2013, a decrease2015 compared to other income of $4.8 million from $17.4 million in fiscal 2012. The decrease primarily relates to the reduction in outstanding borrowing under the Company’s term loan. In addition, approximately $1.3 million in interest expense in fiscal 2012 related to accelerated amortization of deferred debt costs due to loan prepayments. The term loan average balance declined approximately $50 million and the average interest rate decreased approximately 12 basis points. Interest on other debt, such as capital leases, also declined.
Other income was $1.8 million in fiscal 2014 compared toand $0.2 million in fiscal 2013 and other expense of $1.4 million in fiscal 2012.2013. Other, net primarily consists of foreign currency transaction gains and losses, and interest and investment income. In addition, during fiscal 2014, the Company recorded a $2.6 million gain from its investment in a real estate joint venture and $0.7 million in accelerated deferred debt costs as a result of refinancing its term loan agreement.
The fiscal 2015 effective tax rate was 77.1% for23.6%. Fiscal 2015 included a net $3.1 million income tax benefit principally related to new state research and development tax credits which were partially offset by other state deferred tax activity. In addition, the Company recorded a $2.3 million tax expense impact resulting from non-deductible incentive stock options issued in connection with the LiveRamp acquisition.
The fiscal 2014 effective tax rate was 72.9% compared to 36.7%36.9% in thefiscal 2013. Fiscal 2014 income taxes include $7.7included $7.6 million of expense related to increasing valuation allowances for net operating loss carryforwards and deferred tax assets in France and the UK, offset by a $3.1 million income tax reserve adjustment resulting from expiration of certain statutes of limitations. The fiscal 2014 effective tax rate was also negatively impacted by the impairment charges for goodwill, which have no tax benefit.
The effective tax rate was 36.7% for 2013, compared to 43.6% in 2012. The rate for 2013 benefitted from higher U.S.
research and development tax credits and a lower impact from foreign losses. The U.S. research and development tax credit was reenacted in January 2013 retroactive to the beginning of 2012. During fiscal 2012, the Company’s tax expense was reduced by $12.3 million due to utilization of capital losses. This was offset by an increase in the valuation allowance for foreign deferred tax assets of $5.2 million. Removing the impact of the impairment charges, gains, losses and other items, and the impact of the capital losses and valuation allowance increase from the fiscal 2012 tax rate calculation would have resulted in a tax rate of approximately 42%.
All three fiscal period tax rates were impacted by losses in foreign jurisdictions. The Company does not record the tax benefit of certain of those losses due to uncertainty of future benefit.
Losses attributable to noncontrolling interest include the noncontrolling interest in the Company’s Brazilian subsidiary. During fiscal 2014, the Company acquired the remaining noncontrolling interest in Acxiom Brazil.
Discontinued operations In fiscal 2015, the Company completed the sale of its U.K. call center operation, 2Touch. As a result, the 2Touch business qualified for treatment as discontinued operations. The results of operations, cash flows, and the balance sheet amounts pertaining to 2Touch have been classified as discontinued operations in the consolidated financial statements.
Summary results of operations of the 2Touch business unit for the fiscal years ended March 31, 2015, 2014 and 2013 are segregated and included in earnings (loss) from discontinued operations, net of tax, in the Company’s consolidated statements of operations and are as follows (dollars in thousands):
| | 2015 | | | 2014 | | | 2013 | | Revenues | | $ | 8,484 | | | $ | 35,267 | | | $ | 31,201 | | | | | | | | | | | | | | | Earnings (loss) from discontinued operations before income taxes | | $ | 4 | | | $ | (2,189 | ) | | $ | 1,703 | | Loss on sale of discontinued operations before income taxes | | | (1,888 | ) | | | - | | | | - | | Income taxes | | | - | | | | - | | | | (409 | ) | Earnings (loss) from discontinued operations, net of tax | | $ | (1,884 | ) | | $ | (2,189 | ) | | $ | 1,294 | | | | | | | | | | | | | | |
Capital Resources and Liquidity
Working Capital and Cash Flow Working capital increased $179.5decreased $250.1 million to $166.0 million at March 31, 2015 compared to $416.1 million at March 31, 2014 compared to $236.5 million at March 31, 2013.2014. Total current assets increased $204.4decreased $251.5 million, resulting primarily from increasesa $277.6 million decrease in cash. In fiscal 2015, the Company paid $265.7 million, net of cash acquired, for all outstanding shares of $195.6 million.LiveRamp. Current liabilities increased $24.9 million, primarily resulting from increases in current installments of long-term debt ($12.5 million), and deferred revenue ($6.4 million).decreased $1.5 million.
The Company’s cash is primarily located in the United States. Approximately $22.2$11.2 million of the total cash balance of $418.6$141.0 million, or approximately 5.3%7.9%, is located outside of the United States. The Company has no current plans to repatriate this cash to the United States.
Cash provided by operating activities was $165.0$104.8 million in fiscal 2015 compared to $163.2 million and $147.4 million in fiscal 2014 compared to $150.1and 2013, respectively. The $58.4 million and $229.5 milliondecrease in fiscal 20132015 primarily results from lower net earnings related to increased business separation, transformation, and 2012, respectively.restructuring costs and the impact of unfavorable working capital changes. The $14.8$15.9 million increase in fiscal 2014 primarily resulted from positive changes in working capital, including a $35.8 million decrease in income tax payments, which were partially offset by lower earnings. The $79.3 million decrease in fiscal 2013 operating cash flow primarily resulted from a $36.7 million increase in income tax payments, a decrease in customer prepayments (deferred revenue) of $22.7 million, and other changes in operating assets and liabilities.
Accounts receivable days sales outstanding (“DSO”) was 5457 and 5254 days at March 31, 20142015 and 2013,2014, respectively, and is calculated as follows (dollars in thousands): | | March 31, 2014 | | | March 31, 2013 | | | March 31, 2015 | | | March 31, 2014 | | Numerator – trade accounts receivable, net | | $ | 167,169 | | | $ | 159,882 | | | $ | 162,639 | | | $ | 160,718 | | Denominator: | | | | | | | | | | | | | | | | | Quarter revenue | | | 277,208 | | | | 277,131 | | | | 257,367 | | | | 268,562 | | Number of days in quarter | | | 90 | | | | 90 | | | | 90 | | | | 90 | | Average daily revenue | | $ | 3,080 | | | $ | 3,079 | | | $ | 2,860 | | | $ | 2,984 | | Days sales outstanding | | | 54 | | | | 52 | | | | 57 | | | | 54 | |
Investing activities used $68.2$355.2 million of cash in fiscal 2015, $68.1 million of cash in fiscal 2014, compared to $66.9and $66.6 million in fiscal 20132013. Fiscal 2015 investing activities included $1.9 million of data acquisition costs, $18.6 million of software capitalization, $69.0 million of capital expenditures, and $265.7 million net cash provided of $3.4 million in fiscal 2012.paid to acquire LiveRamp. Fiscal 2014 investing activities included data acquisition costs of $7.7 million, capitalization of software of $24.5 million, and capital expenditures of $39.3$39.1 million. Investing activities also included investment proceeds of $3.8 million related to the Company’s real estate joint venture and $0.5 million net cash paid for an acquisition. Fiscal 2013 investing activities included $8.6 million of deferred data acquisition costs, $19.9 million of capitalized software costs, and $38.5$38.2 million of capital expenditures. Fiscal 2012 investing activities reflected net cash received for disposal of operations of $72.4 million. The cash received results from $73.5 million received for disposal of AISS operations, net of $1.1 million cash paid for disposal of MENA operations. The cash inflow from the disposition of operations in fiscal 2012 was offset by other investing activity of $69.2 million. Other investing activities included capitalized software development costs of $5.3 million, capital expenditures of $51.6 million, and data acquisition costs of $12.3 million. Fiscal 2012 investing activities also reflected net cash paid for acquisitions of $0.3 million relating to earnout payments paid on acquisitions made in previous years.
Under the Company’s common stock repurchase program, the Company may purchase up to $250.0 million of its common stock through the period ending November 18, 2014.12, 2015. The Company repurchased 0.5 million shares of its common stock for $9.9 million in fiscal 2015. During the fiscal year ended March 31, 2014, the Company repurchased 2.0 million shares of its common stock for $52.7 million. During the fiscal year ended March 31, 2013, the Company repurchased 4.6 million shares of its common stock for $71.7 million. During the fiscal year ended March 31, 2012, the Company repurchased 5.8 million shares of its common stock for $68.2 million. Through March 31, 2014,2015, the Company has repurchased 12.312.9 million shares of its stock for $192.6$202.4 million, leaving remaining capacity of $57.4$47.6 million under the stock repurchase program. Cash paid for acquisition of treasury stock in the consolidated statement of cash flows may differ from the aggregate purchase price due to trades made during one fiscal period that settle in a different fiscal period.
Financing activities used $28.6 million of cash in fiscal 2015. Fiscal 2015 financing activities included $5.0 million in proceeds from the sale of common stock and a $4.6 million income tax impact from stock options, warrants, and restricted stock, offset by $28.4 million in payments of debt and $9.9 million to acquire treasury stock, as previously described.
Financing activities provided $98.3 million of cash in fiscal 2014, compared to cash used of $89.2 million and $209.8 million in fiscal 2013 and 2012, respectively. During2014. In fiscal 2014, the Company refinanced its term loan resulting in proceeds, net of fees, of $80.6 million. Fiscal 2014 financing activities also included proceeds from the sale of common stock of $80.5 million and the tax impact of stock options, warrants, and restricted stock of $11.3 million offset by payments of debt of $20.9 million (excluding the $215.0 million prepayment of debt under the term loan refinancing) and acquisition of treasury stock as previously described of $52.7 million.
Fiscal 2013 financingFinancing activities used $89.2 million of cash in fiscal 2013. It included payments of debt of $26.9 million and acquisition of treasury stock of $74.4 million, offset by $12.0 million in proceeds from the sale of common stock. FiscalThe $74.4 million cash paid for treasury stock in fiscal 2013 included $2.7 million paid for trades made in fiscal 2012 financing activities included payments of debt of $154.9which settled in fiscal 2013.
Discontinued operations provided $3.0 million, $1.6 million, and acquisition$2.4 million of treasury stockcash in fiscal years 2015, 2014, and 2013, respectively. The cash provided in fiscal 2015 result primarily from the proceeds of $65.5 million, offset by $12.2 million in proceeds from the sale of common stock. Debt payments included prepayments on the Company’s term loan of $125.0 million2Touch business. The cash provided in fiscal 2012.years 2014 and 2013 result from earnings and changes in working capital.
In fiscal years 2013, and 2012, the Company incurred debt to finance the acquisition of property and equipment. The incurrence of this debt appears on the consolidated statements of cash flows under “supplemental cash flow information.” Acquisitions under capital leases and installment payment arrangements were $2.2 million in fiscal 2013 and $11.2 million in 2012.2013. 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 On October 9, 2013, the Company refinanced its prior term loan credit agreement. TheOn that day, the Company borrowed $300 million of the new term loan and used the proceeds to pay off the prior $215 million term loan balance in its entirety along with $4.4 million in fees related to the new credit agreement. The remaining proceeds will bewere used for other general corporate purposes. The amended and restated credit agreement contains customary representations, warranties, affirmative and negative covenants, default, and acceleration provisions.
The Company’s newly amended and restated credit agreement providedprovides for (1) term loans up to an aggregate principal amount of $300 million and (2) revolving credit facility borrowings consisting of revolving loans, letter of credit participations and swing-line loans up to an aggregate amount of $300 million.
The term loan agreement is payable in quarterly installments of $3.8 million through September 2014, followed by quarterly installments of $7.5 million through September 2017, followed by quarterly installments of $11.3 million through June 2018, with a final payment of $161.3 million due October 9, 2018. The revolving loan commitment expires October 9, 2018.
Term loan and revolving credit facility borrowings bear interest at LIBOR or at an alternative base rate plus a credit spread. At March 31, 2014,2015, the LIBOR credit spread was 2.00%. There were no revolving credit borrowings outstanding at March 31, 20142015 or March 31, 2013.2014. The weighted-average interest rate on term loan borrowings at March 31, 20142015 was 2.4%2.3%. Outstanding letters of credit at March 31, 20142015 were $2.2$2.1 million.
The term loan allows for prepayments before maturity. The credit agreement is secured by the accounts receivable of Acxiom and its domestic subsidiaries, as well as by the outstanding stock of certain Acxiom subsidiaries.
Under the terms of the term loan, the Company is required to maintain certain debt-to-cash flow and debt service coverage ratios, among other restrictions. At March 31, 2014,2015, 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 2012,On March 10, 2014, the Company entered into an interest rate swap agreement. The agreement provided 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. On October 9, 2013, the Company voluntarily de-designated this hedging relationship as a result of the full prepayment of the related term loan as described above. The swap agreement matured on January 27, 2014.
On March 10, 2014, the Company entered into a new swap agreement. The new agreement provides for the Company to pay interest through March 10, 2017 at a fixed rate of 0.98% plus the applicable credit spread on $50.0 million notional amount, while receiving interest for the same period at the LIBOR rate on the same notional amount. The LIBOR rate as of March 31, 20142015 was 0.23%0.27%. 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, 2014.2015. 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, 2014,2015, the hedge relationship qualified as an effective hedge under applicable accounting standards. Consequently, all changes in fair value of the derivative will be deferred and recorded in other comprehensive income (loss) until the related forecasted transaction is recognized in the consolidated statementstatements of operations. The fair market value of the derivative was zero at inception and an unrealized loss of $0.02$0.2 million since inception is recorded in other comprehensive income (loss) with the offset recorded to other noncurrent liabilities.. The fair value of the interest rate swap agreement recorded in accumulated other comprehensive income (loss) may be recognized in the statementconsolidated statements 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 concludeshas concluded that no substantial risk of default exists as of March 31, 2014.2015.
Based on our current expectations, we believe our liquidity and capital resources will be sufficient to operate our business. However, we may take advantage of opportunities to generate additional liquidity or refinance existing debt through capital market transactions. The amount, nature and timing of any capital market transactions will depend on: our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
Off-Balance Sheet Items and Commitments In connection with a certain building, the Company previously entered into a 50/50 joint venture with a local real estate developer. The Company was guaranteeing a portion of the loan for the building. The guaranteed amount was collateralized by real property. During fiscal 2014, the joint venture sold the real property. Therefore the debt and the related guarantee were extinguished. In addition, in connection with the disposal of certain assets, the Company has guaranteed a lease for the buyer of the assets. This guarantee was made by the Company primarily to facilitate favorable financing terms for the third party. Should the third party default, the Company would be required to perform under this guarantee. At March 31, 2014,2015 the Company’s maximum potential future payments under this guarantee were $1.5$1.0 million.
Outstanding letters of credit, which reduce the borrowing capacity under the Company’s revolving credit facility, were $2.1 and $2.2 million at March 31, 20142015 and 2013.2014.
Contractual Commitments The following table presents Acxiom’s contractual cash obligations, exclusive of interest, and purchase commitments at March 31, 20142015 (dollars in thousands). The table does not include the future payment of gross unrealizedliabilities related to uncertain tax benefit liabilitiespositions of $2.1$3.4 million or the future payment against the Company’s non-current interest rate swap liability of $0.2 million, as future payment of this liabilitythese liabilities is uncertain and the Company is not able to predict the periods in which thethese payments, if any, will be made (dollars in thousands):
| | For the years ending March 31 | | | For the years ending March 31 | | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | Thereafter | | | Total | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | Thereafter | | | Total | | Term loan | | $ | 22,500 | | | $ | 30,000 | | | $ | 30,000 | | | $ | 37,500 | | | $ | 172,500 | | | $ | - | | | $ | 292,500 | | | $ | 30,000 | | | $ | 30,000 | | | $ | 37,500 | | | $ | 172,500 | | | $ | - | | | $ | - | | | $ | 270,000 | | Capital lease and installment payment obligations | | | 3,970 | | | | 927 | | | | 1,001 | | | | 1,157 | | | | 1,334 | | | | 4,601 | | | | 12,990 | | | | 717 | | | | 777 | | | | 921 | | | | 1,085 | | | | 1,275 | | | | 2,625 | | | | 7,400 | | Other long-term debt | | | 2,097 | | | | 2,168 | | | | 2,243 | | | | 2,319 | | | | 1,583 | | | | 1,710 | | | | 12,120 | | | | 2,168 | | | | 2,243 | | | | 2,319 | | | | 1,584 | | | | 1,362 | | | | 348 | | | | 10,024 | | Total long-term debt | | | 28,567 | | | | 33,095 | | | | 33,244 | | | | 40,976 | | | | 175,417 | | | | 6,311 | | | | 317,610 | | | | 32,885 | | | | 33,020 | | | | 40,740 | | | | 175,169 | | | | 2,637 | | | | 2,973 | | | | 287,424 | | Operating lease payments | | | 20,598 | | | | 17,502 | | | | 16,778 | | | | 14,772 | | | | 11,925 | | | | 43,233 | | | | 124,808 | | | | 23,318 | | | | 21,309 | | | | 18,969 | | | | 16,136 | | | | 14,872 | | | | 44,175 | | | | 138,779 | | Total contractual cash obligations | | $ | 49,165 | | | $ | 50,597 | | | $ | 50,022 | | | $ | 55,748 | | | $ | 187,342 | | | $ | 49,544 | | | $ | 442,418 | | | $ | 56,203 | | | $ | 54,329 | | | $ | 59,709 | | | $ | 191,305 | | | $ | 17,509 | | | $ | 47,148 | | | $ | 426,203 | |
| | For the years ending March 31 | | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | Thereafter | | | Total | | Total purchase commitments | | $ | 70,138 | | | $ | 35,528 | | | $ | 22,054 | | | $ | 2,637 | | | $ | 520 | | | $ | 736 | | | $ | 131,613 | |
| | For the years ending March 31 | | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | Thereafter | | | Total | | Total purchase commitments | | $ | 47,941 | | | $ | 28,807 | | | $ | 10,201 | | | $ | 7,609 | | | $ | 6,370 | | | $ | 4,750 | | | $ | 105,678 | |
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 20152016 of $12.7$11.5 million.
The following are contingencies or guarantees under which the Company could be required, in certain circumstances, to make cash payments as of March 31, 20142015 (dollars in thousands):
Lease guarantee | | $ | 1,518 | | Outstanding letters of credit | | | 2,168 | | Surety bonds | | | 420 | |
Subsequent to March 31, 2014, the Company announced its proposed acquisition of LiveRamp, Inc. for $310 million in cash. The Company expects to fund the acquisition using available cash balances.Lease guarantee | | $ | 1,021 | | Outstanding letters of credit | | | 2,138 | | Surety bonds | | | 420 | |
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 licenses software and sells 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.
To help accelerate the pace of product development, the Company has significantly increased the level of product investment.investment in fiscal 2014. Total engineering investment (research and development expense plus capitalization of software) was $38.9 million in fiscal 2015 compared to $48.1 million in fiscal 2014 compared toand $31.6 million in 2013 and $10.8 million in 2012. Notwithstanding the Company’s recently announced cost reduction efforts, thefiscal 2013. The Company expects to continue to maintain investment spending, primarily for engineering and product management labor, capitalized software, and new data sources during fiscal 2015.2016.
For a description of certain risks that could have an impact on results of operations or financial condition, including liquidity and capital resources, see “Risk Factors” contained in Part I, Item 1A, of this Annual Report.
Acquisitions On July 1, 2010,2014, the Company completedacquired all of the acquisitionoutstanding shares of a 70% interest in GoDigital Tecnologia E Participacoes, Ltda. (“GoDigital”)LiveRamp, Inc., a Brazilianleading service provider for onboarding customer data into digital marketing services business.applications. As a result of this transaction, LiveRamp is now a wholly-owned subsidiary of the Company. The Company paid $10.9 million, net of cash acquired LiveRamp to, among other things, provide clients with solutions for bringing offline customer data online with better matching, more connectivity, and not including amounts, if any, to be paid under an earnout agreement in whichfaster onboarding. The Company has included the Company could have paid up to an additional $9.3 million based on thefinancial results of LiveRamp in the acquired business over approximatelyconsolidated financial statements from the next two years.
date of acquisition. LiveRamp is included in the Marketing and Data Services segment. The acquisition date fair value of the earnoutconsideration transferred for LiveRamp was originally estimated at $3.6 million. During fiscal 2011,approximately $272.7 million which consisted of the following (dollars in thousands):
| | July 1, 2014 | | Cash, net of $12.0 million cash acquired | | $ | 234,672 | | Restricted cash held in escrow | | | 31,000 | | Fair value of stock options issued included in purchase price | | | 6,978 | | Total fair value of consideration transferred | | $ | 272,650 | | | | | | |
On the acquisition date, the Company estimateddelivered $31.0 million of cash to an escrow agent according to the valueterms of the earnoutpurchase agreement. The cash is restricted as to have decreasedwithdrawal or use by $1.1 millionthe Company and recordedis expected to be delivered to the adjustmentLiveRamp sellers one year from the acquisition date. The escrowed cash can be used to reimburse the Company for any indemnification claims against the sellers, as described in gains, lossesthe purchase agreement. The principal escrow amount is owned by the Company until funds are delivered to the LiveRamp sellers. All interest and other items, netearnings on the principal escrow amount remain property of the Company. The restricted cash is reported as restricted cash held in escrow, with an offsetting liability reported as acquisition escrow payable, on the consolidated statement of operations. During fiscal 2012, the Company adjusted the value of the earnout to zero through gains, losses and other items, since there was no expectation of an earnout payment. During fiscal 2013, a final determination was made that no liability for earnout payment existed under the acquisition agreement.
Also during the quarter ended December 31, 2011, triggering events occurred which required the Company to test the goodwill and other intangible assets of GoDigital for impairment. 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.balance sheet.
During fiscal 2014, the Company acquired the balance of the outstanding equity interests it didn’tdid not already own in GoDigital for $0.6 million. As a result, the subsidiary is now wholly-owned and the Company reduced its $0.4 million carrying value of the noncontrolling interest to zero and adjusted its equity investment by $1.0 million in additional paid-in capital in the consolidated balance sheet.
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. 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 in fiscal 2012. Of the $3.4 million loss, $2.5 million was recorded in gains, losses and other items, net and $0.9 million was 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.
Discontinued Operation On February 1, 2012May 30, 2014, the Company substantially completed the sale of its background screening unit, Acxiom Information Security Services (AISS)U.K. call center operation, 2Touch, to Parseq Ltd., a European business process outsourcing service provider. Some assets of the 2Touch operation were subject to Sterling Infosystems, a New York-based technology firm for $74 million.second closing, which occurred in March 2015, resulting in the complete disposal of the operation. The sale2Touch business qualified for treatment as discontinued operations during fiscal 2012.2015. The results of operations, cash flows, and the balance sheet amounts pertaining to the AISS business2Touch have been classified as discontinued operations in the consolidated financial statements.
Subsequent Events On May 20, 2015, the Company announced it had entered into a definitive agreement to sell its IT Infrastructure Management business (ITO) to Charlesbank Capital Partners and M/C Partners. Under the terms of the agreement, the Company will receive $140 million in cash at closing, and up to $50 million in contingent payments subject to certain performance metrics. In addition, the Company will receive a 5% retained profits interest in the divested entity, subject to a defined value over which the Company will participate in profits. The sale is expected to close in the second quarter of fiscal 2016 ending September 30, 2015, following the satisfaction of regulatory requirements and other customary closing conditions. The Company will report ITO as a component of discontinued operations beginning in the first quarter of fiscal 2016. The Company expects to report a gain on the sale.
The Company will use proceeds from the sale to pay down debt and to fund expansion of its share repurchase program. As part of the revised program, the Company’s board of directors has increased its share repurchase program by $50 million. Under the revised share repurchase program, the Company may now purchase up to $300 million of its common stock through the period ending December 31, 2016. The Company has previously purchased $202.4 million of stock through the repurchase program, leaving remaining capacity of $97.6 million under the revised stock repurchase program.
The Company has also entered into an agreement to amend its credit agreement. The effectiveness of the amendments contained in the agreement are conditioned on, among other things, the closing of the ITO disposition. Once the ITO disposition is completed and the amendment becomes fully effective, certain financial covenants in the credit agreement will be modified for the fiscal quarters ending on September 30, 2015, December 31, 2015 and March 31, 2016. Additionally the Company will not be entitled to declare or pay any dividends during this time and share repurchases will be limited to no more than $100 million depending on the Company’s leverage ratio. After March 31, 2016, the debt covenants and dividend and share repurchase limitations will return to the requirements in the credit agreement in effect prior to the amendment. In addition, the amendment revises certain definitions in the credit agreement to clarify the effect of acquisitions and dispositions on certain financial covenants.
Key Trends and Uncertainties
The following is a summary of selected trends, events or uncertainties that the Company believes may have a significant impact on its future performance.
