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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ----- to -----
Commission file number 0-13163
Acxiom Corporation
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 71-0581897
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
P.O. Box 8180, 1 Information Way,
Little Rock, Arkansas 72203
(Address of Principal Executive Offices) (Zip Code)
(501) 342-1000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
The number of shares of Common Stock, $ 0.10 par value per share, outstanding as of November 7, 2001 was
86,919,779.
ACXIOM CORPORATION AND SUBSIDIARIES
INDEX
REPORT ON FORM 10-Q
SEPTEMBER 30, 2001
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2001 and March 31, 2001
(Unaudited) 2
Condensed Consolidated Statements of Operations for the Three Months Ended
September 30, 2001 and 2000 (Unaudited)
3
Condensed Consolidated Statements of Operations for the Six Months Ended September
30, 2001 and 2000 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended September
30, 2001 and 2000 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6 - 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 16 - 24
Item 3. Quantitative and Qualitative Disclosures about Market Risk 25
Part II. Other Information
Item 1. Legal Proceedings 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 26
Signature 27
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
September 30, March 31,
2001 2001
------------------- -------------------
Assets
Current assets:
Cash and cash equivalents $ 9,116 $ 14,176
Trade accounts receivable, net 193,843 196,107
Deferred income taxes 44,377 36,211
Other current assets 82,831 105,953
------------------- -------------------
Total current assets 330,167 352,447
Property and equipment, net of accumulated depreciation and
amortization 202,301 245,340
Software, net of accumulated amortization 59,557 63,906
Excess of cost over fair value of net assets acquired 173,199 172,741
Purchased software licenses, net of accumulated amortization 163,923 168,673
Unbilled and notes receivable, excluding current portions 59,332 71,735
Deferred costs, net of accumulated amortization 129,660 108,928
Other assets, net 50,173 48,955
------------------- -------------------
$ 1,168,312 $ 1,232,725
=================== ===================
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt 43,176 31,031
Trade accounts payable 40,169 68,882
Accrued expenses:
Merger, integration and impairment 7,059 3,215
Payroll 18,156 18,467
Other 65,299 49,767
Deferred revenue 52,227 31,273
Income taxes 1,093 11,685
------------------- -------------------
Total current liabilities 227,179 214,320
------------------- -------------------
Long-term debt, excluding current installments 456,165 369,172
Deferred income taxes 6,209 32,785
Commitments and contingencies
Stockholders' equity:
Common stock 8,769 9,055
Additional paid-in capital 270,830 351,921
Retained earnings 207,145 263,755
Accumulated other comprehensive loss (5,822) (5,996)
Treasury stock, at cost (2,163) (2,287)
------------------- -------------------
Total stockholders' equity 478,759 616,448
------------------- -------------------
$ 1,168,312 $ 1,232,725
=================== ===================
See accompanying notes to condensed consolidated financial statements.
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
For the Three Months Ended
September 30,
2001 2000
------------------- -------------------
Revenue $ 215,204 $ 263,862
Operating costs and expenses:
Salaries and benefits 77,584 93,018
Computer, communications and other equipment 51,609 48,641
Data costs 29,921 27,918
Other operating costs and expenses 36,129 48,956
------------------- -------------------
Total operating costs and expenses 195,243 218,533
------------------- -------------------
Income from operations 19,961 45,329
------------------- -------------------
Other income (expense):
Interest expense (7,213) (6,024)
Other, net (1,591) (930)
------------------- -------------------
(8,804) (6,954)
------------------- -------------------
Earnings before income taxes 11,157 38,375
Income taxes 4,128 14,775
------------------- -------------------
Net earnings $ 7,029 $ 23,600
=================== ===================
Earnings per share:
Basic $ 0.08 $ 0.27
=================== ===================
Diluted $ 0.08 $ 0.25
=================== ===================
See accompanying notes to condensed consolidated financial statements.
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
For the Six Months Ended
September 30,
2001 2000
------------------- -------------------
Revenue $ 420,242 $ 503,435
Operating costs and expenses:
Salaries and benefits 171,132 180,463
Computer, communications and other equipment 133,336 90,311
Data costs 60,710 53,998
Other operating costs and expenses 82,537 102,208
Gains, losses and nonrecurring items, net 45,342 (3,064)
------------------- -------------------
Total operating costs and expenses 493,057 423,916
------------------- -------------------
Income (loss) from operations (72,815) 79,519
------------------- -------------------
Other income (expense):
Interest expense (13,955) (11,493)
Other, net (2,382) 7,292
------------------- -------------------
(16,337) (4,201)
------------------- -------------------
Earnings (loss) before income taxes and cumulative effect of
change in accounting principle (89,152) 75,318
Income taxes (32,542) 28,998
------------------- -------------------
Earnings (loss) before cumulative effect of change in accounting
principle (56,610) 46,320
Cumulative effect of change in accounting principle - 37,488
------------------- -------------------
Net earnings (loss) $ (56,610) $ 8,832
=================== ===================
Basic earnings (loss) per share:
Earnings (loss) before cumulative effect of accounting change $ (0.63) $ 0.53
Cumulative effect of accounting change - (0.43)
------------------- -------------------
Net earnings (loss) $ (0.63) $ 0.10
=================== ===================
Diluted earnings (loss) per share:
Earnings (loss) before cumulative effect of accounting change $ (0.63) $ 0.49
Cumulative effect of accounting change - (0.38)
------------------- -------------------
Net earnings (loss) $ (0.63) $ 0.11
=================== ===================
See accompanying notes to condensed consolidated financial statements.