· | The macroeconomic environment has a direct impact on overall marketing and advertising expenditures in the U.S. and abroad. As marketing budgets are often more discretionary in nature, they are easier to reduce in the short term as compared to other corporate expenses. Future widespread economic slowdowns in any of the industries or markets our clients serve, particularly in the United States, could reduce the marketing expenditures of our clients and prospective customers. |
· | With the growth of online advertising and e-commerce, there is increasing awareness and concern among the general public, privacy advocates, mainstream media, governmental bodies and others regarding marketing and privacy matters, particularly as they relate to individual privacy interests and global reach of the online marketplace. Negative publicity and/or increased restrictions on the collection, management, aggregation and use of information could result in reduced demand for our products or services, decreased availability of certain kinds of data and/or a material increase in the cost of collecting certain kinds of data. |
· | In recent years, we have witnessed an ongoing shift from direct marketing to alternative marketing channels. We believe this trend will continue and that, in the long term, a substantial portion of overall marketing and advertising expenditures will be moved to alternative marketing channels. |
· | Many businesses are moving towards an outsourced model as an alternative to a traditional information technology infrastructure. As they do, we see demand increasing for cloud computing services. |
Seasonality and Inflation
Although the Company cannot accurately determine the amounts attributable to inflation, the Company is affected by inflation through increased costs of compensation and other operating expenses. If inflation were to increase over the low levels of recent years, the impact in the short run would be to cause increases in costs, which the Company would attempt to pass on to clients, although there is no assurance that it would be able to do so. Generally, the effects of inflation in recent years have been offset by technological advances, economies of scale and other operational efficiencies.
The Company’s traditional direct marketing operations typically experience their lowest revenue in the first quarter of the fiscal year, with higher revenue in the second, third, and fourth quarters. In order to minimize the impact of these fluctuations, the Company continues to seek long-term arrangements with more predictable revenues.
Non-U.S. Operations
The Company has a presence in the United Kingdom, France, Germany, Poland, Australia, China and Brazil. Most of the Company’s exposure to exchange rate fluctuation is due to translation gains and losses as there are no material transactions that cause exchange rate impact. In general, each of the foreign locations is expected to fund its own operations and cash flows, although funds may be loaned or invested from the U.S. to the foreign subsidiaries subject to limitations in the Company’s revolving credit facility. These advances are considered to be long-term investments, and any gain or loss resulting from changes in exchange rates as well as gains or losses resulting from translating the foreign financial statements into U.S. dollars are included in accumulated other comprehensive income (loss). Exchange rate movements of foreign currencies may have an impact on the Company’s future costs or on future cash flows from foreign investments. The Company has not entered into any foreign currency forward exchange contracts or other derivative instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. These accounting principles require management to make certain judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Note 1 to the accompanying consolidated financial statements includes a summary of significant accounting policies used in the preparation of Acxiom’s consolidated financial statements. Of those policies, we have identified the following as the most critical because they require management’s use of complex and/or significant judgments:
Revenue Recognition – The Company provides database management and IT management services under long-term arrangements. These arrangements may require the Company to perform setup activities such as the design and build of a database for the customer under the database management contracts and migration of the customer’s IT environment under IT management contracts. In some cases, the arrangements also contain provisions requiring customer acceptance of the setup activities prior to commencement of the ongoing services arrangement. Up-front fees billed during the setup phase for these arrangements are deferred and setup costs that are direct and incremental to the contract are capitalized. Revenue recognition does not begin until after customer acceptance in cases where contracts contain acceptance provisions. Once the setup phase is complete and customer acceptance occurs, the Company recognizes revenue and the related costs for each element as delivered. In situations where the arrangement does not require customer acceptance before the Company begins providing services, revenue is recognized for each element as delivered and no costs are deferred.
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.
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 whetherRevenues from onboarding customer data into digital marketing applications are recognized as the arrangement contains a lease. Ifservices are delivered over 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.contract.
Revenues from the licensing of data are recognized upon delivery of the data to the customer. Revenue from the licensing of data to the customer in circumstances where the license agreement contains a volume cap is recognized in proportion to the total records to be delivered under the arrangement. Revenue from the sale of data on a per-record basis is recognized as the records are delivered.
The relative selling price for each unit of accounting in a multiple-element arrangement is established using vendor-specific objective evidence (VSOE), if available, third-party evidence (TPE), if available, or management’s best estimate of stand-alone selling price (BESP). In most cases, the Company has neither VSOE nor TPE and therefore uses BESP. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. Management’s BESP is determined by considering multiple factors including actual contractual selling prices when the item is sold on a stand-alone basis, as well as market conditions, competition, internal costs, profit objectives and pricing practices. The amount of revenue recognized for a delivered element is limited to an amount that is not contingent upon future delivery of additional products or services. As pricing and marketing strategies evolve, we may modify our pricing practices in the future, which could result in changes to BESP, or to the development of VSOE or TPE for individual products or services. As a result, future revenue recognition for multiple-element arrangements could differ from recognition in the current period. Our relative selling prices are analyzed on an annual basis or more frequently if we experience significant changes in selling prices.
All taxes assessed on revenue-producing transactions described above are presented on a net basis, or excluded from revenues.
The Company also performs services on a project basis outside of, or in addition to, the scope of long-term arrangements. The Company recognizes revenue from these services as the services are performed.
Some contracts contain benchmarking provisions or provisions allowing the customer to request a future reduction in pricing under certain circumstances. Any resulting reduction in pricing is only implemented on a prospective basis. The Company’s contracts provide a warranty that the services or products will meet the agreed-upon criteria or any necessary modifications will be made. The Company ensures that services or products delivered meet the agreed-upon criteria prior to recognition of revenue.
Included in the Company’s consolidated balance sheets are deferred revenues resulting from billings and/or client payments in advance of revenue recognition. Deferred revenue at March 31, 20142015 was $47.7$37.3 million compared to $41.4$47.6 million at March 31, 2013.2014.
Accounts receivable include amounts billed to clients as well as unbilled amounts recognized in accordance with the Company’s revenue recognition policies. Unbilled amounts included in accounts receivable were $20.6$20.9 million and $20.0$20.6 million, respectively, at March 31, 20142015 and 2013.2014.
Software, Purchased Software Licenses, and Research and Development Costs – Costs of internally developed software are amortized on a straight-line basis over the remaining estimated economic life of the software product, generally two to five years, or the amortization that would be recorded by using the ratio of gross revenues for a product to total current and anticipated future gross revenues for that product, whichever is greater. The Company capitalizes software development costs following accounting standards regarding the costs of computer software to be sold, leased or otherwise marketed or the costs of computer software developed or obtained for internal use. Although there are differences in the two accounting standards, depending on whether a product is intended for internal use or to be provided to customers, both accounting standards generally require that research and development costs incurred prior to establishing technological feasibility or the beginning of the application development stage of software products are charged to operations as such costs are incurred. Once technological feasibility is established or the application development stage has begun, costs are capitalized until the software is available for general release. The Company recorded amortization expense related to internally developed computer software of $29.0 million, $9.7 million, $8.6 million, and $15.2$8.6 million for fiscal 2015, 2014 and 2013, respectively. Of the amount recorded for fiscal 2015, $7.5 million relates to internally developed software acquired as part of the LiveRamp acquisition. Amortization expense in fiscal 2015 also included $4.3 million of accelerated amortization expense resulting from adjusting the remaining lives of certain capitalized software products which the Company will no longer be using as a result of the LiveRamp acquisition. Additionally, the Company charged $20.3 million, $23.6 million and 2012, respectively. Additionally,$11.7 million of research and development costs of $23.6 million, $11.7 million and $5.5 million were charged to cost of revenue in the consolidated statement of operations during fiscal 2015, 2014 2013 and 2012,2013, 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 ofexpense related to purchased software licenses of $6.7 million, $7.1 million and $9.7 million in 2015, 2014 and $13.5 million in 2014, 2013, and 2012, respectively. Some of these licenses are, in effect, volume purchase agreements for software licenses needed for internal use and to provide services to customers over the terms of the agreements. Therefore, amortization lives are periodically reevaluated and, if justified, adjusted to reflect current and future expected usage based on units-of-production amortization. Factors considered in estimating remaining useful life include, but are not limited to, contract provisions of the underlying licenses, introduction of new mainframe hardware which is compatible with previous generation software, predictions of continuing viability of mainframe architecture, and customers’ continuing commitments to utilize mainframe architecture and the software under contract.
Capitalized software, including both purchased and internally developed, is reviewed each periodwhen facts and circumstances indicate the carrying amount may not be recoverable 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 realizablefair value.
During the quarter ended March 31, 2014, in conjunction with the goodwill impairment testing noted below, the Company also tested other long-lived assets in the affected units for impairment. As a result of the review, the Company recorded impairment charges of $0.1 million in fiscal 2014 for purchased software licenses related to the Other servicesServices unit. No software impairment charges were recorded during fiscal years 2013 or 2012. At March 31, 2014, 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 resultThe Other Services unit is now included 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 ($58.0 million at March 31, 2014).discontinued operations.
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 are classified as held for sale and are reported at the lower of the carrying amount or fair value less costs to sell.
During the quarter ended March 31, 2014, in conjunction with the goodwill impairment testing noted below, the Company also tested other long-lived assets in the affected units for impairment. As a result of the review, the Company recorded impairment charges of $4.6 million for data assets related to the European Marketing and data servicesData Services unit and $0.9 million for other assets, primarily property and equipment, related to the Other servicesServices unit.
During the quarter ended December 31, 2011, The Other Services unit is now included in conjunction with the goodwill impairment testing noted below, the Company also tested certain intangible assets in the affected units for impairment. As a result of the review, the Company recorded impairment charges of $4.0 million in fiscal 2012 for intangible assets related to the Brazil operation.discontinued operations.
Valuation of Goodwill– Goodwill is measured and tested for impairment on an annual basis in the first quarter of the Company’s fiscal year in accordance with applicable accounting standards, or more frequently if indicators of impairment exist. Triggering events for interim impairment testing include indicators such as adverse industry or economic trends, restructuring actions, downward revisions to projections of financial performance, or a sustained decline in market capitalization. The performance of the impairment test involves a two-step process. The first step requires comparing the estimated fair value of a reporting unit to its net book value, including goodwill. A potential impairment exists if the estimated fair value of the reporting unit is lower than its net book value. The second step of the impairment test involves assigning the estimated fair value of the reporting unit to its identifiable assets, with any residual fair value being assigned to goodwill. If the carrying value of an individual indefinite-lived intangible asset (including goodwill) exceeds its estimated fair value, such asset is written down by an amount equal to the excess, and a corresponding amount is recorded as a charge to operations for the period in which the impairment test is completed. Completion of the Company’s annual impairment test during the quarter ended June 30, 20132014 indicated no potential impairment of its goodwill balances.
In order to estimate the fair value for each of the components, management uses an income approach based on a discounted cash flow model together with valuations based on an analysis of public company market multiples and a similar transactions analysis.
The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined by using a weighted average cost of capital (“WACC”). The WACC considers market and industry data as well as company-specific risk factors for each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business. Management, considering industry and company-specific historical and projected data, develops growth rates and cash flow projections for each reporting unit. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates.
The public company market multiple method is used to estimate values for each of the components by looking at market value multiples to revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) for selected public companies that are believed to be representative of companies that marketplace participants would use to arrive at comparable multiples for the individual component being tested. These multiples are then used to develop an estimated value for each respective component.
The similar transactions method compares multiples based on acquisition prices of other companies believed to be those that marketplace participants would use to compare to the individual component being tested. Those multiples are then used to develop an estimated value for that component.
In order to arrive at an estimated value for each component, management uses a weighted-average approach to combine the results of each analysis. Management believes that using multiple valuation approaches and then weighting them appropriately is a technique that a marketplace participant would use.
As a final test of the annual valuation results, the total of the values of the components is reconciled to the actual market value of Acxiom common stock as of the valuation date. This reconciliation indicated an implied control premium. Management believes this control premium is reasonable compared to historical control premiums observed in actual transactions.
Goodwill is tested for impairment at the reporting unit level, which is defined as either an operating segment or one step below an operating segment, known as a component. Acxiom’s segments are the Marketing and data servicesData Services segment and the IT Infrastructure management segment, and the Other servicesManagement segment. Because the Marketing and data servicesData Services segment contains both U.S. and International components, and there are differences in economic characteristics between the components in the different geographic regions, management tested a total of sevenfive components at the beginning of the year. The goodwill amounts as of April 1, 20132014 included in each component tested were: U.S. Marketing and data services, $266.3 million; Europe Marketing and data services, $18.5Data Services, $266.7 million; Australia Marketing and data services, $15.0Data Services, $13.3 million; China Marketing and data services,Data Services, $6.0 million; Brazil Marketing and data services, $1.0Data Services, $0.9 million; and U.S. Infrastructure management, $71.5 million; and Europe Other services, $2.8 million.
As of April 1, 2013,2014, each of the components had an estimatedexcess fair value in excess of its carryingexceeding 35%, except for U.S. IT Infrastructure Management. The fair value indicating no impairment. All of the components hadU.S. Infrastructure management segment has decreased by a substantial excess fair value.significant amount since the prior annual test as a result of client contract terminations. If the U.S. IT Infrastructure Management segment experiences additional client losses in the future, this could lead to a further deterioration in value, which could lead to an impairment in the future.
Each quarter the Company considers whether indicators of impairment exist such that additional impairment testing may be necessary. During the quarter ended March 31, 2015, a triggering event occurred which required the Company to test the recoverability of the goodwill associated with its Australia Marketing and Data Services reporting unit. The triggering event was a lowering of projections associated with the Australian unit. The results of step one of the test indicated the goodwill was not impaired, although the fair value of the component has decreased significantly compared to the previous annual test.
During the quarter ended March 31, 2014, triggering events occurred which required the Company to test the recoverability of goodwill associated with its European Marketing and data servicesData Services reporting unit and its Other servicesServices reporting unit. The triggering event was the initiation of a restructuring of the European Marketing and data servicesData Services unit. The restructuring includes exiting the analog paper survey business in Europe. The triggering event related to the Other servicesServices reporting unit was a potential exit from that business. In addition to testing the recoverability of goodwill, the Company also tested certain other long-lived assets in those units for impairment. In the case of the Other servicesServices unit, the step one fair value indicated that all of the goodwill and other long-lived assets were impaired. Therefore there was no need to perform detailed step two calculations in order to conclude that all of the goodwill and other long-lived assets of this unit should be written off. In the case of the European Marketing and data servicesData Services unit, the Company first tested certain data assets within the unit, and concluded that $4.6 million of these data assets were impaired and should be written off. Then the Company performed step one of the two-step goodwill test, which indicated the goodwill was impaired. Step two of the goodwill recoverability test required the Company to perform a hypothetical purchase price allocation, under which the estimated fair value was allocated to the unit’s tangible and intangible assets based on their estimated fair values. This hypothetical purchase price allocation indicated that all of the unit’s goodwill should be written off. The amount of impairment for the European Marketing and data servicesData Services unit was $24.9$25.0 million, of which $20.3 million was goodwill and $4.6 million related to data assets. The amount of impairment for the Other servicesServices unit was $3.9 million, of which $3.0 million was goodwill and $0.9 million was other assets, primarily property and equipment. The Other Services unit is now included in discontinued operations.
During the quarter ended March 31, 2013, triggering events occurred which required the Company to test the recoverability of goodwill in its European Marketing and data servicesData Services unit for impairment. The triggering events included the revision of the Company’s long-term projections in conjunction with the fiscal 2014 budget. However, the results of the interim test indicated no impairment.
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.
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 2015.2016. The fair value of the Company’s components could deteriorate which could result in the need to record impairment charges in future periods. The Company continues to monitor potential triggering events including changes in the business climate in which it operates, attrition of key personnel, the volatility in the capital markets, the Company’s market capitalization compared to its book value, the Company’s recent operating performance, and the Company’s financial projections. The Company has recently initiated a cost reduction program. The initiative seeks to improve the Company’s performance by simplifying the Company’s management structure, centralizing duplicative efforts and standardizing workflows. The Company will monitor the progress of the program to determine whether any resulting activities constitute a triggering event. The occurrence of one or more triggering events could require additional impairment testing, which could result in impairment charges.
Deferred Costs and Data Acquisition Costs – The Company defers certain costs, primarily salaries and benefits and other direct and incremental third party costs, in connection with client contracts and various other contracts and arrangements. Direct and incremental costs incurred during the setup phase under client contracts for database management or for IT management arrangements are deferred until such time as the database or the outsourcing services are operational and revenue recognition begins. These costs are directly related to the individual client, are to be used specifically for the individual client and have no other use or future benefit. In addition, revenue recognition of billings, if any, related to these setup activities are deferred during the setup phase. All deferred costs and billings are then amortized as contract revenue recognition occurs over the remaining term of the arrangement. During the period when costs are being deferred, the Company performs a net realizable value review on a quarterly basis to ensure that the deferred costs are recoverable through either 1) recognition of previously deferred revenue, 2) future minimum contractual billings or 3) billings in excess of contractual minimum billings that can be reasonably estimated and are deemed likely to occur. Once revenue recognition begins, these deferred costs are assessed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Some contracts contain provisions allowing the customer to request reductions in pricing if they can demonstrate that the Company charges lower prices for similar services to other customers, or if the prices charged are higher than certain benchmarks. If pricing is renegotiated, deferred costs are assessed for impairment.
The test of recoverability is performed by comparing the carrying value of the asset to its undiscounted expected future cash flows. If the 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, 2014 are $16.1 million. Of that amount, $8.8 million relates to one customer. If the Company were to determine that the amount from this customer is unrecoverable, the resulting write-down in carrying value could be material.
In addition to client contract costs, the Company defers direct and incremental costs incurred in connection with obtaining other contracts, including debt facilities, lease facilities, and various other arrangements. Costs deferred in connection with obtaining scheduled debt facilities are amortized over the term of the arrangement using the interest method. Costs deferred in connection with lease facilities or revolving credit facilities are amortized over the term of the arrangement on a straight-line basis.
The Company also defers costs related to the acquisition or licensing of data for the Company’s proprietary databases which are used in providing data products and services to customers. These costs are amortized over the useful life of the data, which is from two to seven years. In order to estimate the useful life of any acquired data, the Company considers several factors including 1) the type of data acquired, 2) whether the data becomes stale over time, 3) to what extent the data will be replaced by updated data over time, 4) whether the stale data continues to have value as historical data, 5) whether a license places restrictions on the use of the data, and 6) the term of the license.
The total deferred costs at March 31, 2015 are $7.9 million. If the Company were to determine that any of the deferred costs are unrecoverable, the resulting write-down in carrying value could be up to $7.9 million.
Restructuring – The Company records costs associated with employee terminations and other exit activity in accordance with applicable accounting standards, depending on whether the costs relate to exit or disposal activities under the accounting standards, or whether they are other post-employment termination benefits. Under applicable accounting standards related to exit or disposal costs, the Company records employee termination benefits as an operating expense when the benefit arrangement is communicated to the employee and no significant future services are required. Under the accounting standards related to post employment termination benefits the Company records employee termination benefits when the termination benefits are probable and can be estimated. The Company recognizes the present value of facility lease termination obligations, net of estimated sublease income and other exit costs, when the Company has future payments with no future economic benefit or a commitment to pay the termination costs of a prior commitment. In future periods the Company will record accretion expense to increase the liability to an amount equal to the estimated future cash payments necessary to exit the leases. This requires a significant amount of judgment and management estimation in order to determine the expected time frame it will take to secure a subtenant, the amount of sublease income to be received and the appropriate discount rate to calculate the present value of the future cash flows. Should actual lease exit costs differ from estimates, the Company may be required to adjust the restructuring charge which will impact net income in the period any adjustment is recorded.
Income Taxes – The Company makes estimates and judgments in determining the provision for income taxes for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties related to uncertain tax positions. Significant changes in these estimates may result in an increase or decrease to the tax provision in a subsequent period. The Company assesses the likelihood that it will be able to recover its deferred tax assets. If recovery is not likely, the Company increases the provision for taxes by recording a valuation allowance against the deferred tax assets that it estimates will not ultimately be recoverable. The Company believes that the deferred tax assets recorded on the consolidated balance sheets will be ultimately recovered. However, should a change occur in the Company’s ability to recover its deferred tax assets, its tax provision would increase in the period in which the Company determined that the recovery was not likely.
The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. If the Company determines that a tax position will more likely than not be sustained on audit, the second step requires the Company to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as the Company has to determine the probability of various possible outcomes.
The Company re-evaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.
New Accounting PronouncementPronouncements –
In April 2014, the Financial Accounting Standards Board (FASB) issued an update, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This update changes the requirements for determining whether a component is included in discontinued operations. The update will be effective for Acxiom in fiscal 2016, with early application allowed. Management does not expect a significant impact from implementation of this update.
In May 2014, the FASB issued an update, Revenue from Contracts with Customers. This update supersedes all existing revenue recognition guidance under U.S. generally accepted accounting principles, as well as some cost guidance and guidance on certain gains and losses. The effective date for the update has been deferred until fiscal 2019 for Acxiom, with early application allowed for fiscal 2018. Application of the new update may either be applied retrospectively to all periods reported, with certain practical expedients allowed, or retrospectively with the cumulative effect of initial application recognized at the date of initial application. The Company has not yet assessed the impact of implementation of the new guidance, nor determined which implementation method to use.
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, 2014.2015. 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 (1992).
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, 2015.
The Company acquired LiveRamp, Inc. on July 1, 2014. Management has excluded the operations of LiveRamp from its assessment of internal control over financial reporting as of March 31, 2015. The audited consolidated financial statements of the Company include the results of the acquisition but management’s assessment does not include an assessment of the internal control over financial reporting of the acquired company. The acquired company represents approximately $27.0 million of the Company’s consolidated revenue for the year ended March 31, 2015 and $294.6 million of the Company’s consolidated assets (including $268.4 million of goodwill and acquired intangible assets) as of March 31, 2015.
KPMG LLP, the Company’s independent registered public accounting firm that audited the consolidated 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, 2014.2015.
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, 20142015 and 2013,2014, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended March 31, 2014.2015. 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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, 20142015 and 2013,2014, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2014,2015, 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, 2014,2015, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated May 28, 201427, 2015 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
KPMG LLP
Dallas, Texas May 28, 201427, 2015
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, 2014,2015, based on criteria established in Internal Control – Integrated Framework (1992) 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, 2014,2015, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in the accompanying Management’s Report on Internal Control over Financial Reporting, management has excluded from its assessment of internal control over financial reporting as of March 31, 2015 the operations of LiveRamp, Inc. that was acquired on July 1, 2014. We have also excluded LiveRamp, Inc. from our audit of internal control over financial reporting. LiveRamp, Inc. represented approximately $27.0 million of the Company’s consolidated revenue as of March 31, 2015 and $294.6 million of the Company’s consolidated assets (including $268.4 million of goodwill and acquired intangible assets) as of March 31, 2015. 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, 20142015 and 2013,2014, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended March 31, 2014,2015, and our report dated May 28, 201427, 2015 expressed an unqualified opinion on those consolidated financial statements.
KPMG LLP
Dallas, Texas May 28, 201427, 2015
ACXIOM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 20142015 AND 20132014 (Dollars in thousands) | | 2014 | | | 2013 | | | 2015 | | | 2014 | | | ASSETS | | | | | | | | | | | Current assets: | | | | | | | | | | | Cash and cash equivalents | | $ | 418,586 | | | $ | 222,974 | | | $ | 141,010 | | | $ | 418,586 | | Trade accounts receivable, net | | | 167,169 | | | | 159,882 | | | | 162,639 | | | | 160,718 | | Deferred income taxes | | | 12,870 | | | | 13,496 | | | | 28,372 | | | | 12,870 | | Refundable income taxes | | | 11,535 | | | | 5,809 | | | | 5,239 | | | | 11,535 | | Restricted cash held in escrow | | | | 31,000 | | | | - | | Other current assets | | | 55,365 | | | | 58,935 | | | | 45,682 | | | | 54,484 | | Assets from discontinued operations | | | | 112 | | | | 7,332 | | Total current assets | | | 665,525 | | | | 461,096 | | | | 414,054 | | | | 665,525 | | Property and equipment, net of accumulated depreciation and amortization | | | 216,906 | | | | 230,752 | | | | 220,590 | | | | 216,906 | | Software, net of accumulated amortization of $230,161 in 2014 and $235,491 in 2013 | | | 39,425 | | | | 24,471 | | | Software, net of accumulated amortization of $258,185 in 2015 and $230,161 in 2014 | | | | 68,962 | | | | 39,425 | | Goodwill | | | 358,384 | | | | 381,129 | | | | 568,870 | | | | 358,384 | | Purchased software licenses, net of accumulated amortization of $263,228 in 2014 and $262,169 in 2013 | | | 18,584 | | | | 23,604 | | | Deferred costs, net | | | 16,143 | | | | 42,971 | | | Data acquisition costs, net | | | 4,502 | | | | 10,631 | | | Purchased software licenses, net of accumulated amortization of $269,507 in 2015 and $263,228 in 2014 | | | | 13,494 | | | | 18,584 | | Other assets, net | | | 3,832 | | | | 13,052 | | | | 36,454 | | | | 24,477 | | | | $ | 1,323,301 | | | $ | 1,187,706 | | | $ | 1,322,424 | | | $ | 1,323,301 | | LIABILITIES AND EQUITY | | | | | | | | | | | | | | | | | Current liabilities: | | | | | | | | | | | | | | | | | Current installments of long-term debt | | $ | 28,567 | | | $ | 16,105 | | | $ | 32,885 | | | $ | 28,567 | | Trade accounts payable | | | 36,183 | | | | 35,786 | | | | 38,951 | | | | 36,179 | | Accrued expenses | | | | | | | | | | | | | | | | | Payroll | | | 63,972 | | | | 62,390 | | | | 39,026 | | | | 62,182 | | Other | | | 72,762 | | | | 68,270 | | | | 67,867 | | | | 70,412 | | Acquisition escrow payable | | | | 31,000 | | | | - | | Deferred revenue | | | 47,744 | | | | 41,388 | | | | 37,278 | | | | 47,638 | | Income taxes payable | | | 241 | | | | 637 | | | | - | | | | 241 | | Liabilities from discontinued operations | | | | 1,008 | | | | 4,250 | | Total current liabilities | | | 249,469 | | | | 224,576 | | | | 248,015 | | | | 249,469 | | Long-term debt | | | 289,043 | | | | 237,400 | | | | 254,539 | | | | 289,043 | | Deferred income taxes | | | 90,226 | | | | 94,918 | | | | 103,391 | | | | 90,226 | | Other liabilities | | | 11,706 | | | | 11,444 | | | | 13,222 | | | | 11,706 | | Commitments and contingencies | | | | | | | | | | | | | | | | | Equity: | | | | | | | | | | | | | | | | | Common stock, $0.10 par value (authorized 200 million shares; issued 125.8 million and 121.3 million shares at March 31, 2014 and 2013, respectively) | | | 12,584 | | | | 12,134 | | | Common stock, $0.10 par value (authorized 200 million shares; issued 127.9 million and 125.8 million shares at March 31, 2015 and 2014, respectively) | | | | 12,794 | | | | 12,584 | | Additional paid-in capital | | | 981,985 | | | | 885,184 | | | | 1,034,526 | | | | 981,985 | | Retained earnings | | | 602,829 | | | | 593,966 | | | | 591,798 | | | | 602,829 | | Accumulated other comprehensive income | | | 13,662 | | | | 11,423 | | | | 9,413 | | | | 13,662 | | Treasury stock, at cost (49.2 million and 47.8 million shares at March 31, 2014 and 2013, respectively) | | | (928,203 | ) | | | (882,959 | ) | | Total Acxiom stockholders' equity | | | 682,857 | | | | 619,748 | | | Noncontrolling interest | | | - | | | | (380 | ) | | Treasury stock, at cost (50.1 million and 49.2 million shares at March 31, 2015 and 2014, respectively) | | | | (945,274 | ) | | | (928,203 | ) | Total equity | | | 682,857 | | | | 619,368 | | | | 703,257 | | | | 682,857 | | | | $ | 1,323,301 | | | $ | 1,187,706 | | | $ | 1,322,424 | | | $ | 1,323,301 | | See accompanying notes to consolidated financial statements. | | | | | | | | | | | | | | | | |
ACXIOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED MARCH 31, 2015, 2014 2013 AND 20122013 (Dollars in thousands, except per share amounts)
| | 2014 | | | 2013 | | | 2012 | | | | | | | | | | | | Revenues | | $ | 1,097,545 | | | $ | 1,099,359 | | | $ | 1,130,624 | | Operating costs and expenses: | | | | | | | | | | | | | Cost of revenue | | | 828,955 | | | | 840,640 | | | | 857,479 | | Selling, general and administrative | | | 169,376 | | | | 153,990 | | | | 157,141 | | Impairment of goodwill and other assets | | | 28,834 | | | | - | | | | 17,803 | | Gains, losses and other items, net | | | 22,096 | | | | 2,010 | | | | 12,638 | | Total operating costs and expenses | | | 1,049,261 | | | | 996,640 | | | | 1,045,061 | | Income from operations | | | 48,284 | | | | 102,719 | | | | 85,563 | | Other expense: | | | | | | | | | | | | | Interest expense | | | (11,671 | ) | | | (12,694 | ) | | | (17,448 | ) | Other, net | | | 1,817 | | | | 152 | | | | (1,369 | ) | Total other expense | | | (9,854 | ) | | | (12,542 | ) | | | (18,817 | ) | Earnings from continuing operations before income taxes | | | 38,430 | | | | 90,177 | | | | 66,746 | | Income taxes | | | 29,627 | | | | 33,058 | | | | 29,129 | | Net earnings from continuing operations | | | 8,803 | | | | 57,119 | | | | 37,617 | | Earnings from discontinued operations, net of tax | | | - | | | | - | | | | 33,899 | | Net earnings | | | 8,803 | | | | 57,119 | | | | 71,516 | | Less: Net loss attributable to noncontrolling interest | | | (60 | ) | | | (488 | ) | | | (5,747 | ) | Net earnings attributable to Acxiom | | $ | 8,863 | | | $ | 57,607 | | | $ | 77,263 | | | | | | | | | | | | | | | Basic earnings per share: | | | | | | | | | | | | | Net earnings from continuing operations | | $ | 0.12 | | | $ | 0.76 | | | $ | 0.47 | | Net earnings from discontinued operations | | | - | | | | - | | | | 0.43 | | Net earnings | | $ | 0.12 | | | $ | 0.76 | | | $ | 0.90 | | | | | | | | | | | | | | | Net earnings attributable to Acxiom stockholders | | $ | 0.12 | | | $ | 0.77 | | | $ | 0.97 | | | | | | | | | | | | | | | Diluted earnings per share: | | | | | | | | | | | | | Net earnings from continuing operations | | $ | 0.11 | | | $ | 0.75 | | | $ | 0.47 | | Net earnings from discontinued operations | | | - | | | | - | | | | 0.42 | | Net earnings | | $ | 0.11 | | | $ | 0.75 | | | $ | 0.89 | | | | | | | | | | | | | | | Net earnings attributable to Acxiom stockholders | | $ | 0.12 | | | $ | 0.75 | | | $ | 0.96 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | See accompanying notes to consolidated financial statements. | | | | | | | | | | | | |
| | 2015 | | | 2014 | | | 2013 | | | | | | | | | | | | Revenues | | $ | 1,020,059 | | | $ | 1,062,278 | | | $ | 1,068,158 | | Operating costs and expenses: | | | | | | | | | | | | | Cost of revenue | | | 807,469 | | | | 795,562 | | | | 811,401 | | Selling, general and administrative | | | 188,561 | | | | 169,376 | | | | 153,990 | | Impairment of goodwill and other assets | | | - | | | | 24,953 | | | | - | | Gains, losses and other items, net | | | 24,633 | | | | 21,914 | | | | 1,751 | | Total operating costs and expenses | | | 1,020,663 | | | | 1,011,805 | | | | 967,142 | | Income (loss) from operations | | | (604 | ) | | | 50,473 | | | | 101,016 | | Other expense: | | | | | | | | | | | | | Interest expense | | | (10,050 | ) | | | (11,671 | ) | | | (12,694 | ) | Other, net | | | (1,325 | ) | | | 1,817 | | | | 152 | | Total other expense | | | (11,375 | ) | | | (9,854 | ) | | | (12,542 | ) | Earnings (loss) from continuing operations before income taxes | | | (11,979 | ) | | | 40,619 | | | | 88,474 | | Income taxes | | | (2,832 | ) | | | 29,627 | | | | 32,649 | | Net earnings (loss) from continuing operations | | | (9,147 | ) | | | 10,992 | | | | 55,825 | | Earnings (loss) from discontinued operations, net of tax | | | (1,884 | ) | | | (2,189 | ) | | | 1,294 | | Net earnings (loss) | | | (11,031 | ) | | | 8,803 | | | | 57,119 | | Less: Net loss attributable to noncontrolling interest | | | - | | | | (60 | ) | | | (488 | ) | Net earnings (loss) attributable to Acxiom | | $ | (11,031 | ) | | $ | 8,863 | | | $ | 57,607 | | | | | | | | | | | | | | | Basic earnings (loss) per share: | | | | | | | | | | | | | Net earnings (loss) from continuing operations | | $ | (0.12 | ) | | $ | 0.15 | | | $ | 0.75 | | Net earnings (loss) from discontinued operations | | | (0.02 | ) | | | (0.03 | ) | | | 0.02 | | Net earnings (loss) | | $ | (0.14 | ) | | $ | 0.12 | | | $ | 0.76 | | | | | | | | | | | | | | | Net earnings (loss) attributable to Acxiom stockholders | | $ | (0.14 | ) | | $ | 0.12 | | | $ | 0.77 | | | | | | | | | | | | | | | Diluted earnings (loss) per share: | | | | | | | | | | | | | Net earnings (loss) from continuing operations | | $ | (0.12 | ) | | $ | 0.14 | | | $ | 0.73 | | Net earnings (loss) from discontinued operations | | | (0.02 | ) | | | (0.03 | ) | | | 0.02 | | Net earnings (loss) | | $ | (0.14 | ) | | $ | 0.11 | | | $ | 0.75 | | | | | | | | | | | | | | | Net earnings (loss) attributable to Acxiom stockholders | | $ | (0.14 | ) | | $ | 0.12 | | | $ | 0.75 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Some earnings (loss) per share amounts may not add due to rounding. | | | | | | | | | | See accompanying notes to consolidated financial statements. | | | | | | | | | | | | |
ACXIOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) YEARS ENDED MARCH 31, 2015, 2014 2013 AND 20122013 (Dollars in thousands)
| | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | | | | | | | | | | | | | | | | | | | | | Net earnings | | $ | 8,803 | | | $ | 57,119 | | | $ | 71,516 | | | Net earnings (loss) | | | $ | (11,031 | ) | | $ | 8,803 | | | $ | 57,119 | | Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | Change in foreign currency translation adjustment | | | 1,511 | | | | (2,489 | ) | | | (2,219 | ) | | | (4,074 | ) | | | 1,511 | | | | (2,489 | ) | Unrealized gain (loss) on interest rate swap | | | 728 | | | | 311 | | | | (171 | ) | | | (175 | ) | | | 728 | | | | 311 | | Other comprehensive income (loss) | | | 2,239 | | | | (2,178 | ) | | | (2,390 | ) | | | (4,249 | ) | | | 2,239 | | | | (2,178 | ) | Comprehensive income | | | 11,042 | | | | 54,941 | | | | 69,126 | | | Comprehensive income (loss) | | | | (15,280 | ) | | | 11,042 | | | | 54,941 | | Less: Comprehensive loss attributable to noncontrolling interest | | | (60 | ) | | | (488 | ) | | | (5,747 | ) | | | - | | | | (60 | ) | | | (488 | ) | Comprehensive income attributable to Acxiom stockholders | | $ | 11,102 | | | $ | 55,429 | | | $ | 74,873 | | | Comprehensive income (loss) attributable to Acxiom stockholders | | | $ | (15,280 | ) | | $ | 11,102 | | | $ | 55,429 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | See accompanying notes to consolidated financial statements. | | | | | | | | | | | | | | | | | | | | | | | | |
ACXIOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY YEARS ENDED MARCH 31, 2015, 2014 2013 AND 20122013 (Dollars in thousands)
| | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | Common Stock | | Additional | | | | other | | Treasury Stock | | | | | | Common Stock | | Additional | | | | other | | Treasury Stock | | | | | | | Number | | | | paid-in | | Retained | | comprehensive | | Number | | | | Noncontrolling | | Total | | Number | | | | paid-in | | Retained | | comprehensive | | Number | | | | Noncontrolling | | Total | | | of shares | | Amount | | Capital | | earnings | | income | | of shares | | Amount | | Interest | | Equity | | of shares | | Amount | | Capital | | earnings | | income | | of shares | | Amount | | Interest | | Equity | Balances at March 31, 2011 | | 117,767,535 | | $11,777 | | $ 837,439 | | $ 459,096 | | $15,991 | | (37,183,774) | | $(739,125) | | $ 5,855 | | $591,033 | | Employee stock awards, benefit plans and other issuances | | 1,281,649 | | 128 | | 15,295 | | - | | - | | (239,171) | | (3,218) | | - | | 12,205 | | Tax impact of stock options, warrants and restricted stock | | - | | - | | (1,310) | | - | | - | | - | | - | | - | | (1,310) | | Non-cash share-based compensation | | - | | - | | 8,839 | | - | | - | | 8,262 | | 131 | | - | | 8,970 | | Restricted stock units vested | | 977,829 | | 98 | | (98) | | - | | - | | - | | - | | - | | - | | Acquisition of treasury stock | | - | | - | | - | | - | | - | | (5,798,344) | | (68,169) | | - | | (68,169) | | Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | - | | - | | - | | - | | (2,219) | | - | | - | | - | | (2,219) | | Unrealized loss on interest rate swap | | - | | - | | - | | - | | (171) | | - | | - | | - | | (171) | | Net earnings (loss) | | - | | - | | - | | 77,263 | | - | | - | | - | | (5,747) | | 71,516 | | Balances at March 31, 2012 | | 120,027,013 | | $12,003 | | $ 860,165 | | $ 536,359 | | $13,601 | | (43,213,027) | | $(810,381) | | $ 108 | | $611,855 | | 120,027,013 | | $12,003 | | $ 860,165 | | $ 536,359 | | $13,601 | | (43,213,027) | | $(810,381) | | $ 108 | | $611,855 | Employee stock awards, benefit plans and other issuances | | 845,618 | | 84 | | 12,707 | | - | | - | | (58,966) | | (834) | | - | | 11,957 | | 845,618 | | 84 | | 12,707 | | - | | - | | (58,966) | | (834) | | - | | 11,957 | Tax impact of stock options, warrants and restricted stock | | - | | - | | 357 | | - | | - | | - | | - | | - | | 357 | | - | | - | | 357 | | - | | - | | - | | - | | - | | 357 | Non-cash share-based compensation | | - | | - | | 12,002 | | - | | - | | - | | - | | - | | 12,002 | | - | | - | | 12,002 | | - | | - | | - | | - | | - | | 12,002 | Restricted stock units vested | | 470,285 | | 47 | | (47) | | - | | - | | - | | - | | - | | - | | 470,285 | | 47 | | (47) | | - | | - | | - | | - | | - | | - | Acquisition of treasury stock | | - | | - | | - | | - | | - | | (4,553,042) | | (71,744) | | - | | (71,744) | | - | | - | | - | | - | | - | | (4,553,042) | | (71,744) | | - | | (71,744) | Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | - | | - | | - | | - | | (2,489) | | - | | - | | - | | (2,489) | | - | | - | | - | | - | | (2,489) | | - | | - | | - | | (2,489) | Unrealized gain on interest rate swap | | - | | - | | - | | - | | 311 | | - | | - | | - | | 311 | | - | | - | | - | | - | | 311 | | - | | - | | - | | 311 | Net earnings (loss) | | - | | - | | - | | 57,607 | | - | | - | | - | | (488) | | 57,119 | | - | | - | | - | | 57,607 | | - | | - | | - | | (488) | | 57,119 | Balances at March 31, 2013 | | 121,342,916 | | $12,134 | | $885,184 | | $ 593,966 | | $11,423 | | (47,825,035) | | $(882,959) | | $ (380) | | $619,368 | | 121,342,916 | | $12,134 | | $885,184 | | $ 593,966 | | $11,423 | | (47,825,035) | | $(882,959) | | $ (380) | | $619,368 | Employee stock awards, benefit plans and other issuances | | 4,018,507 | | 402 | | 84,422 | | - | | - | | (155,089) | | (4,334) | | - | | 80,490 | | 4,018,507 | | 402 | | 84,422 | | - | | - | | (155,089) | | (4,334) | | - | | 80,490 | Tax impact of stock options, warrants and restricted stock | | - | | - | | 11,295 | | - | | - | | - | | - | | - | | 11,295 | | - | | - | | 11,295 | | - | | - | | - | | - | | - | | 11,295 | Non-cash share-based compensation | | - | | - | | 13,925 | | - | | - | | - | | - | | - | | 13,925 | | - | | - | | 13,925 | | - | | - | | - | | - | | - | | 13,925 | Restricted stock units vested | | 482,185 | | 48 | | (48) | | - | | - | | - | | - | | - | | - | | 482,185 | | 48 | | (48) | | - | | - | | - | | - | | - | | - | Warrant exercises | | - | | - | | (11,753) | | - | | - | | 769,927 | | 11,753 | | - | | - | | - | | - | | (11,753) | | - | | - | | 769,927 | | 11,753 | | - | | - | Acquisition of treasury stock | | - | | - | | - | | - | | - | | (1,993,310) | | (52,663) | | - | | (52,663) | | - | | - | | - | | - | | - | | (1,993,310) | | (52,663) | | - | | (52,663) | Acquisition of noncontrolling interest | | - | | - | | (1,040) | | - | | - | | - | | - | | 440 | | (600) | | - | | - | | (1,040) | | - | | - | | - | | - | | 440 | | (600) | Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | - | | - | | - | | - | | 1,511 | | - | | - | | - | | 1,511 | | - | | - | | - | | - | | 1,511 | | - | | - | | - | | 1,511 | Unrealized gain on interest rate swap | | - | | - | | - | | - | | 728 | | - | | - | | - | | 728 | | - | | - | | - | | - | | 728 | | - | | - | | - | | 728 | Net earnings (loss) | | - | | - | | - | | 8,863 | | - | | - | | - | | (60) | | 8,803 | | - | | - | | - | | 8,863 | | - | | - | | - | | (60) | | 8,803 | Balances at March 31, 2014 | | 125,843,608 | | $12,584 | | $981,985 | | $ 602,829 | | $13,662 | | (49,203,507) | | $(928,203) | | $ - | | $682,857 | | 125,843,608 | | $12,584 | | $981,985 | | $ 602,829 | | $13,662 | | (49,203,507) | | $(928,203) | | $ - | | $682,857 | Employee stock awards, benefit plans and other issuances | | | 1,028,524 | | 103 | | 12,153 | | - | | - | | (370,299) | | (7,217) | | - | | 5,039 | Tax impact of stock options, warrants and restricted stock | | | - | | - | | 4,645 | | - | | - | | - | | - | | - | | 4,645 | Non-cash share-based compensation | | | 33,693 | | 4 | | 28,868 | | - | | - | | - | | 14 | | - | | 28,886 | Restricted stock units vested | | | 1,032,972 | | 103 | | (103) | | - | | - | | - | | - | | - | | - | Acquisition of treasury stock | | | - | | - | | - | | - | | - | | (528,918) | | (9,868) | | - | | (9,868) | LiveRamp replacement stock options | | | - | | - | | 6,978 | | - | | - | | - | | - | | - | | 6,978 | Comprehensive loss: | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | | - | | - | | - | | - | | (4,074) | | - | | - | | - | | (4,074) | Unrealized gain on interest rate swap | | | - | | - | | - | | - | | (175) | | - | | - | | - | | (175) | Net loss | | | - | | - | | - | | (11,031) | | - | | - | | - | | - | | (11,031) | Balances at March 31, 2015 | | | 127,938,797 | | $12,794 | | $1,034,526 | | $ 591,798 | | $ 9,413 | | (50,102,724) | | $(945,274) | | $ - | | $703,257 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| See accompanying notes to consolidated financial statements |
ACXIOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 2015, 2014 2013 AND 20122013 (Dollars in thousands)
| | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | | | | | | | | | | | | | | | | | | | | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | Net earnings | | $ | 8,803 | | | $ | 57,119 | | | $ | 71,516 | | | Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | | | | | | | Net earnings (loss) | | | $ | (11,031 | ) | | $ | 8,803 | | | $ | 57,119 | | Loss (earnings) from discontinued operations, net of tax | | | | 1,884 | | | | 2,189 | | | | (1,294 | ) | Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | | | | | | | | | | | | | | Depreciation and amortization | | | 103,006 | | | | 116,208 | | | | 134,662 | | | | 118,834 | | | | 102,426 | | | | 115,636 | | Loss (gain) on disposal or impairment of assets | | | (2,576 | ) | | | 25 | | | | (48,197 | ) | | | 1,976 | | | | (2,576 | ) | | | 25 | | Loss on early extinguishment of debt | | | 664 | | | | - | | | | - | | | | - | | | | 664 | | | | - | | Impairment of goodwill and other assets | | | 28,834 | | | | - | | | | 17,803 | | | | - | | | | 24,953 | | | | - | | Deferred income taxes | | | 2,097 | | | | (3,578 | ) | | | 2,228 | | | | (9,689 | ) | | | 2,097 | | | | (3,510 | ) | Non-cash share-based compensation expense | | | 13,925 | | | | 12,002 | | | | 8,970 | | | | 28,886 | | | | 13,925 | | | | 12,002 | | Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Accounts receivable, net | | | 7,733 | | | | 6,678 | | | | (947 | ) | | | (497 | ) | | | 8,272 | | | | 7,078 | | Other assets | | | (1,129 | ) | | | (9,185 | ) | | | (4,907 | ) | | | 15,727 | | | | (1,260 | ) | | | (9,121 | ) | Deferred costs | | | (506 | ) | | | (1,564 | ) | | | (2,301 | ) | | | (1,484 | ) | | | (506 | ) | | | (1,564 | ) | Accounts payable and other liabilities | | | 180 | | | | (8,888 | ) | | | 46,624 | | | | (29,142 | ) | | | 288 | | | | (10,364 | ) | Deferred revenue | | | 3,945 | | | | (18,685 | ) | | | 4,000 | | | | (10,677 | ) | | | 3,966 | | | | (18,627 | ) | Net cash provided by operating activities | | | 164,976 | | | | 150,132 | | | | 229,451 | | | | 104,787 | | | | 163,241 | | | | 147,380 | | Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | | | Payments from the disposition of operations | | | - | | | | - | | | | 72,425 | | | Capitalized software development costs | | | (24,517 | ) | | | (19,879 | ) | | | (5,262 | ) | | | (18,587 | ) | | | (24,517 | ) | | | (19,879 | ) | Capital expenditures | | | (39,298 | ) | | | (38,491 | ) | | | (51,591 | ) | | | (69,041 | ) | | | (39,132 | ) | | | (38,172 | ) | Receipts from investments | | | 3,823 | | | | - | | | | 370 | | | | - | | | | 3,823 | | | | - | | Data acquisition costs | | | (7,745 | ) | | | (8,570 | ) | | | (12,312 | ) | | | (1,871 | ) | | | (7,745 | ) | | | (8,570 | ) | Net cash paid in acquisitions | | | (500 | ) | | | - | | | | (255 | ) | | | (265,672 | ) | | | (500 | ) | | | - | | Net cash provided by (used in) investing activities | | | (68,237 | ) | | | (66,940 | ) | | | 3,375 | | | Net cash used in investing activities | | | | (355,171 | ) | | | (68,071 | ) | | | (66,621 | ) | Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | | | | | Proceeds from debt | | | 300,000 | | | | - | | | | - | | | | - | | | | 300,000 | | | | - | | Payments of debt | | | (235,895 | ) | | | (26,871 | ) | | | (154,876 | ) | | | (28,421 | ) | | | (235,895 | ) | | | (26,871 | ) | Fees for debt refinancing | | | (4,370 | ) | | | - | | | | - | | | | - | | | | (4,370 | ) | | | - | | Acquisition liability payment | | | - | | | | (288 | ) | | | (326 | ) | | | - | | | | - | | | | (288 | ) | Acquisition of noncontrolling interest | | | (600 | ) | | | - | | | | - | | | | - | | | | (600 | ) | | | - | | Acquisition of treasury stock | | | (52,663 | ) | | | (74,378 | ) | | | (65,535 | ) | | | (9,868 | ) | | | (52,663 | ) | | | (74,378 | ) | Sale of common stock | | | 80,490 | | | | 11,957 | | | | 12,205 | | | Sale of common stock, net of stock acquired for withholding taxes | | | | 5,039 | | | | 80,490 | | | | 11,957 | | Income tax impact of stock options, warrants and restricted stock | | | 11,295 | | | | 357 | | | | (1,310 | ) | | | 4,645 | | | | 11,295 | | | | 357 | | Net cash provided by (used in) financing activities | | | 98,257 | | | | (89,223 | ) | | | (209,842 | ) | | | (28,605 | ) | | | 98,257 | | | | (89,223 | ) | Effect of exchange rate changes on cash | | | 616 | | | | (643 | ) | | | (309 | ) | | Net change in cash and cash equivalents | | | 195,612 | | | | (6,674 | ) | | | 22,675 | | | Cash and cash equivalents at beginning of period | | | 222,974 | | | | 229,648 | | | | 206,973 | | | Cash and cash equivalents at end of period | | $ | 418,586 | | | $ | 222,974 | | | $ | 229,648 | | | Net cash provided by (used in) continuing operations | | | | (278,989 | ) | | | 193,427 | | | | (8,464 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | See accompanying notes to consolidated financial statements | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ACXIOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) YEARS ENDED MARCH 31, 2015, 2014 2013 AND 20122013 (Dollars in thousands)
| | | 2015 | | | 2014 | | | 2013 | | Cash flows from discontinued operations: | | | | | | | | | | | Net cash provided by operating activities | | | | 197 | | | | 1,735 | | | | 2,752 | | Net cash provided by (used in) investing activities | | | | 2,835 | | | | (166 | ) | | | (319 | ) | Net cash provided by discontinued operations | | | | 3,032 | | | | 1,569 | | | | 2,433 | | Net cash provided by (used in) continuing and discontinued operations | | | | (275,957 | ) | | | 194,996 | | | | (6,031 | ) | Effect of exchange rate changes on cash | | | | (1,619 | ) | | | 616 | | | | (643 | ) | Net change in cash and cash equivalents | | | | (277,576 | ) | | | 195,612 | | | | (6,674 | ) | Cash and cash equivalents at beginning of period | | | | 418,586 | | | | 222,974 | | | | 229,648 | | Cash and cash equivalents at end of period | | | $ | 141,010 | | | $ | 418,586 | | | $ | 222,974 | | | | | | | | | | | | | | | | | | 2014 | | | 2013 | | | 2012 | | | | | | | | | | | | | | Supplemental cash flow information: | | | | | | | | | | | | | | | | | | | | | | Cash paid during the period for: | | | | | | | | | | | Cash paid (received) during the period for: | | | | | | | | | | | | | | Interest | | $ | 11,762 | | | $ | 12,709 | | | $ | 19,059 | | | $ | 8,673 | | | $ | 11,762 | | | $ | 12,709 | | Income taxes | | | 21,702 | | | | 57,464 | | | | 20,765 | | | | (3,845 | ) | | | 21,702 | | | | 57,464 | | Payments on capital leases and installment payment arrangements | | | 8,379 | | | | 16,514 | | | | 18,331 | | | | 3,823 | | | | 8,379 | | | | 16,514 | | Prepayment of debt | | | 215,000 | | | | - | | | | 125,000 | | | | - | | | | 215,000 | | | | - | | Other debt payments | | | 12,516 | | | | 10,357 | | | | 11,545 | | | | 24,598 | | | | 12,516 | | | | 10,357 | | Noncash investing and financing activities: | | | | | | | | | | | | | | | | | | | | | | | | | Acquisition of property and equipment under capital leases and installment payment arrangements | | | - | | | | 2,157 | | | | 11,242 | | | | - | | | | - | | | | 2,157 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | See accompanying notes to consolidated financial statements. | | | | | | | | | | | | | | | | | | | | | | | | |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 2013 AND 20122013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business -
Acxiom is an enterprise data, analytics and software-as-a-service company. For over 4045 years, Acxiom has been an innovator in harnessing the powerful potential of data to strengthen connections between people, businesses and their partners. We focus on creating better connections that enable better living for people and better results for the businesses who serve them.