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the Six Months Ended
September 30,
2001 2000
------------------- -------------------
Cash flows from operating activities:
Net earnings (loss) $ (56,610) $ 8,832
Non-cash operating activities:
Depreciation and amortization 65,871 54,712
Loss (gain) on disposal or impairment of assets 45,639 (16,812)
Cumulative effect of change in accounting principle - 37,488
Deferred income taxes (34,742) -
Changes in operating assets and liabilities:
Accounts receivable 1,684 (22,580)
Other assets 28,220 (63,331)
Accounts payable and other liabilities (11,750) (4,090)
Merger, integration and impairment costs (8,292) (14,366)
------------------- -------------------
Net cash used by operating activities 30,020 (20,147)
------------------- -------------------
Cash flows from investing activities:
Proceeds received (used) from the disposition of assets (332) 34,485
Capitalized software (11,399) (18,738)
Capital expenditures (8,789) (34,160)
Deferral of costs (26,702) (9,847)
Investments in joint ventures and other companies (5,747) (18,707)
Net cash paid in acquisitions - (14,133)
------------------- -------------------
Net cash used by investing activities (52,969) (61,100)
------------------- -------------------
Cash flows from financing activities:
Proceeds from debt 129,169 78,958
Payments of debt (94,198) (11,840)
Sale of common stock 6,461 9,975
Payments on equity forward contracts (23,547) (2,867)
Acquisition of treasury stock - (7,478)
------------------- -------------------
Net cash provided by financing activities 17,885 66,748
------------------- -------------------
Effect of exchange rate changes on cash 4 (154)
------------------- -------------------
Net decrease in cash and cash equivalents (5,060) (14,653)
Cash and cash equivalents at beginning of period 14,176 23,924
------------------- -------------------
Cash and cash equivalents at end of period $ 9,116 $ 9,271
=================== ===================
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 11,333 $ 14,634
Income taxes 12,783 7,034
Noncash investing and financing activities - equity forward
contracts settled through term note 64,169 -
=================== ===================
See accompanying notes to condensed consolidated financial statements.
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. These condensed consolidated financial statements have been prepared by Registrant, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Registrant's
management, however, all adjustments necessary for a fair presentation of the results for the periods
included have been made and the disclosures are adequate to make the information presented not misleading.
All such adjustments are of a normal recurring nature. Certain note information has been omitted because it
has not changed significantly from that reflected in Notes 1 through 20 of the Notes to Consolidated
Financial Statements filed as a part of Item 14 of the Registrant's 2001 Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission on June 27, 2001. This report and the accompanying
financial statements should be read in connection with the annual report for the fiscal year ended March 31,
2001. The financial information contained in this report is not necessarily indicative of the results to be
expected for any other period or for the full fiscal year ending March 31, 2002.
Certain prior period amounts in these condensed consolidated financial statements and notes thereto have
been reclassified to conform to the current period classifications. Additionally, as discussed in note 3,
the information for the quarter and for the six months ended September 30, 2000 has been restated for the
retroactive adoption of SEC Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements."
2. On June 25, 2001, Acxiom Corporation ("the Company") announced a restructuring plan ("Restructuring Plan")
for significant cost-reduction efforts, including a seven percent workforce reduction (412 individual
associates). Additionally, certain other associates who are part of the Information Technology ("IT")
Management segment were terminated earlier in the first quarter. In addition to these workforce reductions,
the Company entered into an agreement whereby a significant amount of its computer equipment was sold and
leased back, resulting in a loss of $31.2 million (see note 4). Accordingly, the Company recorded charges
related to these workforce reductions, the loss on the sale and leaseback of computer equipment and certain
other restructuring activities, asset impairments and other adjustments and accruals as part of a
redirection of the Company's overall strategy. The aggregate amount of these charges recorded by the
Company, including the loss on the sale-leaseback transaction, totaled $45.3 million and were recorded as
gains, losses and nonrecurring items, net in the June 30, 2001 condensed consolidated financial statements.
The charges recorded by the Company, in addition to the loss on the sale-leaseback transaction, consisted of
$8.3 million in associate-related reserves, principally employment contract termination and severance costs;
$3.6 million for lease and contract termination costs and $2.2 million for abandoned or otherwise impaired
assets and transaction costs to be paid to accountants and attorneys.
The associate-related charges include payments to be made under existing employment agreements with four
terminated associates and involuntary termination benefits to 450 associates whose positions have been
eliminated. The contract termination costs consist primarily of lease terminations that occurred during the
quarter-ended June 30, 2001 in an effort to consolidate portions of the Company's operations and the
termination of certain other contracts for services that are no longer consistent with the Company's overall
strategy. The transaction costs are fees that were incurred as a direct result of the workforce reductions,
the sale-leaseback transaction, and certain other restructuring and cost-cutting measures put in place
during the prior quarter. Additionally, certain assets have been abandoned or are now impaired as a result
of the changes made in the Company's overall strategy.
The following table shows the amounts related to the Restructuring Plan that were included in merger,
integration and impairment accruals as of June 30, 2001 and the changes in those balances during the three
months ended September 30, 2001. Payments of $1.5 million were made during the quarter ended June 30, 2001
on associate-related items (dollars in thousands):
June 30, Less September 30,
2001 Payments 2001
Associate-related reserves $ 6,809 $(4,198) $ 2,611
Contract termination costs 3,449 (1,548) 1,901
Transaction costs and other accruals 400 (232) 168
$10,658 $(5,978) $ 4,680
The remaining accruals will be paid out over periods ranging up to two years.
In addition to the above charges, the Company recorded accelerated depreciation and amortization and certain
other charges of approximately $25.8 million during the first quarter on certain software and long-lived
assets that are no longer in service or have otherwise been deemed impaired under the appropriate accounting
literature, primarily Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs
of Computer Software to Be Sold, Leased, or Otherwise Marketed," or SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
During the fourth quarter of the year-ended March 31, 2001, the Company recorded a charge totaling $34.6
million relating to the bankruptcy filing of Montgomery Ward ("Wards"), a significant customer of the IT
Management segment, for the write-down of impaired assets and for certain ongoing obligations that have no
future benefit to the Company.