Founded in 1969, in Conway, Arkansas, Acxiom serves clients around the worlda global client base from locations in the United States, Europe, South America and the Asia-Pacific region.
Basis of Presentation and Principles of Consolidation -
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in 20% to 50% owned entities are accounted for using the equity method with equity in earnings recorded in “other, net” in the accompanying consolidated statements of operations. Investments in less than 20% owned entities are accounted for at cost. Investment income and charges related to investments accounted for at cost are recorded in “other, net.”
Discontinued Operations -
Discontinued operations comprise those activities that have been disposed of during the period or which have been classified as held for sale at the end of the period, and represent a separate major line of business or geographical area that can be clearly distinguished for operational and financial reporting purposes. In 2012,fiscal 2015, Acxiom identified its background screening unit, Acxiom Information Security Services (AISS),U.K. call center operation, 2Touch, as a component of the Company that is reported as discontinued operations as a result of its disposal (see note 4).
Use of Estimates -
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ from those estimates. Areas in which significant judgments and estimates are used include projected cash flows associated with recoverability of assets, valuation of acquired intangible assets, restructuring and impairment accruals, litigation loss accruals, and the recognition and measurement of current and deferred income taxes, including the measurement of uncertain tax positions.
Reclassifications -
Certain amounts reported in previous periods have been reclassified to conform to the current presentation. Adoption of New Accounting Standard –
In April 2014, the Financial Accounting Standards Board (FASB) issued an update, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This update changes the requirements for determining whether a component is included in discontinued operations. The update will be effective for Acxiom in fiscal 2016, with early application allowed. Management does not expect a significant impact from implementation of this update.
In May 2014, the FASB issued an update, Revenue from Contracts with Customers. This update supersedes all existing revenue recognition guidance under U.S. generally accepted accounting principles, as well as some cost guidance and guidance on certain gains and losses. The effective date for the update has been deferred until fiscal 2019 for Acxiom, with early application allowed for fiscal 2018. Application of the new update may either be applied retrospectively to all periods reported, with certain practical expedients allowed, or retrospectively with the cumulative effect of initial application recognized at the date of initial application. The Company has not yet assessed the impact of implementation of the new guidance, nor determined which implementation method to use.
Cash and Cash Equivalents -
The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.
Accounts Receivable -
Accounts receivable include amounts billed to customers as well as unbilled amounts recognized in accordance with the Company’s revenue recognition policies, as stated below. Unbilled amounts included in accounts receivable, which generally arise from the delivery of data and performance of services to customers in advance of billings, were $20.6$20.9 million and $20.0$20.6 million, respectively, at March 31, 20142015 and 2013.2014.
Accounts receivable are presented net of allowance for doubtful accounts. The Company evaluates its allowance for doubtful accounts based on a combination of factors at each reporting date. Each account or group of accounts is evaluated based on specific information known to management regarding each customer’s ability or inability to pay, as well as historical experience for each customer or group of customers, the length of time the receivable has been outstanding, and current economic conditions in the customer’s industry. Accounts receivable that are determined to be uncollectible are charged against the allowance for doubtful accounts.
Property and Equipment -
Property and equipment are stated at cost. Depreciation and amortization are calculated on the straight-line method over the estimated useful lives of the assets as follows: buildings and improvements, up to 30 years; data processing equipment, 2 - 5 years, and office furniture and other equipment, 3 - 7 years.
Property held under capitalized lease arrangements is included in property and equipment, and the associated liabilities are included in long-term debt. Amortization of property under capitalized leases is included in depreciation and amortization expense. Property and equipment taken out of service and held for sale is recorded at the lower of depreciated cost or net realizable value and depreciation is ceased.
Leases -
Rent expense on operating leases is recorded on a straight-line basis over the term of the lease agreement.
Software and Research and Development Costs –
Costs of internally developed software are amortized on a straight-line basis over the remaining estimated economic life of the software product, generally two to five years, or the amortization that would be recorded by using the ratio of gross revenues for a product to total current and anticipated future gross revenues for that product, whichever is greater. The Company capitalizes software development costs following accounting standards regarding the costs of computer software to be sold, leased or otherwise marketed or the costs of computer software developed or obtained for internal use. Although there are differences in the two accounting standards, depending on whether a product is intended for internal use or to be provided to customers, both accounting standards generally require that research and development costs incurred prior to establishing technological feasibility or the beginning of the application development stage of software products are charged to operations as such costs are incurred. Once technological feasibility is established or the application development stage has begun, costs are capitalized until the software is available for general release. Amortization expense related to internally developed software is included in cost of revenue in the accompanying consolidated statements of operations.
Purchased Software Licenses -
Costs of purchased software licenses are amortized using a units-of-production basis over the estimated economic life of the license, generally not to exceed ten years. Amortization of software is included in cost of revenue in the accompanying consolidated statements of operations.
Some of these licenses are, in effect, volume purchase agreements for software licenses needed for internal use and to provide services to customers over the terms of the agreements. Therefore, amortization lives are periodically reevaluated and, if justified, adjusted to reflect current and future expected usage based on units-of-production amortization. Factors considered in estimating remaining useful life include, but are not limited to, contract provisions of the underlying licenses, introduction of new mainframe hardware which is compatible with previous generation software, predictions of continuing viability of mainframe architecture, and customers’ continuing commitments to utilize mainframe architecture and the software under contract.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014, 2013 AND 2012
Goodwill -
The excess of the purchase price over fair value of net identifiable assets and liabilities of an acquired business (“goodwill”) and other indefinite-lived intangible assets are not amortized, but rather tested for impairment, at least annually. The Company tests for goodwill and indefinite-lived intangible asset impairment during the first quarter of its fiscal year. The Company assesses the recoverability of the carrying value of goodwill at least annually or whenever events or changes in circumstances indicate that the carrying amount of the goodwill of a reporting unit may not be fully recoverable. Recoverability is measured at the reporting unit level based on the provisions of the authoritative literature.
The Company measures recoverability of goodwill for each reporting unit using multiple valuation techniques, including 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 and a third-party valuation consultant will calculate an implied fair value of goodwill for the reporting unit. The implied fair value of goodwill is determined in a manner similar to how goodwill is calculated in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment loss is recorded to write down the carrying value. An impairment loss cannot exceed the carrying value of goodwill assigned to a reporting unit but may indicate certain long-lived and amortizable intangible assets associated with the reporting unit may require additional impairment testing.
Completion of the Company’s annual impairment test during the quarter ended June 30, 20132014 indicated no potential impairment of its goodwill balances. The Company expects to complete its next annual impairment test during the quarter ending June 30, 2014.2015.
During the quarter ended March 31, 2015, triggering events occurred which required the Company to test the goodwill of its Australia Marketing and Data Services unit for impairment, however, the results of the interim test indicated no impairment (see note 6). During the quarter ended March 31, 2014, triggering events occurred which required the Company to test the goodwill and certain other assets of its European Marketing and data servicesData Services unit and its Other servicesServices unit for impairment. Results of the two-step test indicated impairment. The Company recorded goodwill impairment charges of $23.3 million during fiscal 2014 (see note 6). During the quarter ended March 31, 2013, triggering events occurred which required the Company to test the goodwill of its European Marketing and data servicesData Services unit for impairment, however, the results of the interim test indicated no impairment (see note 6). During the quarter ended December 31, 2011, triggering events occurred which required the Company to test the goodwill in its Brazil operation for impairment. Results of the two-step test indicated impairment and the Company recorded an impairment charge of $13.8 million during fiscal 2012 (see note 6).
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 quarter ended March 31, 2014, in conjunction with the goodwill impairment test noted above, the Company also tested certain database assets and other long-lived assets in the affected units for impairment. The Company recorded impairment charges of $4.6 million related to data assets and $0.9 million related to other long-lived assets (see note 6). During the quarter ended December
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011, in conjunction with the goodwill impairment test noted above, the Company also tested certain intangible assets in the affected unit for impairment. As a result of this review, the Company recorded impairment charges of $4.0 million in fiscal 2012 for intangible assets related to the Brazil operation (see note 6).2015, 2014 AND 2013
Deferred Costs and Data Acquisition Costs -
The Company defers certain costs, primarily salaries and benefits and other direct and incremental third party costs, in connection with client contracts and various other contracts and arrangements. Direct and incremental costs incurred during the setup phase under client contracts for database management or for IT management arrangements are deferred until such time as the database or the outsourcing services are operational and revenue recognition begins. These costs are directly related to the individual client, are to be used specifically for the individual client and have no other use or future benefit. In addition, revenue recognition of billings, if any, related to these setup activities are deferred during the setup phase. All deferred costs and billings are then amortized as contract revenue recognition occurs over the remaining term of the arrangement. During the period when costs are being deferred, the Company performs a net realizable value review on a quarterly basis to ensure that the deferred costs are recoverable through either 1) recognition of previously deferred revenue, 2) future minimum contractual billings or 3) billings in excess of contractual minimum billings that can be reasonably estimated and are deemed likely to occur. Once revenue recognition begins, these deferred costs are assessed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Some contracts contain provisions allowing the customer to request reductions in pricing if they can demonstrate that the Company charges lower prices for similar services to other customers, or if the prices charged are higher than certain benchmarks. Any resulting reduction in pricing is only implemented on a prospective basis. 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 certain costs related to the acquisition or licensing of data for the Company’s proprietary databases which are used in providing data products and services to customers. These costs are amortized over the useful life of the data, which is from two to seven years. In order to estimate the useful life of any acquired data, the Company considers several factors including 1) the type of data acquired, 2) whether the data becomes stale over time, 3) to what extent the data will be replaced by updated data over time, 4) whether the stale data continues to have value as historical data, 5) whether a license places restrictions on the use of the data, and 6) the term of the license.
Deferred Revenue -
Deferred revenue consists of amounts billed in excess of revenue recognized. Deferred revenues are subsequently recorded as revenue in accordance with the Company’s revenue recognition policies.
Revenue Recognition -
The Company provides database management and IT management services under long-term arrangements. These arrangements may require the Company to perform setup activities such as the design and build of a database for the customer under the database management contracts and migration of the customer’s IT environment under IT management contracts. In some cases, the arrangements also contain provisions requiring customer acceptance of the setup activities prior to commencement of the ongoing services arrangement. Up-front fees billed during the setup phase for these arrangements are deferred and setup costs that are direct and incremental to the contract are capitalized. Revenue recognition does not begin until after customer acceptance in cases where contracts contain acceptance provisions. Once the setup phase is complete and customer acceptance occurs, the Company recognizes revenue and the related costs for each element as delivered. In situations where the arrangement does not require customer acceptance before the Company begins providing services, revenue is recognized for each element as delivered and no costs are deferred.
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.
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 whetherRevenues from onboarding customer data into digital marketing applications are recognized as the arrangement contains a lease. Ifservices are delivered over 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.contract.
Revenues from the licensing of data are recognized upon delivery of the data to the customer. Revenue from the licensing of data to the customer in circumstances where the license agreement contains a volume cap is recognized in proportion to the total records to be delivered under the arrangement. Revenue from the sale of data on a per-record basis is recognized as the records are delivered.
The relative selling price for each unit of accounting in a multiple-element arrangement is established using vendor-specific objective evidence (VSOE), if available, third-party evidence (TPE), if available, or management’s best estimate of stand-alone selling price (BESP). In most cases, the Company has neither VSOE nor TPE and therefore uses BESP. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. Management’s BESP is determined by considering multiple factors including actual contractual selling prices when the item is sold on a stand-alone basis, as well as market conditions, competition, internal costs, profit objectives and pricing practices. The amount of revenue recognized for a delivered element is limited to an amount that is not contingent upon future delivery of additional products or services. As pricing and marketing strategies evolve, we may modify our pricing practices in the future, which could result in changes to BESP, or to the development of VSOE or TPE for individual products or services. As a result, future revenue recognition for multiple-element arrangements could differ from recognition in the current period. Our relative selling prices are analyzed on an annual basis, or more frequently if we experience significant changes in selling prices.
All taxes assessed on revenue-producing transactions described above are presented on a net basis, or excluded from revenues.
The Company also performs services on a project basis outside of, or in addition to, the scope of long-term arrangements. The Company recognizes revenue from these services as the services are performed.
Some contracts contain benchmarking provisions or provisions allowing the customer to request a future reduction in pricing under certain circumstances. Any resulting reduction in pricing is only implemented on a prospective basis. The Company’s contracts provide a warranty that the services or products will meet the agreed-upon criteria or any necessary modifications will be made. The Company ensures that services or products delivered meet the agreed-upon criteria prior to recognition of revenue.
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.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013
Income Taxes -
The Company and its domestic subsidiaries file a consolidated federal income tax return. The Company’s foreign subsidiaries file separate income tax returns in the countries in which their operations are based.
The Company provides for deferred taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed. Valuation allowances are recorded to reduce deferred tax assets to an amount whose realization is more likely than not. In determining the recognition of uncertain tax positions, the Company applies a more-likely-than-not recognition threshold and determines the measurement of uncertain tax positions considering the amounts and probabilities of the outcomes that could be realized upon ultimate settlement with taxing authorities. Income taxes payable are classified in the accompanying consolidated balance sheets based on their estimated payment date.
Foreign Currency Translation -
The balance sheets of the Company’s foreign subsidiaries are translated at period-end rates of exchange, and the statements of operations are translated at the weighted-average exchange rate for the period. Gains or losses resulting from translating foreign currency financial statements are included in accumulated other comprehensive income (loss) in the consolidated statements of stockholders’ equity and comprehensive income (loss).
Advertising Expense -
The Company expenses advertising costs as incurred. Advertising expense was approximately $5.4 million, $6.0 million $5.3 million and $4.5$5.3 million for the years ended March 31, 2015, 2014 2013 and 2012,2013, respectively. Advertising expense is included in selling, general and administrative expense on the accompanying consolidated statements of operations.
Guarantees -
The Company accounts for the guarantees of indebtedness of others under applicable accounting standards which require a guarantor to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. A guarantor is also required to make additional disclosures in its financial statements about obligations under certain guarantees issued. The Company is required to recognize a liability in its consolidated financial statements equal to the fair value of its guarantees. The Company’s liability for the fair value of guarantees is not material (see note 11).
Loss Contingencies and Legal Expenses -
The Company records a liability for loss contingencies when the liability is probable and reasonably estimable. Legal fees associated with loss contingencies are recorded when the legal fees are incurred.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 2013 AND 20122013
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) | | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | | Basic earnings per share: | | | | | | | | | | | Net earnings from continuing operations | | $ | 8,803 | | | $ | 57,119 | | | $ | 37,617 | | | Net earnings from discontinued operations | | | - | | | | - | | | | 33,899 | | | Net earnings | | $ | 8,803 | | | $ | 57,119 | | | $ | 71,516 | | | Basic earnings (loss) per share: | | | | | | | | | | | Net earnings (loss) from continuing operations | | | $ | (9,147 | ) | | $ | 10,992 | | | $ | 55,825 | | Earnings (loss) from discontinued operations | | | | (1,884 | ) | | | (2,189 | ) | | | 1,294 | | Net earnings (loss) | | | $ | (11,031 | ) | | $ | 8,803 | | | $ | 57,119 | | Net loss attributable to noncontrolling interest | | | (60 | ) | | | (488 | ) | | | (5,747 | ) | | | - | | | | (60 | ) | | | (488 | ) | Net earnings attributable to Acxiom | | $ | 8,863 | | | $ | 57,607 | | | $ | 77,263 | | | Net earnings (loss) attributable to Acxiom | | | $ | (11,031 | ) | | $ | 8,863 | | | $ | 57,607 | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic weighted-average shares outstanding | | | 74,690 | | | | 74,814 | | | | 79,483 | | | | 77,106 | | | | 74,690 | | | | 74,814 | | Basic earnings per share: | | | | | | | | | | | | | | Basic earnings (loss) per share: | | | | | | | | | | | | | | Continuing operations | | $ | 0.12 | | | $ | 0.76 | | | $ | 0.47 | | | $ | (0.12 | ) | | $ | 0.15 | | | $ | 0.75 | | Discontinued operations | | | 0.00 | | | | 0.00 | | | | 0.43 | | | | (0.02 | ) | | | (0.03 | ) | | | 0.02 | | Net earnings | | $ | 0.12 | | | $ | 0.76 | | | $ | 0.90 | | | Net earnings (loss) | | | $ | (0.14 | ) | | $ | 0.12 | | | $ | 0.76 | | Net loss attributable to noncontrolling interest | | | (0.00 | ) | | | (0.01 | ) | | | (0.07 | ) | | | (0.00 | ) | | | (0.00 | ) | | | (0.01 | ) | Net earnings attributable to Acxiom | | $ | 0.12 | | | $ | 0.77 | | | $ | 0.97 | | | Net earnings (loss) attributable to Acxiom | | | $ | (0.14 | ) | | $ | 0.12 | | | $ | 0.77 | | | | | | | | | | | | | | | | | | | | | | | | | | | Diluted earnings per share: | | | | | | | | | | | | | | Diluted earnings (loss) per share: | | | | | | | | | | | | | | Basic weighted-average shares outstanding | | | 74,690 | | | | 74,814 | | | | 79,483 | | | | 77,106 | | | | 74,690 | | | | 74,814 | | Dilutive effect of common stock options, warrants, and restricted stock as computed under the treasury stock method | | | 2,264 | | | | 1,683 | | | | 911 | | | | - | | | | 2,264 | | | | 1,683 | | Diluted weighted-average shares outstanding | | | 76,954 | | | | 76,497 | | | | 80,394 | | | | 77,106 | | | | 76,954 | | | | 76,497 | | Diluted earnings per share: | | | | | | | | | | | | | | Diluted earnings (loss) per share: | | | | | | | | | | | | | | Continuing operations | | $ | 0.11 | | | $ | 0.75 | | | $ | 0.47 | | | $ | (0.12 | ) | | $ | 0.14 | | | $ | 0.73 | | Discontinued operations | | | 0.00 | | | | 0.00 | | | | 0.42 | | | | (0.02 | ) | | | (0.03 | ) | | | 0.02 | | Net earnings | | $ | 0.11 | | | $ | 0.75 | | | $ | 0.89 | | | Net earnings (loss) | | | $ | (0.14 | ) | | $ | 0.11 | | | $ | 0.75 | | Net loss attributable to noncontrolling interest | | | (0.00 | ) | | | (0.01 | ) | | | (0.07 | ) | | | (0.00 | ) | | | (0.00 | ) | | | (0.01 | ) | Net earnings attributable to Acxiom | | $ | 0.12 | | | $ | 0.75 | | | $ | 0.96 | | | Net earnings (loss) attributable to Acxiom | | | $ | (0.14 | ) | | $ | 0.12 | | | $ | 0.75 | |
Some earnings (loss) per share amounts may not add due to rounding.
OptionsDue to the net loss incurred by the Company in fiscal 2015, the dilutive effect of options, warrants and restricted stock units covering 1.4 million shares of common stock was excluded from the earnings per share calculation since the impact on the calculation was anti-dilutive. Additional options and warrants to purchase shares of common stock and restricted stock units, including performance-based restricted stock units not meeting performance criteria, that were outstanding during the periods presented but were not included in the computation of diluted earnings per share because the effect was anti-dilutive are shown below (in thousands, except per share amounts):
| | 2014 | | 2013 | | 2012 | | 2015 | | | 2014 | | | 2013 | | Number of shares outstanding under options, warrants and restricted stock units | | 834 | | 6,709 | | 9,344 | | | 1,829 | | | | 834 | | | | 6,709 | | Range of exercise prices for options and warrants | | $29.30-$62.06 | | $13.10-$62.06 | | $13.14-$62.06 | | $ | 19.18-$62.06 | | | $ | 29.30-$62.06 | | | $ | 13.10-$62.06 | |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 2013 AND 20122013
Share-based Compensation -
The Company accounts for share-based compensation under applicable accounting standards which require the cost of employee services received in exchange for an award of equity instruments (including stock options) based on the grant-date fair value of the award to be recognized in the statement of operations over the service period of the award. Expense for awards with graded vesting is recognized on a straight-line basis over the service period of the entire award.
Share-based Compensation Plans -
The Company has stock option plans and equity compensation plans (collectively referred to as the “share-based plans”) administered by the compensation committee of the board of directors under which options and restricted stock units were outstanding as of March 31, 2014.2015.
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) under 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 under 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 under 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 also has outstanding performance-based stock appreciation rights and performance-based stock units. These are expensed over the vesting period of the award.
The Company receives income tax deductions as a result of the exercise of stock options and the vesting of restricted stock units.other stock-based awards. The tax benefit of share-based compensation expense in excess of the book compensation expense is reflected as a financing cash inflow and operating cash outflow included in changes in operating assets and liabilities. The Company has elected the short-cut method in accounting for the tax benefits of share-based payment awards.
Hedging -
The Company has entered into an interest rate swap as a cash flow hedge against LIBOR interest rate movements on the term loan. All changes in fair value of the derivative are deferred and recorded in other comprehensive income (loss) until the related forecasted transaction is recognized in the consolidated statement of operations. The fair value of the interest rate swap agreement recorded in accumulated other comprehensive income (loss) may be recognized in the statement of operations if certain terms of the floating-rate debt change, if the floating-rate debt is extinguished or if the interest rate swap agreement is terminated prior to maturity.
Derivatives -
Derivative financial instruments are valued in the market using regression analysis. Significant inputs to the derivative valuation for interest rate swaps are observable in active markets and are classified as Level 2 in the fair value hierarchy.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 2013 AND 20122013
Restructuring -
The Company records costs associated with employee terminations and other exit activity in accordance with applicable accounting standards, depending on whether the costs relate to exit or disposal activities under the accounting standards, or whether they are other post-employment termination benefits. Under applicable accounting standards related to exit or disposal costs, the Company records employee termination benefits as an operating expense when the benefit arrangement is communicated to the employee and no significant future services are required. Under the accounting standards related to post employment termination benefits the Company records employee termination benefits when the termination benefits are probable and can be estimated. The Company recognizes the present value of facility lease termination obligations, net of estimated sublease income and other exit costs, when the Company has future payments with no future economic benefit or a commitment to pay the termination costs of a prior commitment. In future periods the Company will record accretion expense to increase the liability to an amount equal to the estimated future cash payments necessary to exit the leases. This requires a significant amount of judgment and management estimation in order to determine the expected time frame it will take to secure a subtenant, the amount of sublease income to be received and the appropriate discount rate to calculate the present value of the future cash flows. Should actual lease exit costs differ from estimates, the Company may be required to adjust the restructuring charge which will impact net income in the period any adjustment is recorded.
2. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES:
The following table summarizes the restructuring activity included in gains, losses and other items, net in the consolidated statements of operations for the years ended March 31, 2012,2015, 2014 and 2013 and 2014 (dollars in thousands):
| | Associate-related reserves | | | Lease accruals | | | Total | | | Reserves included in other accrued expenses and other liabilities: | | March 31, 2011 | | $ | 5,562 | | | $ | 9,542 | | | $ | 15,104 | | | Restructuring charges and adjustments | | | 10,126 | | | | 2,652 | | | | 12,778 | | | Payments | | | (6,091 | ) | | | (1,145 | ) | | | (7,236 | ) | | | | | Associate-related reserves | | | Lease accruals | | | Total | | March 31, 2012 | | $ | 9,597 | | | $ | 11,049 | | | $ | 20,646 | | | $ | 9,597 | | | $ | 11,049 | | | $ | 20,646 | | Restructuring charges and adjustments | | | 2,836 | | | | 58 | | | | 2,894 | | | | 2,577 | | | | 58 | | | | 2,635 | | Payments | | | (8,744 | ) | | | (2,086 | ) | | | (10,830 | ) | | | (8,485 | ) | | | (2,086 | ) | | | (10,571 | ) | March 31, 2013 | | $ | 3,689 | | | $ | 9,021 | | | $ | 12,710 | | | $ | 3,689 | | | $ | 9,021 | | | $ | 12,710 | | Restructuring charges and adjustments | | | 14,014 | | | | 3,796 | | | | 17,810 | | | | 13,916 | | | | 3,796 | | | | 17,712 | | Payments | | | (11,161 | ) | | | (2,600 | ) | | | (13,761 | ) | | | (11,063 | ) | | | (2,600 | ) | | | (13,663 | ) | March 31, 2014 | | $ | 6,542 | | | $ | 10,217 | | | $ | 16,759 | | | $ | 6,542 | | | $ | 10,217 | | | $ | 16,759 | | Restructuring charges and adjustments | | | | 13,757 | | | | 8,061 | | | | 21,818 | | Payments | | | | (13,088 | ) | | | (4,628 | ) | | | (17,716 | ) | March 31, 2015 | | | $ | 7,211 | | | $ | 13,650 | | | $ | 20,861 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Restructuring Plans
In fiscal 2014,2015, the Company recorded a total of $17.8$23.8 million in restructuring charges and adjustments included in gains, losses and other items, net in the consolidated statement of operations. The expense includesincluded severance and other associate-related charges of $14.0$13.8 million, and lease accruals of $3.8$8.1 million, and the write-off of leasehold improvements of $2.0 million.