The following table shows the balances related to Wards that were included in merger, integration and
impairment accruals as of March 31, 2001 and the changes in those balances during the six months ended
September 30, 2001 (dollars in thousands):
March 31, Less September 30,
2001 Payments 2001
Ongoing contract costs $1,984 $(198) $1,786
Other accruals 1,046 (484) 562
$3,030 $(682) $2,348
The remaining accruals will be paid out over periods ranging up to four years.
During fiscal 2001, the Company completed the sale of its remaining interest in its Direct Media, Inc.
("DMI") business unit. As consideration, the Company received a 6% note of approximately $22.5 million
payable over 7 years for the initial portion of its ownership interest and received an additional note in
the amount of $1.0 million for its remaining ownership interest. The Company also committed to complete the
development of a computer system for the DMI business unit. At September 30, 2001 the balance outstanding
under these notes amounts to $17.6 million and is included in unbilled and notes receivable in the
accompanying condensed consolidated financial statements.
3. Effective January 1, 2001 the Company changed its method of accounting for certain transactions, retroactive
to April 1, 2000, in accordance with SAB 101. The cumulative effect of the change resulted in a charge to
earnings of $37.5 million, net of income tax benefit of $21.5 million, which is included in the accompanying
condensed consolidated financial statements for the six months ended September 30, 2000. The effect of the
change on the quarter and the six-month periods ended September 30, 2000 was to decrease earnings before the
cumulative effect of the change in accounting principle by $4.7 million ($0.05 per diluted share) and $6.4
million ($0.07 per diluted share), respectively. For the quarters ended September 30, 2001 and 2000, and
for the six months ended September 30, 2001 and 2000, the Company recognized approximately $4.9 million and
$8.2 million, respectively, and approximately $10.0 million and $16.4 million, respectively, in revenue that
was included in the cumulative effect adjustment.
4. On June 29, 2001, in connection with the Restructuring Plan, the Company entered into an agreement whereby
it sold equipment with a net book value of $50.7 million to Technology Investment Partners, LLC ("TIP") and
recorded a loss on this sale of $31.2 million (see note 2). Simultaneous with the sale of this equipment,
the Company also agreed to lease the equipment back from TIP for a period of thirty-six months. The Company
received $1.9 million of the sale proceeds from TIP during July 2001 and has applied the remaining $17.6
million of the sales proceeds as a prepayment of the lease. Included in property and equipment at September
30, 2001 is equipment of $16.8 million related to the assets under this leaseback arrangement.
5. Purchased software licenses include long-term software licenses which are amortized over their useful lives,
including both prepaid software and capitalized future software obligations for which the liability is
included in long-term debt (see note 6). Unbilled and notes receivable are from the sales of software, data
licenses, equipment sales and from the sale of DMI (see note 2), net of the current portions of such
receivables. Deferred costs include up-front costs that are direct and incremental to obtaining the
associated contract and these deferred costs are amortized over the service period of the contract. Other
noncurrent assets consist of the following (dollars in thousands):
September 30, March 31,
2001 2001
Investments in joint ventures and other companies $32,467 $30,544
Other, net 17,706 18,411
$50,173 $48,955
Other current assets include the current portion of the unbilled and notes receivable of $45.3 million and
$49.1 million at September 30, 2001 and March 31, 2001, respectively. Other current assets also include
prepaid expenses, non-trade receivables and other miscellaneous assets of $37.5 million and $56.8 million at
September 30, 2001 and March 31, 2001, respectively.
Deferred revenue consists of amounts billed in excess of revenue recognized on sales of software, data
licenses, services and equipment.
6. Long-term debt consists of the following (dollars in thousands):
September 30, March 31,
2001 2001
Revolving credit agreement $179,071 $129,042
Convertible subordinated notes due 2003; interest at 5.25%
114,998 115,000
Software license liabilities payable over terms up to seven years;
effective interest rates at approximately 6%
88,224 91,019
Term note payable, due 2005 64,169 --
Senior notes payable in annual installments of $4,286 through
March 2007; interest payable semiannually at 6.92%
25,714 25,714
Capital leases on land, buildings and equipment payable in monthly
installments of principal plus interest at approximately 8%;
remaining terms up to twenty years
15,492 19,612
Unsecured term loan repaid in July 2001 -- 7,400
Other capital leases, debt and long-term liabilities 11,673 12,416
Total long-term debt 499,341 400,203
Less current installments 43,176 31,031
Long-term debt, excluding current installments $456,165 $369,172
On August 14, 2001, the Company obtained an amendment of its revolving credit facility and certain other
affected debt obligations, which reduced the committed amount available under the revolver to $265 million,
changed certain financial covenants and provided that the outstanding balance of the revolver will be
secured by substantially all of the Company's unencumbered real estate and personal property assets. In
addition, the amendment required the Company to satisfy certain covenants by September 21, 2001, primarily
relating to the execution of certain collateral agreements for the benefit of the creditors, as well as the
consummation of the term loan to fund the settlement of the equity forward agreements discussed in note 7.
The Company satisfied each of these covenants during the quarter in accordance with the requirements of the
amendment and is in compliance with all financial covenants of its credit facility agreements. Accordingly,
the Company has classified all portions of its debt obligations due beyond September 30, 2002 as long-term
in the accompanying condensed consolidated financial statements.
On September 21, 2001, in conjunction with the amendment to the Company's revolving credit facility
discussed above, the Company executed an agreement for the settlement of the equity forward contracts (see
note 7) through borrowings of $64.2 million from a bank under a term loan arrangement. The borrowings under
this term loan bear interest, payable semiannually, at various market rates at the Company's option,
including the prime rate, a LIBOR-based rate and a rate based on the Federal funds rate. The entire
principal amount outstanding under this term loan is due November 30, 2005.
7. Below is the calculation and reconciliation of the numerator and denominator of basic and diluted earnings
(loss) per share (in thousands, except per share amounts):
For the quarter ended For the six months ended
September 30, September 30,
2001 2000 2001 2000
Basic earnings (loss) per share:
Numerator - net earnings (loss)
$7,029 $ 23,600 $ (56,610) $ 8,832
Denominator - weighted-average
shares outstanding
89,856 88,221 89,894 88,095
Basic earnings (loss) per
share $ 0.08 $ 0.27 $ (0.63) $ 0.10
Diluted earnings (loss) per share:
Numerator:
Net earnings (loss) $ 7,029 $ 23,600 $(56,610) $ 8,832
Interest expense on
convertible debt (net of
tax benefit) -- 928 -- 1,857
$ 7,029 $ 24,528 $(56,610) $ 10,689
For the quarter ended For the six months ended
September 30, September 30,
2001 2000 2001 2000
Denominator:
Weighted-average shares
outstanding 89,856 88,221 89,894 88,095
Effect of common stock
options and warrants 1,264 3,388 -- 3,562
Convertible debt -- 5,783 5,783
--
91,120 97,392 89,894 97,440
Diluted earnings (loss)
per share $ 0.08 $ 0.25 $ (0.63) $ 0.11
As required by SFAS No. 128, "Earnings Per Share," the Company has used earnings (loss) before cumulative
effect of the change in accounting principle in the determination of whether potential common shares are
dilutive or antidilutive. As a result, diluted earnings per share for the six months ended September 30,
2000 is greater than the amount reported as basic earnings per share.
The convertible debt was excluded from the above calculations for the quarter ended September 30, 2001, and
all stock options and warrants, the convertible debt and the effect of the equity forward contracts were
excluded from the above calculations for the six months ended September 30, 2001 because such items were
antidilutive. The equivalent share effects of the common stock options and warrants which were excluded for
the six months ended September 30, 2001 were 1.6 million, and the equivalent share effects of the
convertible debt which was excluded for both the quarter and the six-months ended September 30, 2001 was 5.8
million. Interest expense on the convertible debt (net of income tax effect) excluded in computing diluted
loss per share for the quarter and for the six months ended September 30, 2001 was $1.0 million and $1.9
million, respectively.
Options to purchase shares of common stock that were outstanding during the periods reported, but were not
included in the computation of diluted loss per share because the options price was greater than the average
market price of the common shares are shown below:
For the quarter ended For the six months ended
September 30, September 30,
2001 2000 2000
Number of shares under
option (in
thousands) 13,929 2,872 2,073
Range of exercise prices
$11.50 - 62.06 $17.93 - 54.00 $17.93 - 54.00
============== ============= =============
Prior to the settlement of the equity forward agreements discussed below, the Company had entered into three
equity forward contracts with a commercial bank to purchase 3.7 million shares of its common stock. During
April 2001, prior to the settlement of the contracts, the Company had paid and recorded as a reduction of
stockholders' equity, $22.5 million to reduce the notional amounts under the contracts to $64.2 million.
As discussed in note 6, the Company obtained an agreement for the settlement of the equity forward contracts
through borrowings of $64.2 million from a bank under a term loan arrangement. The funds from the term loan
were used to pay the notional amount under the equity forward contracts and have been recorded as a
reduction of stockholders' equity in the accompanying condensed consolidated financial statements. The
Company has taken delivery of and retired the shares of common stock subject to the contracts and is no
longer obligated under any equity forward contracts as of September 30, 2001. Prior to the settlement of
the contracts, all shares of the Company's common stock under these agreements were considered issued and
outstanding and have been included in the Company's basic and diluted earnings (loss) per share calculations.
8. Trade accounts receivable are presented net of allowances for doubtful accounts, returns, and credits of
$5.8 million and $5.4 million, respectively, at September 30, 2001 and March 31, 2001.
9. The following tables present information by business segment (dollars in thousands):
For the quarter ended For the six months ended
September 30, September 30,
2001 2000 2001 2000
Services $ 158,775 $204,179 $ 308,198 $381,048
Data and Software Products 39,635 73,889 72,489 104,290
IT Management 53,261 52,750 106,227 108,551
Intercompany eliminations (36,467) (66,956) (66,672) (90,454)
Total revenue $ 215,204 $263,862 $ 420,242 $503,435
Services $ 30,636 $54,395 $ 41,003 $ 86,563
Data and Software Products 7,288 36,279 5,073 36,105
IT Management 5,514 415 8,116 10,596
Intercompany eliminations (21,160) (45,681) (38,275) (58,723)
Corporate and other (2,317) (79) (88,732) 4,978
Income from operations $ 19,961 $ 45,329 $(72,815) $ 79,519
Certain of the nonrecurring charges discussed in note 2 have been recorded in Corporate and other, since the
Company does not hold individual segments responsible for these charges.
10. The balance of accumulated other comprehensive loss, which consists of foreign currency translation
adjustments and unrealized depreciation on marketable securities, was $5.8 million and $6.0 million at
September 30, 2001 and March 31, 2001, respectively. Comprehensive income (loss) was $7.7 million and
$20.8 million, respectively, and $(56.4) million and $5.1 million, respectively, for the quarters and for
the six months ended September 30, 2001 and 2000.
11. During June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business
Combinations," which replaces Accounting Principles Board ("APB") Opinion No. 16, and issued SFAS No. 142,
"Goodwill and Other Intangible Assets," which replaces APB Opinion No. 17 and amends SFAS No. 121. Under the
provisions of SFAS No. 141, all business combinations initiated after June 30, 2001 must be accounted for by
the purchase method of accounting. The use of the pooling-of-interest method of accounting for business
combinations is prohibited.