The associate-related accruals of $14.0$13.8 million relate to the termination of associates in the United States, Europe, Australia, and China and Europe.include an increase of $0.7 million to the fiscal 2014 restructuring plan. Of the amount accrued $6.3for 2015, $7.2 million remained accrued as of March 31, 2014.2015. These costs are expected to be paid out in fiscal 2015.2016.
The lease accruals of $3.8$8.1 million were evaluated under the accounting standards which govern exit costs.costs and include increases of $0.6 million and $0.7 million to the fiscal 2014 and fiscal 2008 restructuring plans, respectively. 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.properties. The Company has ceased using a portion of a certain leased office facility.facilities. The Company intends to attempt to sublease the facility spacefacilities to the extent possible. The Company established a liability for the fair value of the remaining lease ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013 payments, partially offset by the estimated sublease payments to be received over the course of the lease.leases. The fair value of this liabilitythese liabilities is based on a net present value model using a credit-adjusted risk-free rate. The liability will be paid out over the remainder of the leased property’s term,properties’ terms, which continuescontinue through November 2021. Actual sublease terms may differ from the estimates originally made by the Company. Any future changes in the estimates or in the actual sublease income could require future adjustments to the liabilities, which would impact net earnings (loss) in the period the adjustment is recorded. Of the amount accrued for 2015, $4.9 million remained accrued as of March 31, 2015.
In fiscal 2014, the Company recorded a total of $17.7 million in restructuring charges and adjustments included in gains, losses and other items, net in the consolidated statement of operations. The expense includes severance and other associate-related charges of $13.9 million and lease accruals of $3.8 million. The associate-related accruals of $13.9 million relate to the termination of associates in the United States, Australia, China, and Europe. These costs were paid out by the end of fiscal 2015.
The lease accruals of $3.8 million were evaluated under the accounting standards which govern exit costs. The liability will be paid out over the remainder of the leased property’s term, which continues through November 2021. Any future changes in the estimates or in the actual sublease income could require future adjustments to the liability for this lease, which would impact net income in the period the adjustment is recorded. The remaining amount accrued at March 31, 20142015 is $3.5$3.4 million.
In fiscal 2013, the Company recorded a total of $2.9$2.6 million in restructuring charges and adjustments included in gains, losses and other items, net in the consolidated statement of operations. The expense included severance and other associate-related payments of $2.8$2.6 million and lease accruals of $0.1 million.
The associate-related accruals of $2.8$2.6 million relate to the termination of associates in the United States, Australia, and Europe. Of the amount recorded, $0.2 million remained accrued asAll of March 31, 2014. Thesethese costs are expected to bewere paid out inby the end of fiscal 2015. Of the amount accrued for lease costs, $0.1 million remained accrued as of March 31, 2014. These costs are expected to be paid out in fiscal 2015.
In fiscal 2012, the Company recorded a total of $12.8 million in restructuring charges and adjustments included in gains, losses and other items in the consolidated statement of operations. The expense included severance and other associate-related payments of $9.9 million, lease accruals of $2.6 million, and adjustments to the fiscal 2011 restructuring plan of $0.3 million.
The associate-related accruals of $9.9 million relate to the termination of associates in the United States, Australia, Europe, and Brazil. Of the amount recorded, $0.1 million remained accrued as of March 31, 2014. These costs are expected to be paid out in fiscal 2015.
The lease accruals of $2.6 million were evaluated under the accounting standards which govern exit costs. These accounting standards require the Company to make an accrual for the liability for lease costs that will continue to be incurred without economic benefit to the Company upon the date that the Company ceases using the leased property. The Company has ceased using certain leased office facilities. The Company intends to attempt to sublease those facilities to the extent possible. The Company established a liability for the fair value of the remaining lease payments, partially offset by the estimated sublease payments to be received over the course of those leases. The fair value of these liabilities is based on a net present value model using a credit-adjusted risk-free rate. These liabilities will be paid out over the remainder of the leased properties’ terms, of which the longest continues through July 2019. Actual sublease terms may differ from the estimates originally made by the Company. Any future changes in the estimates or in the actual sublease income could require future adjustments to the liability for these leases, which would impact net income in the period the adjustment is recorded. The remaining amount accrued at March 31, 2014 is $1.0 million.
As part of its restructuring plans in fiscal 2008 and 2009,years prior to fiscal 2013, the Company recorded lease accruals included in gains, losses and other items, net in the consolidated statement of operations. The lease accruals were evaluated under the accounting standards which govern exit costs. These liabilities will be paid out over the remainder of the leased properties’ terms, of which the longest continues through November 2021. Any future changes in the estimates or in the actual sublease income could require future adjustments to the liability for these leases, which would impact net income in the period the adjustment is recorded. The remaining amount accrued at March 31, 20142015 is $5.7$5.4 million.
Gains, Losses and Other Items
Gains, losses and other items for each of the years presented are as follows (dollars in thousands):
| | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | | Restructuring plan charges and adjustments | | $ | 17,810 | | | $ | 2,894 | | | $ | 12,778 | | | $ | 23,794 | | | $ | 17,712 | | | $ | 2,635 | | Legal contingencies (see note 11) | | | 4,202 | | | | - | | | | - | | | Earnout liability adjustment (see note 3) | | | - | | | | - | | | | (2,598 | ) | | Legal contingencies | | | | - | | | | 4,202 | | | | - | | LiveRamp acquisition-related costs (see note 3) | | | | 820 | | | | - | | | | - | | Other | | | 84 | | | | (884 | ) | | | 2,458 | | | | 19 | | | | - | | | | (884 | ) | | | $ | 22,096 | | | $ | 2,010 | | | $ | 12,638 | | | $ | 24,633 | | | $ | 21,914 | | | $ | 1,751 | |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013
3. ACQUISITIONS:
LiveRamp On July 1, 2010,2014, the Company completedacquired all of the outstanding shares of LiveRamp, Inc. (“LiveRamp”), a leading service provider for onboarding customer data into digital marketing applications. As a result of this transaction, LiveRamp is now a wholly-owned subsidiary of the Company. The Company acquired LiveRamp to, among other things, provide clients with solutions for bringing offline customer data online with better matching, more connectivity, and faster onboarding. The Company has included the financial results of LiveRamp in the consolidated financial statements from the date of acquisition. LiveRamp is included in the Marketing and Data Services segment. The acquisition date fair value of the consideration transferred for LiveRamp was approximately $272.7 million which consisted of the following (dollars in thousands):
| | July 1, 2014 | | Cash, net of $12.0 million cash acquired | | $ | 234,672 | | Restricted cash held in escrow | | | 31,000 | | Fair value of stock options issued included in purchase price | | | 6,978 | | Total fair value of consideration transferred | | $ | 272,650 | | | | | | |
The fair value of the stock options issued by the Company was determined using a binomial lattice approach (see note 12). The total fair value of the stock options issued was $30.5 million of which $7.0 million was allocated to the purchase consideration and $23.5 million was allocated to future services and will be expensed over the remaining service periods on a straight-line basis, net of any forfeitures.
On the acquisition of a 70% interest in GoDigital Tecnologia E Participacoes, Ltda. (“GoDigital”), a Brazilian marketing services business. Thedate, the Company paid $10.9delivered $31.0 million net of cash acquired,to an escrow agent according to the terms of the purchase agreement. The cash is restricted as to withdrawal or use by the Company and not including amounts, if any,is expected to be paid under an earnout agreement in whichdelivered to the LiveRamp sellers one year from the acquisition date. The escrowed cash can be used to reimburse the Company could have paid upfor any indemnification claims against the sellers, as described in the purchase agreement. The principal escrow amount is owned by the Company until funds are delivered to an additional $9.3 million basedthe LiveRamp sellers. All interest and earnings on the resultsprincipal escrow amount remain property of the acquired business over approximatelyCompany. The restricted cash is reported as restricted cash held in escrow, with an offsetting liability reported as acquisition escrow payable, on the next two years.consolidated balance sheet.
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the date of the acquisition (dollars in thousands):
| | July 1, 2014 | | Assets acquired: | | | | Cash | | $ | 12,016 | | Trade accounts receivable | | | 5,206 | | Deferred income tax assets | | | 10,444 | | Goodwill | | | 213,093 | | Developed technology (Software) | | | 40,000 | | Other intangible assets (Other assets, net) | | | 26,500 | | Other current and noncurrent assets | | | 1,306 | | | | | 308,565 | | Deferred income tax liabilities | | | (18,945 | ) | Accounts payable, accrued expenses and deferred revenue | | | (4,954 | ) | Net assets acquired | | | 284,666 | | Less: | | | | | Cash acquired | | | 12,016 | | Net purchase price allocated | | $ | 272,650 | | Less: | | | | | Fair value of stock options issued included in purchase price | | | 6,978 | | Net cash paid | | $ | 265,672 | | | | | | |
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill and is primarily attributed to expectations to continue to develop future technology and products related to the earnoutonboarding of customer data into digital marketing applications, development of future customer relationships, and LiveRamp’s assembled workforce. The fair values assigned to tangible and identifiable ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013 intangible assets acquired and liabilities assumed were based on preliminary calculations and valuations and on management’s estimates and assumptions and were based on the information that was originallyavailable as of the date of the acquisition. The Company believes that the information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but certain items such as current and noncurrent income taxes payable and deferred taxes may be subject to change as additional information is received and certain tax returns are finalized. Therefore, the provisional measurements of fair value shown above are subject to change. Any adjustments required will result in adjustment to goodwill. The Company will finalize purchase price adjustments prior to July 1, 2015. The goodwill balance is not deductible for U.S. income tax purposes. The fair value of trade accounts receivable consisted of $5.2 million of gross accounts receivable, of which an immaterial amount is expected to be uncollectible. The amounts allocated to other intangible assets in the table above included developed technology, customer relationships, and a trade name. Intangible assets will be amortized on a straight-line basis over the estimated useful lives of 2 to 6 years. The following table presents the components of intangible assets acquired and their estimated useful lives as of the acquisition date (dollars in thousands):
| | Fair value | | | Useful life (in years) | | Developed technology | | $ | 40,000 | | | | 4 | | Customer relationships | | | 25,000 | | | | 6 | | Trade name | | | 1,500 | | | | 2 | | Total intangible assets subject to amortization | | $ | 66,500 | | | | | | | | | | | | | | |
The amounts of revenue and loss of LiveRamp included in the Company’s consolidated statement of operations from the acquisition date of July 1, 2014 to March 31, 2015 are as follows (dollars in thousands):
Revenues | | $ | 27,030 | | Net loss | | $ | (16,549 | ) | | | | | |
The $17.7 million net loss reported above includes pretax expenses of $11.2 million of intangible asset amortization associated with acquired LiveRamp intangible assets and $16.9 million of non-cash share-based compensation expense.
Following are the Company’s supplemental consolidated results on an unaudited pro forma basis, as if the LiveRamp acquisition had taken place at $3.6 million. the beginning of each of the fiscal years presented (dollars in thousands, except per-share amounts):
| | 2015 | | | 2014 | | Revenues | | $ | 1,026,767 | | | $ | 1,081,518 | | Net loss attributable to Acxiom | | $ | (16,402 | ) | | $ | (11,936 | ) | Diluted loss per share | | $ | (0.21 | ) | | $ | (0.16 | ) |
These pro forma results are based on estimates and assumptions, which we believe are reasonable. They are not the results that would have been realized had we been a combined company during the periods presented and are not necessarily indicative of our consolidated results of operations in future periods. The pro forma results include adjustments primarily related to purchase accounting adjustments, including amortization expense of $3.7 million and $14.9 million for fiscal years 2015 and 2014, respectively, related to acquired intangible assets, stock-based compensation expense of approximately $5.0 million and $21.3 million for fiscal years 2015 and 2014, respectively, related to unvested stock options and restricted stock units issued to former LiveRamp employees, and the related income tax effects as though the acquisition occurred as of the beginning of the Company’s fiscal years 2015 and 2014.
During fiscal 2011,year 2015, the Company estimatedincurred $0.8 million of acquisition costs related to the valuepurchase of the earnout to have decreased by $1.1 million and recorded the adjustmentLiveRamp. The costs are included in gains, losses, and other items, net on the consolidated statement of operations. During fiscal 2012, the Company adjusted the value of the earnout to zero through gains, losses and other items, since there was no expectation of an earnout payment. During the quarter ended September 30, 2012, a final determination was made that no liability for earnout payment existed under the acquisition agreement.
ACXIOM CORPORATION AND SUBSIDIARIES Also during the quarter ended DecemberNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011, triggering events occurred which required the Company to test the goodwill and other intangible assets of GoDigital for impairment (see note 6). A total impairment charge of $17.8 million was recorded of which $13.8 million was related to goodwill and $4.0 million was related to other intangible assets. Approximately 30% of this charge is attributable to the noncontrolling interest.2015, 2014 AND 2013
GoDigital During the quarter ended December 31, 2013,fiscal 2014, the Company acquired the balance of the outstanding equity interests it did not already own in its GoDigital subsidiary in Brazil for $0.6 million (see note 11).million. As a result, the subsidiary is now wholly-owned and the Company reduced its $0.4 million carrying value of the noncontrolling interest to zero and adjusted its equity investment by $1.0 million in additional paid-in capital in the consolidated balance sheet.
Other Intangible Assets -
The amounts allocated to other intangible assets from acquisitions include software, customer relationship intangibles and trademarks. Amortization lives for those intangibles range from two years to fivesix years. The following table shows the amortization activity of purchased intangible assets (dollars in thousands):
| | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | | Developed technology assets, gross | | $ | 3,485 | | | $ | 18,014 | | | $ | 18,417 | | | Developed technology assets, gross (Software) | | | $ | 42,524 | | | $ | 3,485 | | | $ | 18,014 | | Accumulated amortization | | | (3,297 | ) | | | (17,881 | ) | | | (17,557 | ) | | | (9,924 | ) | | | (3,297 | ) | | | (17,881 | ) | Net developed technology assets | | $ | 188 | | | $ | 133 | | | $ | 860 | | | $ | 32,600 | | | $ | 188 | | | $ | 133 | | | | | | | | | | | | | | | | | | | | | | | | | | | Customer/trademark assets, gross | | $ | 7,674 | | | $ | 18,823 | | | $ | 24,946 | | | Customer/trademark assets, gross (Other assets) | | | $ | 34,166 | | | $ | 7,674 | | | $ | 18,823 | | Accumulated amortization | | | (7,393 | ) | | | (18,259 | ) | | | (23,421 | ) | | | (11,265 | ) | | | (7,393 | ) | | | (18,259 | ) | Net customer/trademark assets | | $ | 281 | | | $ | 564 | | | $ | 1,525 | | | $ | 22,901 | | | $ | 281 | | | $ | 564 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total intangible assets, gross | | $ | 11,159 | | | $ | 36,837 | | | $ | 43,363 | | | $ | 76,690 | | | $ | 11,159 | | | $ | 36,837 | | Total accumulated amortization | | | (10,690 | ) | | | (36,140 | ) | | | (40,978 | ) | | | (21,189 | ) | | | (10,690 | ) | | | (36,140 | ) | Net intangible assets | | $ | 469 | | | $ | 697 | | | $ | 2,385 | | | $ | 55,501 | | | $ | 469 | | | $ | 697 | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization expense | | $ | 340 | | | $ | 1,671 | | | $ | 5,512 | | | $ | 11,447 | | | $ | 340 | | | $ | 1,671 | |
In addition to the amortization expense noted above, the Company recorded impairment of intangible assets of $4.0 million in 2012 for intangible assets of GoDigital (see note 6). The remaining intangible assets in the table above will be substantially amortized over the next twosix years.
Subsequent Event4. DISCONTINUED OPERATIONS:
Subsequent to March 31,On May 30, 2014, the Company announced a definitive agreement to acquire privately-held LiveRamp, Inc., a leading service provider for onboarding customer data into digital marketing applications, for approximately $310 million in cash. The transaction, which is subject to customary closing conditions, is expected to close mid-summer 2014.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014, 2013 AND 2012
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. 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.
Discontinued Operation
On February 1, 2012 the Companysubstantially completed the sale of its background screening unit, Acxiom Information Security Services (AISS)U.K. call center operation, 2Touch, to Parseq Ltd., a European business process outsourcing service provider. Some assets of the 2Touch operation were subject to Sterling Infosystems, a New York-based technology firmsecond closing, which occurred in March 2015, resulting in the complete disposal of the operation. The 2Touch business qualified for $74 million.treatment as discontinued operations during fiscal 2015. The results of operations, cash flows, and gain on disposalthe balance sheet amounts pertaining to the AISS business2Touch have been classified as discontinued operations in the consolidated financial statements.
The AISS business unit was included inPrior to receiving the Information Products segment indiscontinued operations classification, the Company’s segment results presented in prior periods. During the quarter ended December 31, 2011, the Company realigned its segments and the AISS2Touch business unit was included in the Other services segment.Services segment in the Company’s segment results. However, beginning in the AISSfirst quarter of fiscal 2015, the 2Touch business unit iswas excluded from segment results and segregated as discontinued operations.
Summary results of operations of the AISS business unit are segregated and included in income from discontinued operations, net of tax in the consolidated statements of operations and are as follows (dollars in thousands):
| | 2012 | | Revenues | | $ | 42,819 | | | | | | | Earnings from discontinued operations before income taxes | | $ | 4,907 | | Gain on sale of discontinued operations before income taxes | | | 48,380 | | Income taxes | | | (19,388 | ) | Income from discontinued operations, net of tax | | $ | 33,899 | | | | | | |
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, 2015, 2014 2013 AND 20122013
Summary results of operations of the 2Touch business unit for the fiscal years ended March 31, 2015, 2014 and 2013 are segregated and included in earnings (loss) from discontinued operations, net of tax, in the consolidated statements of operations and are as follows (dollars in thousands):
| | 2015 | | | 2014 | | | 2013 | | Revenues | | $ | 8,484 | | | $ | 35,267 | | | $ | 31,201 | | | | | | | | | | | | | | | Earnings (loss) from discontinued operations before income taxes | | $ | 4 | | | $ | (2,189 | ) | | $ | 1,703 | | Loss on sale of discontinued operations before income taxes | | | (1,888 | ) | | | - | | | | - | | Income taxes | | | - | | | | - | | | | (409 | ) | Earnings (loss) from discontinued operations, net of tax | | $ | (1,884 | ) | | $ | (2,189 | ) | | $ | 1,294 | | | | | | | | | | | | | | |
The carrying amounts of the major classes of assets and liabilities of the 2Touch business unit are segregated and included in assets from discontinued operations and liabilities from discontinued operations in the consolidated balance sheets and are as follows (dollars in thousands):
| | March 31, 2015 | | | March 31, 2014 | | Trade accounts receivable, net | | $ | 112 | | | $ | 6,451 | | Other current assets | | | - | | | | 881 | | Assets from discontinued operations | | $ | 112 | | | $ | 7,332 | | | | | | | | | | | Trade accounts payable and accrued expenses | | $ | - | | | $ | 4 | | Accrued payroll and related expenses | | | - | | | | 1,790 | | Other accrued expenses | | | 1,008 | | | | 2,350 | | Deferred revenue | | | - | | | | 106 | | Liabilities from discontinued operations | | $ | 1,008 | | | $ | 4,250 | | | | | | | | | | |
5. OTHER CURRENT AND NONCURRENT ASSETS:
Other current assets consist of the following (dollars in thousands):
| | March 31, 2014 | | | March 31, 2013 | | | March 31, 2015 | | | March 31, 2014 | | Prepaid expenses | | $ | 41,218 | | | $ | 45,032 | | | $ | 31,391 | | | $ | 40,339 | | Assets of non-qualified retirement plan | | | 13,900 | | | | 13,771 | | | | 14,174 | | | | 13,900 | | Other miscellaneous assets | | | 247 | | | | 132 | | | | 117 | | | | 245 | | Other current assets | | $ | 55,365 | | | $ | 58,935 | | | $ | 45,682 | | | $ | 54,484 | |
Other noncurrent assets consist of the following (dollars in thousands):
| | March 31, 2014 | | | March 31, 2013 | | | March 31, 2015 | | | March 31, 2014 | | Acquired intangible assets, net | | $ | 281 | | | $ | 564 | | | $ | 22,901 | | | $ | 281 | | Deferred income tax asset | | | - | | | | 7,099 | | | Deferred data acquisition costs | | | | 2,347 | | | | 4,502 | | Deferred expenses | | | | 7,939 | | | | 16,143 | | Other miscellaneous noncurrent assets | | | 3,551 | | | | 5,389 | | | | 3,267 | | | | 3,551 | | Noncurrent assets | | $ | 3,832 | | | $ | 13,052 | | | $ | 36,454 | | | $ | 24,477 | |
During fiscal
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 the Company received a $3.6 million distribution from its partnership in a real estate joint venture (see note 11). The distribution resulted from the sale of the partnership’s real property. As a result, the Company recorded a $2.6 million gain in other, net on the consolidated statement of operations, which represents the Company’s share of the gain associated with the disposition, and reduced the carrying value of the investment in the partnership by $1.0 million in other miscellaneous noncurrent assets on the consolidated balance sheet.AND 2013
6. GOODWILL:
Goodwill is measured and tested for impairment on an annual basis in the first quarter of the Company’s fiscal year in accordance with applicable accounting standards, or more frequently if indicators of impairment exist. Triggering events for interim impairment testing include indicators such as adverse industry or economic trends, restructuring actions, downward revisions to projections of financial performance, or a sustained decline in market capitalization. The performance of the impairment test involves a two-step process. The first step requires comparing the estimated fair value of a reporting unit to its net book value, including goodwill. A potential impairment exists if the estimated fair value of the reporting unit is lower than its net book value. The second step of the impairment test involves assigning the estimated fair value of the reporting unit to its identifiable assets, with any residual fair value being assigned to goodwill. If the carrying value of an individual indefinite-lived intangible asset (including goodwill) exceeds its estimated fair value, such asset is written down by an amount equal to the excess, and a corresponding amount is recorded as a charge to operations for the period in which the impairment test is completed. Completion of the Company’s annual impairment test during the quarter ended June 30, 20132014 indicated no potential impairment of its goodwill balances.
Each quarter the Company considers whether indicators of impairment exist such that additional impairment testing may be necessary. During the quarter ended March 31, 2014, triggering events occurred which required the Company to test the recoverability of goodwill associated with its European Marketing and data services reporting unit and its Other services reporting unit. The triggering event was the initiation of a restructuring of the European Marketing and data services unit. The restructuring includes exiting the analog paper survey business in Europe. The triggering event related to the Other services reporting unit was a potential exit from that business. In addition to testing the recoverability of goodwill, the Company also tested certain other long-lived assets in those units for impairment. The results of the two-step test indicated complete impairment of the goodwill in both of the units as well as impairment for certain other long-lived assets. The amount of impairment for the European Marketing and data services unit was $24.9 million, of which $20.3 million was goodwill and $4.6 million related to data assets. The amount of impairment for the Other services unit was $3.9 million, of which $3.0 million was goodwill and $0.9 million was other assets, primarily property and equipment.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014, 2013 AND 2012
The carrying amount of goodwill, by operating segment, at March 31, 2015, 2014 2013 and 2012,2013, and the changes in those balances are presented in the following table.table (dollars in thousands).
(dollars in thousands) | | Marketing and Data Services | | | IT Infrastructure Management | | | Other Services | | | Total | | | Balance at March 31, 2012 | | $ | 307,865 | | | $ | 71,508 | | | $ | 2,912 | | | $ | 382,285 | | | Change in foreign currency translation adjustment | | | (1,011 | ) | | | - | | | | (145 | ) | | | (1,156 | ) | | | | | Marketing and Data Services | | | IT Infrastructure Management | | | Other Services | | | Total | | Balance at March 31, 2013 | | $ | 306,854 | | | $ | 71,508 | | | $ | 2,767 | | | $ | 381,129 | | | $ | 306,854 | | | $ | 71,508 | | | $ | 2,767 | | | $ | 381,129 | | Goodwill impairment | | | (20,283 | ) | | | - | | | | (3,030 | ) | | | (23,313 | ) | | | (20,283 | ) | | | - | | | | (3,030 | ) | | | (23,313 | ) | Acquisition | | | 350 | | | | - | | | | - | | | | 350 | | | | 350 | | | | - | | | | - | | | | 350 | | Change in foreign currency translation adjustment | | | (45 | ) | | | - | | | | 263 | | | | 218 | | | | (45 | ) | | | - | | | | 263 | | | | 218 | | Balance at March 31, 2014 | | $ | 286,876 | | | $ | 71,508 | | | $ | - | | | $ | 358,384 | | | $ | 286,876 | | | $ | 71,508 | | | $ | - | | | $ | 358,384 | | Acquisition | | | | 213,093 | | | | - | | | | - | | | | 213,093 | | Change in foreign currency translation adjustment | | | | (2,607 | ) | | | - | | | | - | | | | (2,607 | ) | Balance at March 31, 2015 | | | $ | 497,362 | | | $ | 71,508 | | | $ | - | | | $ | 568,870 | |
Year end balances in the table above are net of accumulated impairment losses of $114.2 million at March 31, 20142015 and $90.9 million at March 31, 2013 and 2012.2014.