Under the provisions of SFAS No. 142, amortization of goodwill and other intangible assets that have an
indeterminate life is to be discontinued; however, an impairment analysis must be performed for these
intangible assets. The Company has elected to early adopt the provisions of SFAS No. 142 and has
discontinued the amortization of its goodwill balances effective April 1, 2001, resulting in an increase in
net earnings during the current quarter and a decrease in net loss during the six months ended September 30,
2001 of approximately $2 million ($0.02 per diluted share) and $4 million ($0.04 per diluted share),
respectively. Additionally, the discontinued amortization of goodwill is expected to result in an increase
in net income (loss) of approximately $7 million ($0.08 per diluted share) for the year ended March 31,
2002. Other acquired intangible assets, including the amortization thereof, was not material at September
30, 2001, at March 31, 2001, or for any of the periods presented. As required by the provisions of SFAS No.
142, the Company has completed part one of a two-part impairment analysis of its goodwill and has determined
that no impairment of its goodwill exists as of April 1, 2001. Accordingly, step two of the goodwill
impairment test associated with the initial implementation of SFAS No. 142 is not required. However,
additional impairment testing of the Company's goodwill may be required during future periods should
circumstances indicate that the Company's goodwill balances might be impaired. Additionally, the Company
will have to complete annual testing of its goodwill balances in accordance with SFAS No. 142 to determine
whether any possible impairment exists. Such annual impairment testing is expected to be performed at the
end of the Company's fiscal year. Any future impairment charge determined as a result of these tests will
be reflected as a charge to operations during the period in which the impairment test is completed.
The changes in the carrying amount of goodwill for the six months ended September 30, 2001 are as follows
(dollars in thousands):
Data and
Software IT Management
Services Products Total
Balance at April 1, 2001 $94,592 $1,533 $76,616 $172,741
Change in foreign currency translation
adjustment 458 -- -- 458
Balance at September 30, 2001 $95,050 $1,533 $76,616 $ 173,199
The amount of goodwill reported by segment at April 1, 2001 has been adjusted for the allocation of goodwill
across reporting units as required by SFAS No. 142.
The following table shows what net earnings (loss) and basic and diluted earnings (loss) per share would
have been for the three-month and for the six-month periods ended September 30, 2001 and 2000 exclusive of
amortization expense recognized in those periods related to goodwill (dollars in thousands, except per share
amounts):
For the quarter ended For the six months ended
September 30, September 30,
2001 2000 2001 2000
Reported net earnings (loss) $7,029 $23,600 $ (56,610) $ 8,832
Goodwill amortization, net of tax -- 1,540 -- 3,105
Adjusted net earnings (loss) $7,029 $25,140 $ (56,610) $11,937
Basic earnings (loss) per share:
Reported net earnings (loss) $ 0.08 $ 0.27 $ (0.63) $ 0.10
Goodwill amortization, net of tax
-- 0.01 -- 0.04
Adjusted net earnings (loss) $ 0.08 $ 0.28 $ (0.63) $ 0.14
Diluted earnings (loss) per share:
Reported net earnings (loss) $ 0.08 $ 0.25 $ (0.63) $ 0.11
Goodwill amortization, net of tax
-- 0.02 -- 0.03
Adjusted net earnings (loss) $ 0.08 $ 0.27 $ (0.63) $ 0.14
Also, during June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This
statement establishes the accounting and reporting requirements for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement costs. Specifically, it
requires that the fair value of a liability for an asset retirement obligation be recognized in the period
in which it is incurred if a reasonable estimate of fair value can be made. Additionally, it requires
certain disclosures including descriptions of asset retirement obligations and reconciliations of changes in
the components of those obligations. SFAS No. 143 is effective for fiscal years beginning after June 15,
2002. The Company expects the adoption of this statement will not have a material impact on its financial
position, results of operations or cash flows.
During August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." This statement addresses financial accounting and reporting for the impairment or disposal of
long-lived assets by superceding SFAS No. 121 and APB Opinion No. 30. SFAS No. 144 establishes a single
accounting model for measuring the impairment of long-lived assets to be disposed of by sale and expands the
scope of asset disposals that are reported as discontinued operations. This Statement also resolves
significant implementation issues related to SFAS No. 121 regarding the measurement and the reporting of
impairment losses associated with long-lived assets. The provisions of SFAS No. 144 are effective for
financial statements for fiscal years beginning after December 15, 2001. The Company expects the adoption
of this statement will not have a material impact on its financial position, results of operations or cash
flows.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Introduction
Effective January 1, 2001, the Company changed its method of accounting for revenue recognition retroactive to
April 1, 2000, in accordance with SEC Staff Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." The cumulative effect of the change resulted in a charge to earnings of $37.5 million,
net of income tax benefit of $21.5 million. The effect of the change on the quarter and the six-month periods
ended September 30, 2000 was to decrease earnings before the cumulative effect of the change in accounting
principle by $4.7 million ($0.05 per diluted share) and $6.4 million ($0.07 per diluted share), respectively.
Also, effective April 1, 2001, the Company made certain modifications to its standard AbiliTec software license
agreement such that vendor-specific objective evidence is not attainable on many of its software license
transactions entered into subsequent to that date. Accordingly, the Company now recognizes revenue from the
sales of AbiliTec software licenses on a subscription basis over the term of the agreement.
Results of Operations
For the quarter ended September 30, 2001, consolidated revenue was $215.2 million, reflecting an 18% decrease
from the second quarter in the previous year. Adjusting the prior year for the pro forma effects of subscription
revenue recognition on AbiliTec software sales results in a decrease of 4% for the current quarter of fiscal 2002
as compared to the same quarter a year ago. In addition, the Company completed over $20 million in hardware sales
during the quarter, which were associated with data warehousing contracts. Revenue from these sales will be
recognized over the terms of the related contracts.
For the six months ended September 30, 2001, consolidated revenue was $420.2 million, down 17% from the same
period a year ago. Adjusting for the pro forma effects of subscription revenue recognition for AbiliTec, revenue
decreased by 9% compared to the prior year. The decrease in revenue for both the quarter and the six months is in
line with the Company's expectations.
The table below shows the Company's revenue by business segment for the three-month period ended September 30,
2001 and 2000. The pro forma amounts shown for the quarter ended September 30, 2000 have been adjusted for the
effects of subscription revenue recognition for AbiliTec (dollars in millions).
Pro forma
September 30, % Change September 30, % Change
2001 2000 2000
Services $158.8 $204.2 -22% $162.5 - 2%
Data and Software Products 39.6 73.9 -46 33.7 + 18
Information Technology ("IT")
Management 53.3 52.8 + 1 51.4 + 4
Intercompany eliminations (36.5) (67.0) -46 (22.7) + 60
$215.2 $263.9 -18% $224.9 - 4%
Services segment revenue of $158.8 million declined 22% over the prior year but was up 6% compared to the first
quarter. Adjusting the prior year revenue for the pro forma effect of subscription revenue recognition for
AbiliTec, the Services segment would have declined 2% over the same period. In addition, the Services segment
completed over $20 million in hardware sales during the quarter, which were associated with data warehousing
contracts. Revenue from these sales will be recognized over the terms of the related contracts. For the
six-month period ended September 30, 2001, Services segment revenue was $308.2 million, down 19% over prior year
(or down 7% after adjusting the prior year amount for the pro forma effect of subscription revenue recognition
for AbiliTec).
Data and Software Products segment revenue of $39.6 million declined 46% as compared to the three-month period
ended September 30, 2000, but increased 21% from the first quarter. Adjusting the prior year for the pro forma
effect of subscription revenue recognition for AbiliTec, the segment revenue would have increased by 18%. For
the six-month period, Data and Software Products segment revenue was $72.5 million, a decrease of 30% (or an
increase of 18% after adjusting for the pro forma effect of subscription revenue recognition for AbiliTec) from
the same period a year ago. The increase in segment revenue as compared to the prior year pro forma amounts is
primarily attributable to increased data and data license sales.
IT Management segment revenue of $53.3 million reflects a 1% increase over the prior year. For the six-month
period, IT Management revenue declined slightly to $106.2 million compared to $108.6 million a year ago. IT
Management revenue for the quarter was up 16% when compared to the prior year excluding revenue from the Wards
contract in the prior year. The Wards contract terminated in April 2001.
Certain revenues, including certain data and software product revenue, are reported both as revenue in the
segment which owns the customer relationship (generally the Services segment) as well as the Data and Software
Products segment which owns the product development, maintenance, sales support, etc. These duplicate revenues
are eliminated in consolidation. The intercompany elimination decreased 46% for the quarter and 26% for the
six-month period.
The following table presents operating expenses for the quarters ended September 30, 2001 and 2000 (dollars in
millions):
September 30, %
2001 2000 Change
Salaries and benefits $ 77.6 $ 93.0
- 17%
Computer, communications and
other equipment 51.6 48.6
+ 6
Data costs 29.9 27.9
+ 7
Other operating costs and
expenses 36.1 49.0 - 26
$ 195.2 $218.5 -11%
Salaries and benefits for the quarter decreased 17% from the prior year's second quarter and 5% for the six-month
period. This decrease is primarily attributable to the work force reductions that were a component of the
restructuring plan discussed below, along with the stock options granted to associates in lieu of mandatory and
voluntary salary reductions effective April 2001.
Computer, communications and other equipment costs increased 6% over the second quarter in the prior year. For
the six-month period, computer, communications and other equipment costs increased 48% over the prior year (19%
after adjusting for the additional depreciation and amortization taken during the quarter ended June 30, 2001).
Data costs for the quarter grew 7% from the prior year and 12% for the six-month period. Increases in data costs
are primarily the result of increased Infobase data sales, as well as increases in sales under the Allstate
contract.
Other operating costs and expenses for the second quarter decreased by 26% compared to a year ago and decreased
by 19% for the six-month period, primarily as a result of lower hardware sales recognized during the current
year. Other factors causing the decrease relate to lower travel and entertainment expenses, consulting and
advertising.
On June 25, 2001, the Company announced a restructuring plan ("Restructuring Plan") in reaction to the continued
economic slowdown and the related revenue impact. The Restructuring Plan included a seven percent workforce
reduction; the sale-leaseback of certain computer equipment; and certain other asset impairments, adjustments and
accruals (see notes 2 and 4 to the condensed consolidated financial statements). The aggregate amount of these
Restructuring Plan charges recorded by the Company totaled $45.3 million (included in gains, losses and
nonrecurring items, net for the six-month period ended September 30, 2001) and consisted of a $31.2 million loss
on the sale-leaseback of computer equipment; $8.3 million in associate-related reserves, principally employment
contract termination and severance costs; $3.6 million for lease and contract termination costs and $2.2 million
for abandoned or otherwise impaired assets and transaction costs to be paid to accountants and attorneys. In
addition, during the quarter ended June 30, 2001, the Company recorded accelerated depreciation and amortization
and other charges of approximately $25.8 million on certain other assets that are no longer in service or were
otherwise deemed impaired.
The six-month period ended September 30, 2000 includes a net gain associated with gains, losses and nonrecurring
items, net of $3.1 million. This net gain reflects the $39.7 million gain on the sale of the DataQuick operation
in April 2000; the $3.2 million loss on the sale of the CIMS business unit; a $20.0 million write-down of the
remaining 49% interest in the DMI operation; a $7.2 million write-down of campaign management software, and a
$6.3 million accrual established to fund over-attainment incentives. All of these items were recorded during
the first quarter of the prior year.
Income from operations for the quarter of $20.0 million represents a decrease of 56% from the prior year. For
the six-month period, income (loss) from operations declined to a loss of $72.8 million as compared to earnings
of $79.5 million a year ago. Adjusting the prior year to include the pro forma effects of subscription revenue
recognition for AbiliTec, operating income (loss) increased $13.1 million for the current quarter. Excluding the
gains, losses and nonrecurring items, net and the accelerated depreciation discussed above and adjusting the
prior year to include the pro forma effects of subscription revenue recognition for software, operating income
(loss) for the six months ended September 30, 2001 decreased $37.0 million.