Goodwill by component included in Marketing and data servicesData Services as of March 31, 20142015 is US, $266.7$479.9 million; Australia, $13.3$10.9 million; China,Asia, $6.0 million; and Brazil, $0.9$0.6 million.
In order to estimate the fair value for each of the components, management uses an income approach based on a discounted cash flow model together with valuations based on an analysis of public company market multiples and a similar transactions analysis.
The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined by using a weighted average cost of capital (“WACC”). The WACC considers market and industry data as well as company-specific risk factors for each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business. Management, considering industry and company-specific historical and projected data, develops growth rates and cash flow projections for each reporting unit. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates.
The public company market multiple method is used to estimate values for each of the components by looking at market value multiples to revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) for ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013 selected public companies that are believed to be representative of companies that marketplace participants would use to arrive at comparable multiples for the individual component being tested. These multiples are then used to develop an estimated value for each respective component.
The similar transactions method compares multiples based on acquisition prices of other companies believed to be those that marketplace participants would use to compare to the individual component being tested. Those multiples are then used to develop an estimated value for that component.
In order to arrive at an estimated value for each component, management uses a weighted-average approach to combine the results of each analysis. Management believes that using multiple valuation approaches and then weighting them appropriately is a technique that a marketplace participant would use.
As a final test of the annual valuation results, the total of the values of the components is reconciled to the actual market value of Acxiom common stock as of the valuation date. This reconciliation indicated an implied control premium. Management believes thisthe resulting control premium is reasonable compared to historical control premiums observed in actual transactions.
Goodwill is tested for impairment at the reporting unit level, which is defined as either an operating segment or one step below an operating segment, known as a component. At April 1, 2014, Acxiom’s segments arewere the Marketing and data servicesData Services segment and the IT Infrastructure management segment, and the Other servicesManagement segment. Because the Marketing and data servicesData Services segment contains both U.S. and International components, and there are differences in economic characteristics between the components in the different geographic regions, management tested a total of sevenfive components at the beginning of the year. The goodwill amounts as of April 1, 20132014 included in each component tested were: U.S. Marketing and data services, $266.3 million; Europe Marketing and data services, $18.5Data Services, $266.7 million; Australia Marketing and data services, $15.0Data Services, $13.3 million; China Marketing and data services,Data Services, $6.0 million; Brazil Marketing and data services, $1.0 million; U.S. Infrastructure management, $71.5Data Services, $0.9 million; and Europe Other services, $2.8U.S. IT Infrastructure Management, $71.5 million.
As of April 1, 2013,2014, each of the components had an estimated fair value in excess of its carrying value, indicating no impairment. All of the components had a substantialan excess fair value.value exceeding 35%, except for U.S. IT Infrastructure Management. The fair value of the U.S. IT Infrastructure Management segment has decreased by a significant amount since the prior annual test as a result of client contract terminations. If the U.S. IT Infrastructure Management segment experiences additional client losses in the future, this could lead to a further deterioration in value, which could lead to an impairment in the future.
Each quarter the Company considers whether indicators of impairment exist such that additional impairment testing may be necessary. During the quarter ended March 31, 2013,2015, a triggering event occurred which required the Company to test the recoverability of the goodwill associated with its Australia Marketing and Data Services reporting unit. The triggering event was a lowering of projections associated with the Australian unit. The results of step one of the test indicated the goodwill was not impaired, although the fair value of the component had decreased significantly compared to the previous annual test.
During the quarter ended March 31, 2014, triggering events occurred which required the Company to test the recoverability of goodwill inassociated with its European Marketing and data servicesData Services reporting unit for impairment.and its Other Services reporting unit. The triggering events includedevent was the revisioninitiation of the Company’s long-term projections in conjunction with the fiscal 2014 budget. However, the resultsa restructuring of the interim test indicated no impairment.
As described above, additional triggering events occurred during the quarter ended March 31, 2014 requiring an additional impairment test for the goodwill in the European Marketing and data services unit andData Services unit. The restructuring includes exiting the analog paper survey business in Europe. The triggering event related to the Other services unit.Services reporting unit was a potential exit from that business. In conjunction withaddition to testing the recoverability of goodwill, impairment testing, the Company also tested certain other long-lived assets in those units for impairment. In the case of the Other servicesServices unit, the step one fair value indicated that all of the goodwill and other long-lived assets were impaired. Therefore there was no need to perform detailed step two calculations in order to conclude that all of the goodwill and other long-lived assets of this unit should be written off. In the case of the European Marketing and data servicesData Services unit, the Company first tested certain data assets within the unit, and concluded that $4.6 million of these data assets were impaired and should be written off. Then the Company performed step one of the two-step goodwill test, which indicated the goodwill was impaired. Step two of the goodwill test required the Company to perform a hypothetical purchase price allocation, under which the estimated fair value was allocated to the unit’s tangible and intangible assets based on their estimated fair values. This hypothetical purchase price allocation indicated that all of the unit’s goodwill should be written off. The amount of impairment for the European Marketing and Data Services unit was $25.0 million, of which $20.3 million was goodwill and $4.6 million related to data assets. The amount of impairment for the Other Services unit was $3.9 million, of which $3.0 million was goodwill and $0.9 million was other assets, primarily property and equipment. The impairment related to the Other Services unit is now included in discontinued operations.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013
During the quarter ended DecemberMarch 31, 2011, management determined that results2013, triggering events occurred which required the Company to test the goodwill in its European Marketing and Data Services unit for impairment. The triggering events included the Brazil operation were likely to be significantly lower than had been projected in the previous goodwill test. Management further determined that the failurerevision of the Brazil operation to meet expectations, combined with the expectation that future budgetCompany’s long-term projections would also be lowered, constituted a triggering event, requiring an interim goodwill impairment test. Inin conjunction with the interim goodwill impairment test, management also tested for impairment all other intangible assets other than goodwill associated withfiscal 2014 budget. However, 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 reductionresults 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 impairmentinterim 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.indicated no impairment.
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 2015.2016. The fair value of the Company’s components could deteriorate which could result in the need to record impairment charges in future periods. The Company continues to monitor potential triggering events including changes in the business climate in which it operates, attrition of key personnel, the volatility in the capital markets, the Company’s market capitalization compared to its book value, the Company’s recent operating performance, and the Company’s financial projections. The Company has recently initiated a cost reduction program. The initiative seeks to improve the Company’s performance by simplifying the Company’s management structure, centralizing duplicative efforts and standardizing workflows. The Company will monitor the progress of the program to determine whether any resulting activities constitute a triggering event. The occurrence of one or more triggering events could require additional impairment testing, which could result in impairment charges.
7. SOFTWARE AND RESEARCH AND DEVELOPMENT COSTS:
The Company recorded amortization expense related to internally developed computer software of $29.0 million, $9.7 million, $8.6 million, and $15.2$8.6 million for fiscal 2015, 2014 and 2013, and 2012, respectively, andrespectively. Of the amount recorded for fiscal 2015, $7.5 million relates to internally developed software acquired as part of the LiveRamp acquisition. Amortization expense in fiscal 2015 also included $4.3 million of accelerated amortization expense resulting from adjusting the remaining estimated useful lives of certain capitalized software products which the Company will no longer be using as a result of the LiveRamp acquisition. The Company also recorded amortization expense related to purchased software licenses of $6.7 million, $7.1 million and $9.7 million in 2015, 2014 and $13.5 million in 2014, 2013, and 2012, respectively. Additionally, research and development costs of $23.6 million, $11.7 million and $5.5 million were charged to cost of revenue during 2014, 2013 and 2012, respectively. Amortization expense related to both internally developed and purchased software is included in cost of revenue in the accompanying consolidated statements of operations. Additionally, the Company charged $20.3 million, $23.6 million and $11.7 million of research and development costs to cost of revenue during 2015, 2014 and 2013, respectively.
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, 2014 | | | March 31, 2013 | | | March 31, 2015 | | | March 31, 2014 | | Land | | $ | 6,737 | | | $ | 6,737 | | | $ | 6,737 | | | $ | 6,737 | | Buildings and improvements | | | 273,451 | | | | 263,172 | | | | 253,236 | | | | 273,451 | | Data processing equipment | | | 520,927 | | | | 492,626 | | | | 426,005 | | | | 520,927 | | Office furniture and other equipment | | | 51,121 | | | | 59,904 | | | | 37,028 | | | | 51,121 | | | | | 852,236 | | | | 822,439 | | | | 723,006 | | | | 852,236 | | Less accumulated depreciation and amortization | | | 635,330 | | | | 591,687 | | | | 502,416 | | | | 635,330 | | | | $ | 216,906 | | | $ | 230,752 | | | $ | 220,590 | | | $ | 216,906 | |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013 Depreciation expense on property and equipment (including amortization of property and equipment under capitalized leases) was $63.2 million, $58.3 million $61.8 million and $62.4$61.8 million for the years ended March 31, 2015, 2014 and 2013, and 2012, respectively.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014, 2013 AND 2012
9. LONG-TERM DEBT:
Long-term debt consists of the following (dollars in thousands): | | March 31, 2014 | | | March 31, 2013 | | | March 31, 2015 | | | March 31, 2014 | | Term loan credit agreement | | $ | 292,500 | | | $ | 218,000 | | | $ | 270,000 | | | $ | 292,500 | | Capital leases and installment payment obligations on land, buildings and equipment payable in monthly payments of principal plus interest at rates ranging from approximately 3% to 8%; remaining terms up to eight years | | | 12,990 | | | | 21,368 | | | Capital leases and installment payment obligations on buildings and equipment payable in monthly payments of principal plus interest at rates ranging from approximately 4% to 8%; remaining terms up to seven years | | | | 7,400 | | | | 12,990 | | Other debt and long-term liabilities | | | 12,120 | | | | 14,137 | | | | 10,024 | | | | 12,120 | | Total long-term debt and capital leases | | | 317,610 | | | | 253,505 | | | | 287,424 | | | | 317,610 | | Less current installments | | | 28,567 | | | | 16,105 | | | | 32,885 | | | | 28,567 | | Long-term debt, excluding current installments | | $ | 289,043 | | | $ | 237,400 | | | $ | 254,539 | | | $ | 289,043 | | | | | | | | | | | | | | | | | | |
On October 9, 2013, the Company refinanced its prior term loan credit agreement. On that day, the Company borrowed $300 million of the new term loan and used the proceeds to pay off the prior $215 million term loan balance in its entirety along with $4.4 million in fees related to the new credit agreement. The remaining proceeds will bewere used for other general corporate purposes. The amended and restated credit agreement contains customary representations, warranties, affirmative and negative covenants, default, and acceleration provisions.
The Company’s newly amended and restated credit agreement providedprovides for (1) term loans up to an aggregate principal amount of $300 million and (2) revolving credit facility borrowings consisting of revolving loans, letter of credit participations and swing-line loans up to an aggregate amount of $300 million.
The term loan agreement is payable in quarterly installments of $3.8 million through September 2014, followed by quarterly installments of $7.5 million through September 2017, followed by quarterly installments of $11.3 million through June 2018, with a final payment of $161.3 million due October 9, 2018. The revolving loan commitment expires October 9, 2018.
Term loan and revolving credit facility borrowings bear interest at LIBOR or at an alternative base rate plus a credit spread. At March 31, 2014,2015, the LIBOR credit spread was 2.00%. There were no revolving credit borrowings outstanding at March 31, 20142015 or March 31, 2013.2014. The weighted-average interest rate on term loan borrowings at March 31, 20142015 was 2.4%2.3%. Outstanding letters of credit at March 31, 20142015 were $2.2$2.1 million.
The term loan allows for prepayments before maturity. The credit agreement is secured by the accounts receivable of Acxiom and its domestic subsidiaries, as well as by the outstanding stock of certain Acxiom subsidiaries.
Under the terms of the term loan, the Company is required to maintain certain debt-to-cash flow and debt service coverage ratios, among other restrictions. At March 31, 2014,2015, 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 2012,On March 10, 2014, the Company entered into an interest rate swap agreement. The agreement provided 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. On October 9, 2013, the Company voluntarily de-designated this hedging relationship as a result of the full prepayment of the related term loan as described above. The swap agreement matured on January 27, 2014.
On March 10, 2014, the Company entered into a new swap agreement. The new agreement provides for the Company to pay interest through March 10, 2017 at a fixed rate of 0.98% plus the applicable credit spread on $50.0 million notional amount, while receiving interest for the same period at the LIBOR rate on the same notional amount. The LIBOR rate as of March 31, 20142015 was 0.23%0.27%. 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, 2014.2015. 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 ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013 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, 2014,2015, the hedge relationship qualified as an effective hedge under applicable accounting standards. Consequently, all changes in fair value of the derivative will be deferred and recorded in other comprehensive income (loss) until the related forecasted transaction is recognized in the consolidated statementstatements of operations. The fair market value of the derivative was zero at inception and an unrealized loss of $0.02$0.2 million since inception is recorded in other comprehensive income (loss) with the offset recorded to other noncurrent liabilities.. The fair value of the interest rate swap agreement recorded in accumulated other comprehensive income (loss) may be recognized in the statementconsolidated statements 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, 2014.2015.
The Company’s future obligations, excluding interest, under its long-term debt at March 31, 20142015 are as follows (dollars in thousands):
Year ending March 31, | | | | | | | 2015 | | $ | 28,567 | | | 2016 | | | 33,095 | | | $ | 32,885 | | 2017 | | | 33,244 | | | | 33,020 | | 2018 | | | 40,977 | | | | 40,740 | | 2019 | | | 175,417 | | | | 175,169 | | 2020 | | | | 2,637 | | Thereafter | | | 6,310 | | | | 2,973 | | | | $ | 317,610 | | | $ | 287,424 | |
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 | | 2012: | | | | | | | | | | | | | | | | | Allowance for doubtful accounts, returns and credits | | $ | 5,622 | | | $ | 1,731 | | | $ | (164 | ) | | $ | (2,313 | ) | | $ | 4,876 | | | 2013: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for doubtful accounts, returns and credits | | $ | 4,876 | | | $ | 902 | | | $ | (112 | ) | | $ | (1,525 | ) | | $ | 4,141 | | | $ | 4,876 | | | $ | 902 | | | $ | (112 | ) | | $ | (1,525 | ) | | $ | 4,141 | | 2014: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for doubtful accounts, returns and credits | | $ | 4,141 | | | $ | 1,058 | | | $ | 117 | | | $ | (405 | ) | | $ | 4,911 | | | $ | 4,141 | | | $ | 1,058 | | | $ | 117 | | | $ | (405 | ) | | $ | 4,911 | | 2015: | | | | | | | | | | | | | | | | | | | | | | Allowance for doubtful accounts, returns and credits | | | $ | 4,911 | | | $ | 731 | | | $ | (288 | ) | | $ | (895 | ) | | $ | 4,459 | |
Other changes in the table above result primarily from the effects of exchange rates.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 2013 AND 20122013
11. COMMITMENTS AND CONTINGENCIES:
Legal Matters
The Company is involved in various claims and legal proceedings. Management routinely assesses the likelihood of adverse judgments or outcomes to these matters, as well as ranges of probable losses, to the extent losses are reasonably estimable. The Company records accruals for these matters to the extent that management concludes a loss is probable and the financial impact, should an adverse outcome occur, is reasonably estimable. These accruals are reflected in the Company’s consolidated financial statements. In management’s opinion, the Company has made appropriate and adequate accruals for these matters and management believes the probability of a material loss beyond the amounts accrued to be remote; however, the ultimate liability for these matters is uncertain, and if accruals are not adequate, an adverse outcome could have a material effect on the Company’s consolidated financial condition or results of operations. The Company maintains insurance coverage above certain limits. Listed below are certain mattersis one matter pending against the Company and/orand one of its subsidiaries or concluded in fiscal 2014, for which the potential exposure is considered material to the Company’s consolidated financial statements.
A putative class action is pending against the Company, AISS (which was sold to another company in fiscal 2012), and Acxiom Risk Mitigation, Inc., a Colorado corporation and wholly-owned subsidiary of Acxiom (now known as Acxiom Identity Solutions, LLC), in the United States District Court for the Eastern District of Virginia. This action seeks to certify nationwide classes of persons who requested a consumer file from any Acxiom entity from 2007 forward; who were the subject of an Acxiom report sold to a third party that contained information not obtained directly from a governmental entity and who did not receive a timely copy of the report; who were the subject of an Acxiom report and about whom Acxiom adjudicated the hire/no hire decision on behalf of the employer; who, from 2010 forward, disputed an Acxiom report and Acxiom did not complete the investigation within 30 days; or who, from 2007 forward, were the subject of an Acxiom report for which no permissible purpose existed. The complaint alleges various violations of the Fair Credit Reporting Act. The parties have reached a tentative settlement agreement and the Company has accrued $3.7 million as its estimate of theits probable loss associated with this matter. On April 21, 2015, the Court preliminarily approved the class action settlement. A hearing on whether to grant final approval to the settlement is tentatively scheduled for July 29, 2015. The Company believes the chances of additional loss are remote.
The founders of GoDigital, a subsidiary of the Company, sued the Company in Brazil contending that the Company breached its obligations to maximize the founders’ earnout revenue and reduced the value of the founders’ remaining holdings. The Company brought an action against the founders of GoDigital in the courts of Delaware contending, among other things, that under the contractually agreed upon choice of law of Delaware, that there is no legal basis for the claims of GoDigital related to the earnout. The Company acquired a 70% interest in GoDigital in fiscal 2011. The acquisition agreement provided for an up-front payment with the possibility of a future payment based upon the performance of the business over a two-year period of time. During fiscal 2014, the Company entered into a settlement agreement under which it purchased the founders’ remaining holdings for $1.3 million. The Company recorded $0.7 million during fiscal 2014 for the amount of the settlement which represents a settlement expense. The remaining $0.6 million of the settlement represented the purchase price for the founders’ remaining 30% interest in GoDigital (see note 3).
In the opinion of management, the ultimate disposition of all of these mattersthis matter will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
Commitments
The Company leases data processing equipment, office furniture and equipment, land and office space under noncancellable operating leases. The Company has a future commitment for lease payments over the next 2625 years of $124.8$138.8 million.
Total rental expense on operating leases was $20.6 million, $22.9 million $21.7 million and $23.9$21.7 million for the years ended March 31, 2015, 2014 2013 and 2012,2013, respectively. Future minimum lease payments under all noncancellable operating leases for the five years ending March 31, 2019,2020, are as follows: 2015, $20.6 million; 2016, $17.5$23.3 million; 2017, $16.8$21.3 million; 2018, $14.8$19.0 million; 2019, $16.1 million; and 2019, $11.92020, $14.9 million.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014, 2013 AND 2012
In connection with a certain building, the Company previously entered into a 50/50 joint venture with a local real estate developer. The Company was guaranteeing a portion of the loan for the building. The guaranteed amount was collateralized by real property. During fiscal 2014, the joint venture sold the real property. Therefore the debt and the related guarantee were extinguished (see note 5). In addition, in connection with the disposal of certain assets, the Company has guaranteed a lease for the buyer of the assets. This guarantee was made by the Company primarily to facilitate favorable financing terms for the third party. Should the third party default, the Company would be required to perform under this guarantee. At March 31, 2014,2015 the Company’s maximum potential future payments under this guarantee were $1.5$1.0 million.
12. STOCKHOLDERS’ EQUITY:
The Company has authorized 200 million shares of $0.10 par value common stock and 1 million shares of $1.00 par value preferred stock. The board of directors of the Company may designate the relative rights and preferences of the preferred stock when and if issued. Such rights and preferences could include liquidation preferences, redemption rights, voting rights and dividends, and the shares could be issued in multiple series with different rights and preferences. The Company currently has no plans for the issuance of any shares of preferred stock.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013 At March 31, 20132015 the companyCompany had outstanding 1,374,9594,942 warrants to purchase shares of its common stock. During fiscal 2014 all of the warrants were exercised except 4,942 which remained outstanding at March 31, 2014. The outstanding warrants carry an exercise price of $13.24 and expire March 17, 2019.
On August 29, 2011, the board of directors adopted a common stock repurchase program. That program was subsequently modified and expanded on December 5, 2011, on May 24, 2012, on February 5, 2013, and againseveral times, most recently on November 18, 2013.12, 2014. Under the modified common stock repurchase program, the Company may purchase up to $250.0 million worth of its common stock through the period ending November 18, 2014. During the fiscal year ended March 31, 2012, the Company repurchased 5.8 million shares of its common stock for $68.2 million.12, 2015. During the fiscal year ended March 31, 2013, the Company repurchased 4.6 million shares of its common stock for $71.7 million. During the fiscal year ended March 31, 2014, the Company repurchased 2.0 million shares of its common stock for $52.7 million. During fiscal year ended March 31, 2015, the Company repurchased 0.5 million shares of its common stock for $9.9 million. Through March 31, 2014,2015, the Company has repurchased 12.312.9 million shares of its stock for $192.6$202.4 million, leaving remaining capacity of $57.4$47.6 million under the stock repurchase program. Cash paid for acquisition of treasury stock in the consolidated statement of cash flows may differ from the aggregate purchase price due to trades made during one fiscal period that settle in a different fiscal period.
The Company paid no dividends on its common stock for any of the years reported.
Stock Option ActivityShare-based Compensation Plans
The Company has stock option and equity compensation plans for which a total of 26.4 million shares, as of March 31, 2014,2015, of the Company’s common stock have been reserved for issuance since inception of the plans. These plans provide that the exercise prices of qualified options will be at or above the fair market value of the common stock at the time of the grant. Board policy requires that nonqualified options also be priced at or above the fair market value of the common stock at the time of grant. On May 13, 2013 the Company’s compensation committee, acting on behalf of the full board of directors, approved an amendment to one of the Company’s equity compensation plans which would permit the issuance of an additional 4,000,000 shares under the plan. That amendment received shareholder approval at the August 6, 2013 annual shareholders’ meeting. On May 23, 2013, the board terminated one of the Company’s equity compensation plans under which 1.7 million shares remained available for future grant. This plan termination did not require shareholder approval. At March 31, 2014,2015, there were a total of 5.03.3 million shares available for future grants under the plans.
Stock Option Activity The Company granted 415,639 stock options in fiscal 2015, exclusive of replacement options granted in connection with the LiveRamp acquisition. The per-share weighted-average fair value of the stock options granted during 2015 was $8.05. This valuation was determined using a customized binomial lattice approach with the following weighted-average assumptions: dividend yield of 0.0% since Acxiom does not currently pay dividends; risk-free interest rate of 2.5% based on the rate of U.S. Treasury securities with a term equal to the term of the options; expected option life of 4.4 years which is an output of the lattice model; expected volatility of 43% based on the historical volatility of Acxiom stock and the implied volatility of traded Acxiom options, and a suboptimal exercise multiple of 1.4 based on historical exercise activity of Acxiom options. The per-share weighted-average fair value of the stock options granted during 2014 was $6.99. 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 2.0%; expected option life of 4.3 years; expected volatility of 35% and a suboptimal exercise multiple of 1.3. The per-share weighted-average fair value of the stock options granted during 2013 was $5.00. This valuation was determined using a customized binomial lattice approach with the following weighted-average assumptions: dividend yield of 0.0%; risk-free interest rate of 1.7%; expected option life of 4.5 years; expected volatility of 43% and a suboptimal exercise multiple of 1.4.
As part of the Company’s acquisition of LiveRamp, the Company issued 1,473,668 replacement stock options to LiveRamp employees who had outstanding unvested stock options to purchase LiveRamp stock. The per-share weighted-average fair value of the stockreplacement options granted during 2012 was $5.82 on the date of grantdetermined using a customized binomial lattice approachmodel with the following weighted-average assumptions: dividend yield of 0.0%; since Acxiom does not currently pay dividends; risk-free interest rates of from 1.57% to 2.54%, based on the rate of 2.2%; expectedU.S. Treasury securities with a term equal to the remaining term of each option; remaining terms of each option life of 5.3from 6.1 to 9.7 years; expected volatility of 44%43%, based on both the historical volatility of Acxiom stock, as well as the implied volatility of traded Acxiom options; and a suboptimal exercise multiple of 1.7.1.4, based on actual historical exercise activity of Acxiom options.
The number of shares of each replacement option and the exercise price of each replacement option was determined by converting LiveRamp options into equivalent Acxiom options by multiplying the number of shares subject to LiveRamp options by the exchange ratio of .63774 and by dividing the exercise price for each LiveRamp option by the exchange ratio of .63774. Once the value of each replacement option was determined, the percentage of that value ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013 Total expense relatedwhich was attributed to stock optionsemployee service prior to the acquisition date was approximately $2.3allocated to the purchase price of LiveRamp, and the remaining value will be expensed by the Company over the remaining vesting period of each option. The total included in the purchase price was $7.0 million for fiscal 2014, $1.9 million for fiscal 2013(see note 3) and $1.1 million for 2012. Future expense for these options is expectedthe total to be approximately $4.8expensed in the future was $23.5 million, in total over the next four years.net of any forfeitures.