Interest expense for the quarter of $7.2 million ($14.0 million for the six-month period) increased from $6.0
million ($11.5 million for the six-month period) last year reflecting higher average debt levels this year.
Other, net increased from $0.9 million expense in last year's second quarter to $1.6 million expense this year.
Other, net for the six months decreased from income of $7.3 million to expense of $2.4 million largely due to a
$6.2 million gain on the sale of the Company's investment in Ceres during the prior year.
Earnings before income taxes of $11.2 million for the quarter decreased $27.2 million over the same quarter a
year ago. For the six months, earnings (loss) before income taxes was a loss of $56.6 million, compared to
earnings of $46.3 million last year. Adjusting the prior year for the pro forma effects of the subscription
revenue recognition for AbiliTec and gains, losses and nonrecurring items, net and excluding the special charges
and other accelerated depreciation and amortization recorded during the quarter ended June 30, 2001, the change
from the prior year would have been an increase of approximately $11.3 million and a decrease of approximately
$42.9 million, respectively, for the three months and for the six months ended September 30, 2001.
The Company's effective tax rate was 37% in the current quarter and 36.5% for the six months compared to 38.5%
during both periods in the prior year. The Company currently expects its effective tax rate to remain at
approximately 37% for fiscal 2002. This estimate is based on current tax law and current estimates of earnings,
and is subject to change.
Basic earnings per share for the quarter were $0.08 compared to $0.27 a year ago. Diluted earnings per share for
the quarter were $0.08 compared to $0.25 a year ago. For the six-month period, basic earnings (loss) per share
before the cumulative effect of the change in accounting principle were $(0.63) compared to $0.53 a year ago.
Diluted earnings (loss) per share (before the cumulative effect of the accounting change) were $(0.63) for the
six months compared to $0.49 a year ago. Excluding the special charges included in gains, losses and
nonrecurring items, net during both years; the accelerated depreciation and amortization recorded during the
current year; and approximately $18 million in operating expenses incurred during the first quarter of the
current year that are not expected to recur as a result of the Restructuring Plan, and adjusting the prior year
for the pro forma effect of subscription revenue recognition for AbiliTec, diluted earnings (loss) per share
would have been $0.08 and $0.00, respectively, for the quarters ended September 30, 2001 and 2000, and $0.01 and
$0.17, respectively, for the six months ended September 30, 2001 and 2000.
Capital Resources and Liquidity
Working capital at September 30, 2001 totaled $103.0 million compared to $138.1 million at March 31, 2001. At
September 30, 2001, the Company had available credit lines of $265 million of which $179.1 million was
outstanding. The Company's debt-to-capital ratio (capital defined as long-term debt plus stockholders' equity)
was 49% at September 30, 2001 compared to 37% at March 31, 2001. The increase largely relates to the new $64.2
million term loan entered into in settlement of the pre-existing equity forward agreements. Included in
long-term debt at both September 30, 2001 and March 31, 2001 is a convertible note in the amount of $115.0
million. The conversion price for the convertible debt is $19.89 per share. If the price of the Company's
common stock climbs above the conversion price, management expects this debt to be converted to equity. Total
stockholders' equity has decreased to $478.8 million at September 30, 2001 primarily due to the net loss reported
during the quarter ended June 30, 2001, payments of $23.5 million made on the equity forward contracts and the
settlement of the remaining balance of the equity forward contracts through the proceeds of a term note discussed
above.
Cash provided by operating activities was $30.0 million for the six months ended September 30, 2001 compared to
$20.1 million used by operating activities for the same period in the prior year. Operating cash flow was
increased by $9.9 million in the current year, and was reduced by $104.4 million in the prior year due to the net
change in operating assets and liabilities. The change in the current period primarily reflects a decrease in
accounts and notes receivable and other current and noncurrent assets, partially offset by a decline in accounts
payable. Accounts receivable days sales outstanding ("DSO") were 71 days at September 30, 2001, compared to 70
days at March 31, 2001 and 75 days at June 30, 2001.
Investing activities used $53.0 million for the six months ended September 30, 2001, compared to $61.1 million a
year previously. Investing activities in the current year include capitalized software development costs of
$11.4 million, capital expenditures of $8.8 million and $26.7 million of cost deferrals. Capital expenditures
decreased compared to the previous year due to leveraging investments made during recent years to develop the
AbiliTec infrastructure, measures the Company has put into place to control costs, as well as the Company's
decision to generally lease equipment which is needed to support customers to better match cash inflows from
customer contracts and cash outflows. Deferral of costs increased compared to the previous year due to the
deferral of costs related to hardware equipment sales that are being recognized over the life of the database
management service agreement and capitalized costs to develop data warehouses and data center migration. The
Company funded $14.2 million in equipment under its synthetic equipment lease facility during the six months
ended September 30, 2001 and has $80.3 million remaining under the total $240.0 million commitment.
Investing activities during the current year also include advances made to fund certain investments and joint
ventures operations of $5.7 million compared to $18.7 million in the prior year. Net cash paid in acquisitions
during the prior year was $14.1 million, and proceeds received from the disposition of assets were $34.5 million
in the prior year.
On June 29, 2001, in connection with the Restructuring Plan, the Company entered into an agreement whereby it
sold equipment to Technology Investment Partners, LLC ("TIP") (see notes 2 and 4 to the condensed consolidated
financial statements). Simultaneous with the sale of this equipment, the Company also agreed to lease the
equipment back from TIP for a period of thirty-six months. The Company has received $1.9 million of the sale
proceeds from TIP during July 2001 under the sale-leaseback arrangement and has applied the remaining $17.6
million of the sales proceeds as a prepayment of the lease.