Stock option activity during the year ended March 31, 2015 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, 2013 | | | 8,193,248 | | | $ | 20.85 | | | | | | | | | Outstanding at March 31, 2014 | | | | 4,538,518 | | | $ | 20.30 | | | | | | | | Granted | | | 321,060 | | | $ | 22.15 | | | | | | | | | | 415,639 | | | $ | 21.01 | | | | | | | | LiveRamp replacement stock options | | | | 1,473,668 | | | $ | 1.37 | | | | | | | | Exercised | | | (3,758,664 | ) | | $ | 20.70 | | | | | | $ | 51,505 | | | | (648,460 | ) | | $ | 6.67 | | | | | | $ | 8,293 | | Forfeited or cancelled | | | (217,126 | ) | | $ | 37.04 | | | | | | | | | | | (886,319 | ) | | $ | 27.77 | | | | | | | | | Outstanding at March 31, 2014 | | | 4,538,518 | | | $ | 20.30 | | | | 3.98 | | | $ | 66,314 | | | Exercisable at March 31, 2014 | | | 3,461,150 | | | $ | 21.62 | | | | 2.67 | | | $ | 46,526 | | | Outstanding at March 31, 2015 | | | | 4,893,046 | | | $ | 15.11 | | | | 4.73 | | | $ | 27,403 | | Exercisable at March 31, 2015 | | | | 3,152,866 | | | $ | 17.74 | | | | 3.06 | | | $ | 11,560 | |
The aggregate intrinsic value for options exercised in fiscal 2015, 2014, and 2013 and 2012 was $8.3 million, $51.5 million, $2.7 million, and $2.4$2.7 million, respectively. The aggregate intrinsic value at period end represents total pre-tax intrinsic value (the difference between Acxiom’s closing stock price on the last trading day of the period and the exercise price for each in-the-money option) that would have been received by the option holders had option holders exercised their options on March 31, 2014.2015. 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, 2014:2015:
| | | Options outstanding | | | Options exercisable | | Range of exercise price per share | | | Options outstanding | | Weighted- average remaining contractual life | | Weighted-average exercise price per share | | | Options exercisable | | | Weighted-average exercise price per share | | | | | | | | | | | | | | | | | $ | 6.32 - $ 8.90 | | | | 39,668 | | 3.86 years | | $ | 8.74 | | | | 39,668 | | | $ | 8.74 | | $ | 11.08 - $ 14.42 | | | | 1,740,249 | | 6.25 years | | $ | 13.21 | | | | 983,048 | | | $ | 13.00 | | $ | 15.10 - $ 19.76 | | | | 690,795 | | 2.40 years | | $ | 16.39 | | | | 681,013 | | | $ | 16.37 | | $ | 20.44 - $ 25.00 | | | | 1,214,122 | | 3.87 years | | $ | 22.68 | | | | 923,289 | | | $ | 23.07 | | $ | 26.08 - $ 29.30 | | | | 221,452 | | 0.73 years | | $ | 27.67 | | | | 221,452 | | | $ | 27.67 | | $ | 32.60 - $ 39.12 | | | | 487,141 | | 0.69 years | | $ | 36.35 | | | | 467,589 | | | $ | 36.50 | | $ | 40.88 - $ 62.06 | | | | 145,091 | | 1.26 years | | $ | 41.89 | | | | 145,091 | | | $ | 41.89 | | | | | | | 4,538,518 | | 3.98 years | | $ | 20.30 | | | | 3,461,150 | | | $ | 21.62 | |
| | 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 | | | | | | | | | | | | $ 0.63 - $ 8.90 | | 1,082,710 | | 7.42 years | | $ 1.66 | | 257,094 | | $ 2.33 | $ 11.08 - $ 14.42 | | 1,483,096 | | 4.93 years | | $ 13.16 | | 1,130,735 | | $ 13.07 | $ 15.10 - $ 19.76 | | 577,388 | | 2.32 years | | $ 16.32 | | 543,258 | | $ 16.14 | $ 20.44 - $ 24.53 | | 1,419,424 | | 4.34 years | | $ 22.23 | | 906,016 | | $ 22.77 | $ 26.33 - $ 35.16 | | 200,049 | | 1.10 years | | $ 30.84 | | 185,384 | | $ 30.68 | $ 41.38 - $ 62.06 | | 130,379 | | 0.39 years | | $ 41.83 | | 130,379 | | $ 41.83 | | | 4,893,046 | | 4.73 years | | $ 15.11 | | 3,152,866 | | $ 17.74 |
Total expense related to stock options was approximately$12.1 million for fiscal 2015, $2.3 million for fiscal 2014, and $1.9 million for fiscal 2013. Of the fiscal 2015 expense, $9.4 million relates to the LiveRamp replacement stock options. Future expense for all options is expected to be approximately $17.7 million in total over the next four years.
Stock Appreciation Right (SAR) Activity During fiscal 2015, the Company granted 245,404 performance-based SARs with a value at the date of grant of $0.5 million and having an exercise price of $40. All of the performance-based SARs granted in fiscal 2015 vest subject to attainment of performance criteria established by the compensation committee of the board of directors. The units granted in fiscal 2015 may vest in a number of SARs up to 100% of the award, based on the attainment of certain revenue targets for the period from April 1, 2014 to March 31, 2017. At vesting, the SARs will be automatically exercised, and the award recipient may receive a number of common stock shares equal to the number of SARs that are being exercised multiplied by the quotient of (a) the final Company stock market value (up to a maximum share value of $70) minus the SAR exercise price, divided by (b) the fair market value of a share of stock at the exercise date. The SARs contain an accelerated exercise provision if the closing market price of the Company’s stock exceeds the $70 maximum share value for 20 consecutive trading days during the performance period. The grant date value of the performance-based SARs is determined using a Monte Carlo simulation model.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 2013 AND 20122013
Stock appreciation right (SAR) activity during the year ended March 31, 2015 was as follows: | | Number of shares | | | Weighted-average exercise price per share | | | Weighted-average remaining contractual term (in years) | | | Aggregate intrinsic value (in thousands) | | Outstanding at March 31, 2014 | | | - | | | $ | - | | | | | | | | Granted | | | 245,404 | | | $ | 40.00 | | | | | | | | Outstanding at March 31, 2015 | | | 245,404 | | | $ | 40.00 | | | | 2.00 | | | $ | - | | Exercisable at March 31, 2015 | | | - | | | $ | - | | | | - | | | $ | - | |
Total expense related to SARs was approximately $0.2 million for fiscal 2015. Future expense for these SARs is expected to be approximately $0.4 million over the next two years.
Restricted Stock Unit Activity Non-vested time-vesting restricted stock units and changesactivity during the year ended March 31, 2014 were2015 was as follows:
| | Number of shares | | | Weighted average fair value per share at grant date (in thousands) | | | Weighted-average remaining contractual term (in years) | | | Number of shares | | | Weighted average fair value per share at grant date | | | Weighted-average remaining contractual term (in years) | | Outstanding at March 31, 2013 | | | 1,212,286 | | | $ | 13.99 | | | | 2.24 | | | Outstanding at March 31, 2014 | | | | 1,078,029 | | | $ | 18.46 | | | | 2.17 | | Granted | | | 523,000 | | | $ | 23.90 | | | | | | | | 1,810,199 | | | $ | 21.16 | | | | | | Vested | | | (482,185 | ) | | $ | 13.86 | | | | | | | | (432,276 | ) | | $ | 18.24 | | | | | | Forfeited or cancelled | | | (175,072 | ) | | $ | 16.42 | | | | | | | | (323,482 | ) | | $ | 21.02 | | | | | | Outstanding at March 31, 2014 | | | 1,078,029 | | | $ | 18.46 | | | | 2.17 | | | Outstanding at March 31, 2015 | | | | 2,132,470 | | | $ | 20.41 | | | | 1.94 | |
During fiscal 2015, the Company granted time-vesting restricted stock units covering 1,810,199 shares of common stock with a value at the date of grant of $38.3 million, of which units covering 1,075,392 shares, with a value at date of grant of $23.7 million, were granted to former LiveRamp employees subsequent to the acquisition of LiveRamp (see note 3). Of the restricted stock units granted in fiscal 2015, 797,475 vest in equal annual increments over four years, 928,252 vest in equal annual increments over two years, and 84,472 vest in one year. During fiscal 2014, the Company granted time-vesting restricted stock units covering 523,000 shares of common stock with a value at the date of grant of $12.5 million. Of the restricted stock units granted in the current period,fiscal 2014, 442,103 vest in equal annual increments over four years, 25,000 vest in equal annual increments over two years, and 55,897 vest in one year. During fiscal 2013, the Company granted time-vesting restricted stock units covering 681,408 shares of common stock with a value at the date of grant of $9.6 million. Of the restricted stock units granted in fiscal 2013, 604,229 vest in equal annual increments over four years and 77,179 vested in one year. During fiscal 2012, the Company granted time-vesting restricted stock units covering 787,451 shares of common stock with a value at the date of grant of $10.4 million. Of the restricted stock units granted, 654,357 vest in equal annual increments over four years and 133,094 vested in one year. Valuation of time-vesting restricted stock units for all periods presented is equal to the quoted market price for the shares on the date of grant. The total fair value of time-vesting restricted stock units vested in fiscal 2015, 2014, and 2013 and 2012 was $11.1$9.0 million, $6.9$11.1 million, and $6.9 million, respectively.
Non-vested performance-based restricted stock units and changesactivity during the year ended March 31, 2014 were2015 was as follows:
| | Number of shares | | | Weighted average fair value per share at grant date (in thousands) | | | Weighted-average remaining contractual term (in years) | | | Number of shares | | | Weighted average fair value per share at grant date | | | Weighted-average remaining contractual term (in years) | | Outstanding at March 31, 2013 | | | 863,721 | | | $ | 11.52 | | | | 1.63 | | | Outstanding at March 31, 2014 | | | | 1,066,828 | | | $ | 14.19 | | | | 0.91 | | Granted | | | 237,861 | | | $ | 24.59 | | | | | | | | 266,751 | | | $ | 18.85 | | | | | | Vested | | | | (523,378 | ) | | $ | 9.64 | | | | | | Forfeited or cancelled | | | (34,754 | ) | | $ | 18.93 | | | | | | | | (410,207 | ) | | $ | 16.28 | | | | | | Outstanding at March 31, 2014 | | | 1,066,828 | | | $ | 14.19 | | | | 0.91 | | | Outstanding at March 31, 2015 | | | | 399,994 | | | $ | 21.10 | | | | 1.57 | |
During fiscal 2015, the Company granted performance-based restricted stock units covering 266,751 shares of common stock with a value at the date of grant of $5.0 million. All of the performance-based restricted stock units granted in fiscal 2015 vest subject to attainment of performance criteria established by the compensation committee of the board of directors. The units granted in fiscal 2015 may vest in a number of shares from zero to 200% of the award, based on the attainment of an earnings-per-share target for fiscal 2017, with a modifier based on the total shareholder return of Acxiom stock compared to total shareholder return of a group of peer companies established by the compensation committee of the board of directors for the period from April 1, 2014 to March 31, 2017. The value of the performance units is determined using a Monte Carlo simulation model. During fiscal 2015, 523,378 performance-based restricted stock units vested. Of the units vested, 115,086 vested due to attainment of performance and shareholder return targets established by the compensation committee of the board of directors in fiscal 2012. The remaining 408,292 units represent inducement awards granted to certain of the Company’s chief executive officers. ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013
During fiscal 2014, the Company granted performance-based restricted stock units covering 237,861 shares of common stock with a value at the date of grant of $5.8 million. All of the performance-based restricted stock units granted in the current periodfiscal 2014 vest subject to attainment of performance criteria established by the compensation committee of the board of directors. The units granted in fiscal 2014 may vest in a number of shares from zero to 200% of the award, based on the attainment of an earnings-per-share target for fiscal 2016, with a modifier based on the total shareholder return of Acxiom stock compared to total shareholder return of a group of peer companies established by the committee for the period from April 1, 2013 to March 31, 2016. The value of the performance units is determined using a Monte Carlo simulation model. There were no performance-based restricted stock units vested in fiscal 2014.
During fiscal 2013, the Company granted performance-based restricted stock units covering 384,563 shares of common stock with a value at the date of grant of $5.2 million. All of the performance-based restricted stock units granted in fiscal 2013 vest subject to attainment of performance criteria established by the compensation committee of the board of directors. Of the units granted in fiscal 2013, 333,463 may vest in a number of shares from zerowere forfeited due to 200% ofnot achieving the award, based on the attainment of an earnings-per-share target for fiscal 2015, with a multiplier based on the total shareholder return of Acxiom stock compared to total shareholder return of a group of peer companies established by the committee for the period from April 1, 2012 to March 31, 2015. The remaining 51,100 units represent inducement awards granted to an executive officer. The executive officer may vestvested in up to 100% of the inducement award based on price targets for the Company’s common stock during the determination period from January 26, 2013 to July 26, 2014. As of March 31, 2014, the price targets have been met and the units are expected to vest, at 100% of the award, during the second quarter of fiscal 2015. The value of the performance units is determined using a Monte Carlo simulation model. There were no performance-based restricted stock units vested in fiscal 2013.
The expense related to restricted stock in fiscal 2015, 2014 and 2013 was $15.7 million, $11.6 million and $10.1 million, respectively. Future expense for these restricted stock units is expected to be approximately $20.7 million in fiscal 2016, $9.2 million in fiscal 2017, $3.8 million in fiscal 2018 and $0.8 million in fiscal 2019.
Other Performance Unit Activity During fiscal 2012,2015, the Company granted 312,575 performance-based restricted stock units covering 530,137 shares of common stock with a value at the date of grant of $5.4$1.6 million. All of the performance-based restricted stock units granted in fiscal 2015 vest subject to attainment of performance criteria established by the compensation committee of the board of directors.
Of the units granted 172,945in fiscal 2015, 201,464 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, with a multiplier based on an earnings-per-share growth rate during the performance period. As of March 31, 2014, certain of the performance criteria have been met and approximately 115,086 units are expected to vest, at 160% of the award, during the first quarter of fiscal 2015. 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 pricethe attainment of certain revenue targets for the Company’speriod from April 1, 2014 to March 31, 2017. At vesting, the award recipient may receive a number of common stock shares equal to the number of units vested multiplied by a share price factor. The share price factor modifies the final number of common shares awarded based on the Company’s stock price on the date of vesting and ranges from 0% at a $40 Company stock price, or below, to 100% at a $70 Company stock price. The units also contain an accelerated exercise provision if the closing market price of the Company’s stock exceeds the $70 maximum share value for 20 consecutive trading days during the determination period from January 26, 2013 to July 26, 2014. As of March 31, 2014, the price targets have been met and the units are expected to vest, at 100% of the award, during the second quarter of fiscal 2015.performance period. The grant date value of the performanceperformance-based units is determined using a Monte Carlo simulation model.
The total fairremaining 111,111 units granted in fiscal 2015 may vest in a number of units up to 100% of the award, based on the attainment of certain revenue targets for the period from April 1, 2015 to March 31, 2018. At vesting, the award recipient may receive a number of common stock shares equal to the number of units vested multiplied by a share price factor. The share price factor modifies the final number of common shares awarded based on the Company’s stock price on the date of vesting and ranges from 0% at a $25 Company stock price, or below, to 100% at a $45 Company stock price. The units also contain an accelerated exercise provision if the closing market price of the Company’s stock exceeds the $45 maximum share value for 20 consecutive trading days during the performance period. The grant date value of the performance-based restricted stock units vested in fiscal 2012is determined using a Monte Carlo simulation model.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013 Other performance unit activity during the year ended March 31, 2015 was $6.4 million.as follows:
| | Number of shares | | | Weighted average fair value per share at grant date | | | Weighted-average remaining contractual term (in years) | | Outstanding at March 31, 2014 | | | - | | | $ | - | | | | | Granted | | | 312,575 | | | $ | 5.23 | | | | | Outstanding at March 31, 2015 | | | 312,575 | | | $ | 5.23 | | | | 2.36 | |
The expense related to restricted stockother performance units for fiscal 2015 was $11.6 million in fiscal 2014, $10.1 million in fiscal 2013, and $7.8 million in fiscal 2012.$0.3 million. Future expense for these restricted stockperformance units is expected to be approximately $10.3$1.3 million in fiscal 2015, $6.4 million in fiscal 2016, $2.6 million in fiscal 2017 and $0.6 million in fiscal 2018.over the next three years. Qualified Employee Stock Purchase Plan In addition to the share-based plans, the Company maintains a qualified employee stock purchase plan (“ESPP”) that permits substantially all employees to purchase shares of common stock at a price equal todiscount from the market price. The number of shares available for issuance at March 31, 20142015 was approximately 0.9 million. Approximately 100,45188,603 shares were purchased under the ESPP during the combined fiscal years 2015, 2014 2013, and 2012. There was no2013. The total expense to the Company for these share purchases.the year ended March 31, 2015 for the discount to the market price was approximately $0.1 million.
Accumulated Other Comprehensive Income The accumulated balances for each component of other comprehensive income are as follows (dollars in thousands):
| | March 31, 2014 | | | March 31, 2013 | | | March 31, 2015 | | | March 31, 2014 | | Foreign currency translation | | $ | 13,686 | | | $ | 12,175 | | | $ | 9,612 | | | $ | 13,686 | | Unrealized loss on interest rate swap | | | (24 | ) | | | (752 | ) | | | (199 | ) | | | (24 | ) | | | $ | 13,662 | | | $ | 11,423 | | | $ | 9,413 | | | $ | 13,662 | |
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014, 2013 AND 2012
13. INCOME TAXES:
Total income tax expense (benefit) was allocated as follows (dollars in thousands):
| | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | | Income from continuing operations | | $ | 29,627 | | | $ | 33,058 | | | $ | 29,129 | | | Income from discontinued operations | | | - | | | | - | | | | 19,388 | | | Earnings (loss) from continuing operations | | | $ | (2,832 | ) | | $ | 29,627 | | | $ | 32,649 | | Earnings from discontinued operations | | | | - | | | | - | | | | 409 | | Stockholders’ equity: | | | | | | | | | | | | | | | | | | | | | | | | | Tax impact of stock options, warrants and restricted stock | | | (11,295 | ) | | | (357 | ) | | | 1,310 | | | | (4,645 | ) | | | (11,295 | ) | | | (357 | ) | | | $ | 18,332 | | | $ | 32,701 | | | $ | 49,827 | | | $ | (7,477 | ) | | $ | 18,332 | | | $ | 32,701 | |
Income tax expense (benefit) attributable to earnings (loss) from continuing operations consists of (dollars in thousands):
| | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | | Current: | | | | | | | | | | | | | | | | | | | U.S. Federal | | $ | 23,506 | | | $ | 32,782 | | | $ | 22,919 | | | $ | 6,781 | | | $ | 23,506 | | | $ | 32,782 | | Non-U.S. | | | 928 | | | | 716 | | | | 295 | | | | 192 | | | | 928 | | | | 239 | | State | | | 3,096 | | | | 3,138 | | | | 3,687 | | | | (116 | ) | | | 3,096 | | | | 3,138 | | | | | 27,530 | | | | 36,636 | | | | 26,901 | | | | 6,857 | | | | 27,530 | | | | 36,159 | | Deferred: | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Federal | | | (5,436 | ) | | | (3,874 | ) | | | 900 | | | | (5,462 | ) | | | (5,436 | ) | | | (3,874 | ) | Non-U.S. | | | 7,641 | | | | (574 | ) | | | 2,359 | | | | 326 | | | | 7,641 | | | | (506 | ) | State | | | (108 | ) | | | 870 | | | | (1,031 | ) | | | (4,553 | ) | | | (108 | ) | | | 870 | | | | | 2,097 | | | | (3,578 | ) | | | 2,228 | | | | (9,689 | ) | | | 2,097 | | | | (3,510 | ) | Total | | $ | 29,627 | | | $ | 33,058 | | | $ | 29,129 | | | $ | (2,832 | ) | | $ | 29,627 | | | $ | 32,649 | |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013 Earnings (loss) before income tax attributable to U.S. and non-U.S. continuing operations consist of (dollars in thousands):
| | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | | U.S. | | $ | 74,183 | | | $ | 89,791 | | | $ | 100,051 | | | $ | 4,065 | | | $ | 45,388 | | | $ | 89,791 | | Non-U.S. | | | (35,753 | ) | | | 386 | | | | (33,305 | ) | | | (16,044 | ) | | | (4,769 | ) | | | (1,317 | ) | Total | | $ | 38,430 | | | $ | 90,177 | | | $ | 66,746 | | | $ | (11,979 | ) | | $ | 40,619 | | | $ | 88,474 | |
Earnings (loss) before income taxes, as shown above, are based on the location of the entity to which such earnings (loss) are attributable. However, since such earnings (loss) 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 (loss) shown above.
Below is a reconciliation of income tax expense computed using the U.S. federal statutory income tax rate of 35% of earnings (loss) before income taxes to the actual provision for income taxes (dollars in thousands) for continuing operations:
| | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | | Computed expected tax expense | | $ | 13,451 | | | $ | 31,562 | | | $ | 23,361 | | | $ | (4,193 | ) | | $ | 14,217 | | | $ | 30,966 | | Increase (reduction) in income taxes resulting from: | | | | | | | | | | | | | | | | | | | | | | | | | State income taxes, net of federal benefit | | | 1,845 | | | | 1,631 | | | | 1,672 | | | | 1,543 | | | | 1,845 | | | | 1,631 | | Research, experimentation and other tax credits | | | (5,251 | ) | | | (1,408 | ) | | | (518 | ) | | Research and other tax credits | | | | (6,369 | ) | | | (5,251 | ) | | | (1,408 | ) | Impairment of goodwill and intangibles not deductible for tax | | | 5,368 | | | | - | | | | 5,031 | | | | - | | | | 5,368 | | | | - | | Permanent differences between book and tax expense | | | 814 | | | | (481 | ) | | | (9,507 | ) | | Share-based compensation | | | | 2,276 | | | | - | | | | - | | Non-U.S. subsidiaries taxed at other than 35% | | | 5,762 | | | | 1,761 | | | | 3,670 | | | | 3,959 | | | | 5,130 | | | | 1,948 | | Adjustment to valuation allowances | | | 7,738 | | | | 726 | | | | 4,598 | | | | (776 | ) | | | 7,604 | | | | 726 | | Other, net | | | (100 | ) | | | (733 | ) | | | 822 | | | | 728 | | | | 714 | | | | (1,214 | ) | | | $ | 29,627 | | | $ | 33,058 | | | $ | 29,129 | | | $ | (2,832 | ) | | $ | 29,627 | | | $ | 32,649 | |
In fiscal 2014, the Company recorded $7.7 million in valuation allowances for deferred tax assets related to foreign jurisdictions. In fiscal 2013, the Company recorded $0.7 million in additional valuation allowances for deferred tax assets principally related to a state jurisdiction and in fiscal 2012, the Company recorded $4.6 million in additional valuation allowances for deferred tax assets primarily consisting of $5.2 million related to a foreign jurisdiction, offset by other adjustments. The increases in valuation allowances were due to thea change in management’s assessment of future projectionsthe realizability of deferred tax assets in certain state and foreign jurisdictions.
Below is a reconciliation of income tax expense computed using the U.S. federal statutory income tax rate of 35% of earnings before income taxes to the actual provision for income taxes for discontinued operations (dollars in thousands):
| | 2012 | | Computed expected tax expense | | $ | 18,650 | | Increase in income taxes resulting from: | | | | | State income taxes, net of federal benefit | | | 737 | | Other, net | | | 1 | | | | $ | 19,388 | |
| | 2015 | | | 2014 | | | 2013 | | Computed expected tax expense | | $ | (659 | ) | | $ | (766 | ) | | $ | 596 | | Increase (reduction) in income taxes resulting from: | | | | | | | | | | | | | Non-U.S. subsidiaries taxed at other than 35% | | | 659 | | | | 632 | | | | (187 | ) | Adjustment to valuation allowances | | | - | | | | 134 | | | | - | | | | $ | - | | | $ | - | | | $ | 409 | |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at March 31, 20142015 and 20132014 are presented below (dollars in thousands). In accordance with income tax accounting standards, as of March 31, 20142015, the Company has not recognized deferred income taxes on approximately $30.7$32.4 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.
| | 2014 | | | 2013 | | | 2015 | | | 2014 | | Deferred tax assets: | | | | | | | | | | | | | Accrued expenses not currently deductible for tax purposes | | $ | 10,606 | | | $ | 9,183 | | | Revenue recognized for tax purposes in excess of revenue for financial reporting purposes | | | 3,859 | | | | 4,314 | | | Accrued expenses | | | $ | 14,394 | | | $ | 10,606 | | Deferred revenue | | | | 4,065 | | | | 3,859 | | Net operating loss and tax credit carryforwards | | | 43,568 | | | | 45,746 | | | | 61,569 | | | | 43,568 | | Share-based compensation | | | | 12,170 | | | | 4,219 | | Other | | | 10,411 | | | | 11,945 | | | | 6,838 | | | | 6,192 | | Total deferred tax assets | | | 68,444 | | | | 71,188 | | | | 99,036 | | | | 68,444 | | Less valuation allowance | | | 43,436 | | | | 35,981 | | | | (50,598 | ) | | | (43,436 | ) | Net deferred tax assets | | | 25,008 | | | | 35,207 | | | | 48,438 | | | | 25,008 | | Deferred tax liabilities: | | | | | | | | | | | | | | | | | Intangible assets, principally due to differences in amortization | | $ | (70,892 | ) | | $ | (66,959 | ) | | Costs capitalized for financial reporting purposes in excess of amounts capitalized for tax purposes | | | (20,398 | ) | | | (24,869 | ) | | Property and equipment, principally due to differences in depreciation | | | (11,074 | ) | | | (17,702 | ) | | Intangible assets | | | $ | (97,608 | ) | | $ | (70,892 | ) | Capitalized software costs | | | | (17,165 | ) | | | (20,398 | ) | Property and equipment | | | | (8,678 | ) | | | (11,074 | ) | Total deferred tax liabilities | | | (102,364 | ) | | | (109,530 | ) | | | (123,451 | ) | | | (102,364 | ) | Net deferred tax liability | | $ | (77,356 | ) | | $ | (74,323 | ) | | Net deferred tax liabilities | | | $ | (75,013 | ) | | $ | (77,356 | ) |
At March 31, 2014,2015, the Company has net operating loss carryforwards of approximately $9.6$26.6 million and $61.9$105.0 million for U.S. federal and state income tax purposes, respectively. These net operating loss carryforwards expire in various amounts from 20142016 through 2031.2032. The Company has foreign net operating loss carryforwards of approximately $119.9$129.8 million. Of this amount, $116.3$126.8 million do not have expiration dates. The remainder expires in various amounts through 2023. The Company has state credit carryforwards of $12.1 million of which $2.0 million will be credited to additional paid-in capital when realized. Of the credits, $2.6 million will not expire. The remainder expires in various amounts from 2023 to 2024.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Based upon the Company’s history of profitability and taxable income and the reversal of taxable temporary differences in the U.S., management believes that with the exception of carryforwards in certain states it is more likely than not the Company will realize the benefits of these deductible differences. The Company has established valuation allowances against $56.3$8.0 million of deferred tax assets related to loss and credit 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 forin the amount of $42.6 million against substantially all of its foreign deferred tax assets.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013
The following table sets forth changes in the total gross unrecognized tax benefit liabilities, including accrued interest,benefits for the years ended March 31, 2015, 2014 2013, and 2012. 2013.
(dollars in thousands) | | 2015 | | | 2014 | | | 2013 | | Balance at beginning of period | | $ | 2,457 | | | $ | 3,646 | | | $ | 3,109 | | Additions based on tax positions related to the current year | | | 4,339 | | | | 902 | | | | 342 | | Additions due to acquisition | | | 2,887 | | | | - | | | | - | | Reduction due to expiration of statute of limitations | | | (181 | ) | | | (3,037 | ) | | | - | | Adjustments to tax positions taken in prior years | | | 209 | | | | 946 | | | | 195 | | Balance at end of period | | $ | 9,711 | | | $ | 2,457 | | | $ | 3,646 | |
The entire liability, if recognized,total amount of gross unrecognized tax benefits as of March 31, 2015 was $9.7 million, of which $7.9 million would reduce the Company’s effective income tax rate in future periods.
(dollars in thousands) | | 2014 | | | 2013 | | | 2012 | | Balance at beginning of period | | $ | 3,646 | | | $ | 3,109 | | | $ | 3,043 | | Additions based on tax positions related to the current year | | | 902 | | | | 342 | | | | 189 | | Reduction due to expiration of statute of limitations | | | (3,037 | ) | | | - | | | | (94 | ) | Adjustments to tax positions taken in prior years | | | 946 | | | | 195 | | | | (29 | ) | Balance at end of period included in other liabilities | | $ | 2,457 | | | $ | 3,646 | | | $ | 3,109 | |
periods if and when realized. The Company reports accrued interest and penalties related to unrecognized tax benefits in income tax expense. For the fiscal year ended March 31, 2014,2015, the Company recognized a release of $0.4$0.1 million of tax-related interest expense and penalties and had $0.2$0.3 million of accrued interest and penalties at March 31, 2014. The Company expects2015. It is reasonably possible that a reduction of up to $0.2$1.3 million of the above balance could potentially be reversedunrecognized tax benefits may occur within the next twelve12 months. Depending on the nature of the settlement or expiration of statutes of limitations, the reduction of unrecognized tax benefits may affect the Company’s income tax provision and therefore reduce its effective income tax rate.
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 2010.2011. 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. The Company matches 50% of the first 6% of employee’s annual aggregate contributions. The Company may also contribute additional amounts to the plans at the discretion of the board of directors.
Company contributions for the above plans amounted to approximately $6.6 million, $5.9 million $6.1 million and $6.4$6.1 million in fiscal years 2015, 2014 2013 and 2012,2013, respectively. Included in both other current assets and other accrued liabilities are the assets and liabilities of the SNQDC Plan in the amount of $13.9$14.2 million and $13.8$13.9 million at March 31, 20142015 and 2013,2014, respectively.
The Company has one small defined benefit pension plan covering certain employees in Germany. Both the projected benefit obligation and accumulated benefit obligation were $0.5 million and $0.6 million as of March 31, 2015 and 2014, and March 31, 2013.respectively. There were no plan assets as of either March 31, 20142015 or March 31, 2013.2014. The excess of benefit obligations over plan assets was $0.5 million at March 31, 2015 and $0.6 million at March 31, 2014 and March 31, 2013.2014.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 2013 AND 20122013
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 2015, 2014 2013 and 20122013 (dollars in thousands):
Revenue | | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | | United States | | $ | 949,898 | | | $ | 954,467 | | | $ | 969,961 | | | $ | 924,281 | | | $ | 949,898 | | | $ | 954,467 | | Foreign | | | | | | | | | | | | | | | | | | | | | | | | | Europe | | $ | 108,561 | | | $ | 105,278 | | | $ | 118,278 | | | $ | 59,958 | | | $ | 73,294 | | | $ | 74,077 | | Asia/Pacific | | | 34,540 | | | | 34,876 | | | | 36,158 | | | | 32,658 | | | | 34,540 | | | | 34,876 | | Other | | | 4,546 | | | | 4,738 | | | | 6,227 | | | | 3,162 | | | | 4,546 | | | | 4,738 | | All Foreign | | $ | 147,647 | | | $ | 144,892 | | | $ | 160,663 | | | $ | 95,778 | | | $ | 112,380 | | | $ | 113,691 | | | | $ | 1,097,545 | | | $ | 1,099,359 | | | $ | 1,130,624 | | | $ | 1,020,059 | | | $ | 1,062,278 | | | $ | 1,068,158 | |
Long-lived assets excluding financial instruments (dollars in thousands) | | 2014 | | | 2013 | | | 2015 | | | 2014 | | United States | | $ | 617,668 | | | $ | 654,550 | | | $ | 875,276 | | | $ | 617,668 | | Foreign | | | | | | | | | | | | | | | | | Europe | | $ | 13,886 | | | $ | 42,690 | | | $ | 11,467 | | | $ | 13,886 | | Asia/Pacific | | | 24,912 | | | | 28,139 | | | | 20,683 | | | | 24,912 | | Other | | | 1,310 | | | | 1,231 | | | | 944 | | | | 1,310 | | All Foreign | | $ | 40,108 | | | $ | 72,060 | | | $ | 33,094 | | | $ | 40,108 | | | | $ | 657,776 | | | $ | 726,610 | | | $ | 908,370 | | | $ | 657,776 | |
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, 2014,2015, the estimated fair value of long-term debt approximates its carrying value.
Derivative instruments included in other liabilities - The carrying value is adjusted to fair value through other comprehensive income (loss) at each balance sheet date. The fair value is determined from an interest-rate futures model.
Under applicable accounting standards financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company assigned assets and liabilities to the hierarchy in the accounting standards, which is Level 1 - quoted prices in active markets for identical assets or liabilities, Level 2 - significant other observable inputs and Level 3 - significant unobservable inputs.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 2013 AND 20122013
The following table presents the balances of financial assets and liabilities measured at fair value as of March 31, 2015 and 2014 (dollars in thousands):
Fiscal 2014 | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | As of March 31, 2015 | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Other current assets | | $ | 13,900 | | | $ | - | | | $ | - | | | $ | 13,900 | | | $ | 14,174 | | | $ | - | | | $ | - | | | $ | 14,174 | | Total assets | | $ | 13,900 | | | $ | - | | | $ | - | | | $ | 13,900 | | | $ | 14,174 | | | $ | - | | | $ | - | | | $ | 14,174 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other noncurrent liabilities | | | - | | | | 24 | | | | - | | | | 24 | | | | - | | | | 199 | | | | - | | | | 199 | | Total liabilities | | $ | - | | | $ | 24 | | | $ | - | | | $ | 24 | | | $ | - | | | $ | 199 | | | $ | - | | | $ | 199 | |
Fiscal 2013 | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | As of March 31, 2014 | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Other current assets | | $ | 13,771 | | | $ | - | | | $ | - | | | $ | 13,771 | | | $ | 13,900 | | | $ | - | | | $ | - | | | $ | 13,900 | | Total assets | | $ | 13,771 | | | $ | - | | | $ | - | | | $ | 13,771 | | | $ | 13,900 | | | $ | - | | | $ | - | | | $ | 13,900 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other noncurrent liabilities | | | - | | | | 752 | | | | - | | | | 752 | | | | - | | | | 24 | | | | - | | | | 24 | | Total liabilities | | $ | - | | | $ | 752 | | | $ | - | | | $ | 752 | | | $ | - | | | $ | 24 | | | $ | - | | | $ | 24 | |
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. ThePrior to fiscal 2015, the Company’s business segments consistconsisted of Marketing and data services,Data Services, IT Infrastructure management,Management, and Other services. DuringServices. The Other Services segment consisted solely of the quarter ended JuneCompany’s UK fulfillment business, 2Touch. On May 30, 2013,2014, the Company realigned itssubstantially completed the sale of 2Touch to Parseq Ltd., a European business segments to better reflectprocess outsourcing service provider (see Note 4 for further details). As a result, the way management assesses the business. The e-mail fulfillment2Touch business was movedunit is now excluded from the Other services segment to the Marketingresults and data services segment. The prior-year segment information has been restated to conform to the new segment presentation.reported as discontinued operations. The Marketing and data servicesData Services segment now includes the Company’s global lines of business for Customer Data Integration (CDI), Consumer Insight Solutions, Marketing Management Services (including the Audience Operating System)System and LiveRamp on-boarding services), and E-mail Fulfillment Services and Consulting and Agency Services. The IT Infrastructure managementManagement segment develops and delivers IT outsourcing and transformational solutions. The Other services segment now consists solely of the UK fulfillment business.
Company management uses the revenues and earningsincome from operations of the threeremaining two operating segments, among other factors, for performance evaluation and resource allocation. The Company evaluates performance of the segments based on segment operating income. The Company’s calculation of segment operating income (loss) from operations does not include inter-company transactions and allocates all corporate expenses, excluding those reported as impairments or gains, losses and other items, as well as certain business separation and transformation expenses. Because segment operating income excludes certain impairments and gains, losses and other items and business separation expenses this measure is considered a non-GAAP financial measure, which is not a financial measure calculated in accordance with generally accepted accounting principles. Management believes segment operating income is a helpful measure in evaluating performance of the business segments. While management considers segment operating income to be a helpful measure of comparative operating performance, this measure should be considered in addition to, but not as a substitute for, measures of financial performance prepared in accordance with GAAP presented elsewhere in the financial statements. In addition, theThe 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, 2014, 2013 AND 2012
The following tables present information by business segment (dollars in thousands):
| | 2014 | | | 2013 | | | 2012 | | Revenue: | | | | | | | | | | Marketing and data services | | $ | 805,153 | | | $ | 788,740 | | | $ | 798,796 | | IT Infrastructure management | | | 257,125 | | | | 275,469 | | | | 291,525 | | Other services | | | 35,267 | | | | 35,150 | | | | 40,303 | | Total revenue | | $ | 1,097,545 | | | $ | 1,099,359 | | | $ | 1,130,624 | | | | | | | | | | | | | | | Income (loss) from operations: | | | | | | | | | | | | | Marketing and data services | | $ | 78,433 | | | $ | 80,017 | | | $ | 95,173 | | IT Infrastructure management | | | 32,847 | | | | 29,330 | | | | 24,970 | | Other services | | | 1,941 | | | | (4,618 | ) | | | (4,139 | ) | Corporate | | | (64,937 | ) | | | (2,010 | ) | | | (30,441 | ) | Income from operations | | $ | 48,284 | | | $ | 102,719 | | | $ | 85,563 | | | | | | | | | | | | | | | Depreciation and amortization: | | | | | | | | | | | | | Marketing and data services | | $ | 49,383 | | | $ | 52,782 | | | $ | 61,443 | | IT Infrastructure management | | | 52,872 | | | | 60,042 | | | | 66,497 | | Other services | | | 751 | | | | 3,384 | | | | 6,722 | | Depreciation and amortization | | $ | 103,006 | | | $ | 116,208 | | | $ | 134,662 | | | | | | | | | | | | | | | Total assets: | | | | | | | | | | | | | Marketing and data services | | $ | 649,321 | | | $ | 641,897 | | | | | | IT Infrastructure management | | | 267,110 | | | | 316,009 | | | | | | Other services | | | 10,466 | | | | 18,696 | | | | | | Corporate | | | 396,404 | | | | 211,104 | | | | | | Total assets | | $ | 1,323,301 | | | $ | 1,187,706 | | | | | |
18. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA:
(dollars in thousands except per-share amounts) | | Quarter ended June 30, 2013 | | | Quarter ended September 30, 2013 | | | Quarter ended December 31, 2013 | | | Quarter ended March 31, 2014 | | Revenue | | $ | 266,193 | | | $ | 276,271 | | | $ | 277,873 | | | $ | 277,208 | | Gross profit | | | 61,687 | | | | 68,877 | | | | 67,820 | | | | 70,206 | | Income (loss) from operations | | | 24,072 | | | | 19,631 | | | | 19,780 | | | | (15,199 | ) | Net earnings (loss) | | | 13,095 | | | | 9,864 | | | | 15,067 | | | | (29,223 | ) | Net earnings (loss) attributable to Acxiom | | | 13,180 | | | | 9,839 | | | | 15,067 | | | | (29,223 | ) | | | | | | | | | | | | | | | | | | Basic earnings (loss) per share: | | | | | | | | | | | | | | | | | Net earnings (loss) | | | 0.18 | | | | 0.13 | | | | 0.20 | | | | (0.38 | ) | Attributable to Acxiom stockholders | | | 0.18 | | | | 0.13 | | | | 0.20 | | | | (0.38 | ) | | | | | | | | | | | | | | | | | | Diluted earnings (loss) per share: | | | | | | | | | | | | | | | | | Net earnings (loss) | | | 0.17 | | | | 0.13 | | | | 0.19 | | | | (0.38 | ) | Attributable to Acxiom stockholders | | | 0.17 | | | | 0.13 | | | | 0.19 | | | | (0.38 | ) |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 2013 AND 20122013
The following tables present information by business segment (dollars in thousands). The prior-year segment information has been restated to conform to the new segment presentation: | | 2015 | | | 2014 | | | 2013 | | Revenue: | | | | | | | | | | Marketing and Data Services | | $ | 804,911 | | | $ | 805,153 | | | $ | 792,689 | | IT Infrastructure Management | | | 215,148 | | | | 257,125 | | | | 275,469 | | Total revenue | | $ | 1,020,059 | | | $ | 1,062,278 | | | $ | 1,068,158 | | | | | | | | | | | | | | | Income (loss) from operations: | | | | | | | | | | | | | Marketing and Data Services | | $ | 46,728 | | | $ | 78,500 | | | $ | 73,696 | | IT Infrastructure Management | | | 18,105 | | | | 32,847 | | | | 29,330 | | Corporate | | | (65,437 | ) | | | (60,874 | ) | | | (2,010 | ) | Income from operations | | $ | (604 | ) | | $ | 50,473 | | | $ | 101,016 | | | | | | | | | | | | | | | Depreciation and amortization: | | | | | | | | | | | | | Marketing and Data Services | | $ | 71,123 | | | $ | 49,554 | | | $ | 55,593 | | IT Infrastructure Management | | | 43,395 | | | | 52,872 | | | | 60,043 | | Corporate | | | 4,316 | | | | - | | | | - | | Depreciation and amortization | | $ | 118,834 | | | $ | 102,426 | | | $ | 115,636 | | | | | | | | | | | | | | | Total assets: | | | | | | | | | | | | | Marketing and Data Services | | $ | 952,225 | | | $ | 649,321 | | | | | | IT Infrastructure Management | | | 240,278 | | | | 267,110 | | | | | | Corporate | | | 129,921 | | | | 406,870 | | | | | | Total assets | | $ | 1,322,424 | | | $ | 1,323,301 | | | | | |
(dollars in thousands except per-share amounts) | | Quarter ended June 30, 2012 | | | Quarter ended September 30, 2012 | | | Quarter ended December 31, 2012 | | | Quarter ended March 31, 2013 | | Revenue | | $ | 271,659 | | | $ | 277,467 | | | $ | 273,102 | | | $ | 277,131 | | Gross profit | | | 62,348 | | | | 68,303 | | | | 64,254 | | | | 63,814 | | Income from operations | | | 25,424 | | | | 30,208 | | | | 26,898 | | | | 20,189 | | Net earnings | | | 13,199 | | | | 16,372 | | | | 14,449 | | | | 13,099 | | Net earnings attributable to Acxiom | | | 13,333 | | | | 16,511 | | | | 14,525 | | | | 13,238 | | | | | | | | | | | | | | | | | | | Basic earnings per share: | | | | | | | | | | | | | | | | | Net earnings | | | 0.17 | | | | 0.22 | | | | 0.19 | | | | 0.18 | | Attributable to Acxiom stockholders | | | 0.17 | | | | 0.22 | | | | 0.20 | | | | 0.18 | | | | | | | | | | | | | | | | | | | Diluted earnings per share: | | | | | | | | | | | | | | | | | Net earnings | | | 0.17 | | | | 0.21 | | | | 0.19 | | | | 0.17 | | Attributable to Acxiom stockholders | | | 0.17 | | | | 0.21 | | | | 0.19 | | | | 0.18 | |
18. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA:
(dollars in thousands except per-share amounts) | | Quarter ended June 30, 2014 | | | Quarter ended September 30, 2014 | | | Quarter ended December 31, 2014 | | | Quarter ended March 31, 2015 | | Revenue | | $ | 242,215 | | | $ | 260,037 | | | $ | 260,440 | | | $ | 257,367 | | Gross profit | | | 49,912 | | | | 54,719 | | | | 56,712 | | | | 51,247 | | Income (loss) from operations | | | (4,478 | ) | | | 3,307 | | | | 5,192 | | | | (4,625 | ) | Earnings (loss) from discontinued operations, net of tax | | | (1,532 | ) | | | (48 | ) | | | (318 | ) | | | 14 | | Net earnings (loss) | | | (7,604 | ) | | | (1,544 | ) | | | 4,156 | | | | (6,039 | ) | Net earnings (loss) attributable to Acxiom | | | (7,604 | ) | | | (1,544 | ) | | | 4,156 | | | | (6,039 | ) | | | | | | | | | | | | | | | | | | Basic earnings (loss) per share: | | | | | | | | | | | | | | | | | From continuing operations | | | (0.08 | ) | | | (0.02 | ) | | | 0.06 | | | | (0.08 | ) | From discontinued operations | | | (0.02 | ) | | | (0.00 | ) | | | (0.00 | ) | | | (0.00 | ) | Attributable to Acxiom stockholders | | | (0.10 | ) | | | (0.02 | ) | | | 0.05 | | | | (0.08 | ) | | | | | | | | | | | | | | | | | | Diluted earnings (loss) per share: | | | | | | | | | | | | | | | | | From continuing operations | | | (0.08 | ) | | | (0.02 | ) | | | 0.06 | | | | (0.08 | ) | From discontinued operations | | | (0.02 | ) | | | (0.00 | ) | | | (0.00 | ) | | | (0.00 | ) | Attributable to Acxiom stockholders | | | (0.10 | ) | | | (0.02 | ) | | | 0.05 | | | | (0.08 | ) |
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013
(dollars in thousands except per-share amounts) | | Quarter ended June 30, 2013 | | | Quarter ended September 30, 2013 | | | Quarter ended December 31, 2013 | | | Quarter ended March 31, 2014 | | Revenue | | $ | 257,178 | | | $ | 267,777 | | | $ | 268,761 | | | $ | 268,562 | | Gross profit | | | 61,073 | | | | 68,670 | | | | 67,331 | | | | 69,642 | | Income (loss) from operations | | | 23,458 | | | | 19,227 | | | | 19,291 | | | | (11,503 | ) | Earnings (loss) from discontinued operations, net of tax | | | 592 | | | | 426 | | | | 489 | | | | (3,696 | ) | Net earnings (loss) | | | 13,095 | | | | 9,864 | | | | 15,067 | | | | (29,223 | ) | Net earnings (loss) attributable to Acxiom | | | 13,180 | | | | 9,839 | | | | 15,067 | | | | (29,223 | ) | | | | | | | | | | | | | | | | | | Basic earnings (loss) per share: | | | | | | | | | | | | | | | | | From continuing operations | | | 0.17 | | | | 0.13 | | | | 0.19 | | | | (0.33 | ) | From discontinued operations | | | 0.01 | | | | 0.01 | | | | 0.01 | | | | (0.05 | ) | Attributable to Acxiom stockholders | | | 0.18 | | | | 0.13 | | | | 0.20 | | | | (0.38 | ) | | | | | | | | | | | | | | | | | | Diluted earnings (loss) per share: | | | | | | | | | | | | | | | | | From continuing operations | | | 0.17 | | | | 0.12 | | | | 0.19 | | | | (0.33 | ) | From discontinued operations | | | 0.01 | | | | 0.01 | | | | 0.01 | | | | (0.05 | ) | Attributable to Acxiom stockholders | | | 0.17 | | | | 0.13 | | | | 0.19 | | | | (0.38 | ) |
Some earnings per share amounts may not add due to rounding.
In the fourth quarter of fiscal 2015, the Company recorded $12.1 million of restructuring plan charges and adjustments recorded in gains, losses and other items, net, $7.0 million of business separation and transformation expenses recorded in selling, general and administrative expenses and $4.3 million of accelerated software amortization recorded in cost of revenue.
In the third quarter of fiscal 2015, the Company recorded $4.2 million of restructuring plan charges and adjustments recorded in gains, losses and other items, net, and $8.1 million of business separation and transformation expenses recorded in selling, general and administrative expenses.
In the second quarter of fiscal 2015, the Company recorded restructuring charges and adjustments of $0.9 million in gains, losses and other items, net, and $9.3 million of business separation and transformation expenses in selling, general and administrative expenses. In the first quarter of fiscal 2015, the Company recorded restructuring charges and adjustments of $6.7 million and LiveRamp transaction costs of $0.8 million recorded in gains, losses and other items, net and business separation and transformation expenses of $12.0 million recorded in selling, general and administrative expenses.
In the fourth quarter of fiscal 2014, the Company recorded goodwill and other impairment charges of $28.8$25.0 million, restructuring charges of $11.1$10.7 million in gains, losses and other items, net, and business separation and transformation expenses of $6.9 million in selling, general and administrative expenses in the consolidated statement of operations.
In the third quarter of fiscal 2014, the Company recorded restructuring charges and loss contingency accruals of $4.7 million in gains, losses and other items, net, business separation and transformation expenses of $4.9 million in selling, general and administrative expenses, and a $2.6 million gain in other income from its investment in a real estate joint venture in the consolidated statement of operations.
In the second quarter of fiscal 2014, the Company recorded restructuring charges and loss contingency accruals of $6.4$6.6 million in gains, losses and other items, net and business separation and transformation expenses of $2.2 million in selling, general and administrative expenses in the consolidated statement of operations.
ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2015, 2014 AND 2013
19. SUBSEQUENT EVENTS:
On May 20, 2015, the Company announced it had entered into a definitive agreement to sell its IT Infrastructure Management business (ITO) to Charlesbank Capital Partners and M/C Partners. Under the terms of the agreement, the Company will receive $140 million in cash at closing, and up to $50 million in contingent payments subject to certain performance metrics. In addition, the fourthCompany will receive a 5% retained profits interest in the divested entity, subject to a defined value over which the Company will participate in profits. The sale is expected to close in the second quarter of fiscal 2013,2016 ending September 30, 2015, following the satisfaction of regulatory requirements and other customary closing conditions. The Company will report ITO as a component of discontinued operations beginning in the first quarter of fiscal 2016. The Company expects to report a gain on the sale.
The Company will use proceeds from the sale to pay down debt and to fund expansion of its share repurchase program. As part of the revised program, the Company’s board of directors has increased its share repurchase program by $50 million. Under the revised share repurchase program, the Company recorded $2.9may now purchase up to $300 million in restructuring charges, offset by $0.9of its common stock through the period ending December 31, 2016. The Company has previously purchased $202.4 million in other credits within gains, losses and other items, net,of stock through the repurchase program, leaving remaining capacity of $97.6 million under the revised stock repurchase program.
The Company has also entered into an agreement to amend its credit agreement. The effectiveness of the amendments contained in the consolidated statementagreement are conditioned on, among other things, the closing of operations. the ITO disposition. Once the ITO disposition is completed and the amendment becomes fully effective, certain financial covenants in the credit agreement will be modified for the fiscal quarters ending on September 30, 2015, December 31, 2015 and March 31, 2016. Additionally the Company will not be entitled to declare or pay any dividends during this time and share repurchases will be limited to no more than $100 million depending on the Company’s leverage ratio. After March 31, 2016, the debt covenants and dividend and share repurchase limitations will return to the requirements in the credit agreement in effect prior to the amendment. In addition, the amendment revises certain definitions in the credit agreement to clarify the effect of acquisitions and dispositions on certain financial covenants.
|