Financing activities in the current year provided $17.9 million, most of which relates to debt proceeds from the
Company's revolving credit arrangement. The Company also paid $23.5 million in aggregate payments on certain
equity forward contracts during the current year prior to the settlement of those contracts during September 2001
through a term note payable in 2005. Proceeds from the sale of common stock were $6.5 million and $10.0 million,
respectively, during the six-month periods ended September 30, 2001 and 2000. The Company also has purchased
$7.5 million of common stock in the open market during the prior period (none during the current year).
During fiscal 2001, the Company began construction on a customer service facility in Little Rock. The Little Rock
building is expected to cost approximately $30 to $35 million, including interest during construction, and is
expected to be completed in October 2002. The City of Little Rock has issued revenue bonds for this project, and
the Company is financing it using an off-balance sheet synthetic lease arrangement. As of September 30, 2001,
the Company has drawn $23.1 million under this synthetic lease arrangement. Upon completion, the impact of the
leasing arrangement is expected to reduce operating cash flow by approximately $3 million per year over the term
of the lease, which will be offset by reductions in temporary leased facilities.
While the Company does not have any other material contractual commitments for capital expenditures, minimum
levels of investment in facilities and computer equipment continues to be necessary to support the growth of the
business. It should be noted, however, that the Company has spent considerable capital over the last two years
building the AbiliTec infrastructure. It is the Company's current intention to lease any new required
equipment. In addition, new outsourcing or facilities management contracts frequently require substantial
up-front capital expenditures in order to acquire or replace existing assets. The Company also evaluates
acquisitions from time to time, which may require up-front payments of cash. Depending on the size of the
acquisition it may be necessary to raise additional capital. If additional capital becomes necessary, the
Company would first use available borrowing capacity under its revolving credit agreement, followed by the
issuance of other debt or equity securities.
On August 14, 2001, the Company obtained an amendment of its revolving credit facility and other affected debt
obligations, which reduced the committed amount available under the revolver to $265 million, changed certain
financial covenants and provided that the outstanding balance of the revolver will be secured by substantially
all of the Company's unencumbered real estate and personal property assets. In addition, the amendment required
the Company to satisfy certain covenants by September 21, 2001, primarily relating to the execution of certain
collateral agreements for the benefit of the creditors, as well as the consummation of the term loan to fund the
settlement of the equity forward agreements discussed below. The Company satisfied each of these covenants in
accordance with the requirements of the amendment, and at September 30, 2001, the Company is in compliance with
all financial covenants of its credit facility agreements. The revolving credit agreement expires December 29,
2002 and will, therefore, be considered a current liability beginning with the balance sheet dated December 31,
2001.
During April 2001, prior to the settlement of the equity forward contracts, the Company had paid $22.5 million to
reduce the notional amounts under the contracts to $64.2 million. On September 21, 2001, in conjunction with the
amendment to the Company's revolving credit facility discussed above, the Company obtained an agreement for the
settlement of the equity forward contracts through borrowings of approximately $64.2 million from a bank under a
term loan arrangement. The funds from the term loan were used to pay the notional amount under the equity
forward contracts and have been recorded as a reduction of stockholders' equity in the accompanying condensed
consolidated financial statements. The Company has taken delivery of and retired the shares of common stock
subject to the contracts and is no longer obligated under any equity forward contracts as of September 30, 2001.
New Accounting Pronouncements
During June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," which
replaces Accounting Principles Board ("APB") Opinion No. 16, and issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which replaces APB Opinion No. 17 and amends SFAS No. 121. Under the provisions of SFAS No.
141, all business combinations initiated after June 30, 2001 must be accounting for by the purchase method of
accounting. The use of the pooling-of-interest method of accounting for business combinations is prohibited.
Under the provisions of SFAS No. 142, amortization of goodwill and other intangible assets that have an
indeterminate life is to be discontinued. However, an impairment analysis must be performed for these intangible
assets, at least annually, with any impairment recorded as a charge to earnings during the period in which the
impairment test is completed. The Company has elected to early adopt the provisions of SFAS No. 142 and has
discontinued the amortization of its goodwill balances effective April 1, 2001, resulting in an increase to net
earnings during the current quarter and a decrease in the net loss during the six months ended September 30, 2001
of approximately $2 million ($0.02 per diluted share) and $4 million ($0.04 per diluted share), respectively.
Additionally, the discontinued goodwill amortization is expected to result in an increase in net income (loss) of
approximately $7 million ($0.08 per diluted share) for the year ended March 31, 2002. Other acquired intangible
assets, including the amortization thereof, was not material at September 30, 2001, at March 31, 2001, or for any
of the periods presented. As required by the provisions of SFAS No. 142, the Company has completed part one of a
two-part impairment analysis of its goodwill and has determined that no potential impairment of its goodwill
exists as of April 1, 2001. Accordingly, step two of the goodwill impairment test associated with the initial
implementation of SFAS No. 142 is not applicable. However, additional impairment testing of the Company's
goodwill may be required during future periods should circumstances indicate that the Company's goodwill balances
might be impaired. Additionally, the Company will have to complete annual testing of its goodwill balance in
accordance with SFAS No. 142 to determine whether any possible impairment exists. Such annual impairment testing
is expected to be performed at the end of the Company's fiscal year.
Also, during June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This
statement establishes the accounting and reporting requirements for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. Specifically, it requires that the fair
value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. Additionally, it requires certain disclosures including
descriptions of asset retirement obligations and reconciliations of changes in the components of those
obligations. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company expects the
adoption of this statement will not have a material impact on its financial position, results of operations or
cash flows.
During August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." This statement addresses financial accounting and reporting for the impairment or disposal of long-lived
assets by superceding SFAS No. 121 and APB Opinion No. 30. SFAS No. 144 establishes a single accounting model
for measuring the impairment of long-lived assets to be disposed of by sale and expands the scope of asset
disposals that can be reported as discontinued operations. This Statement also resolves significant
implementation issues related to SFAS No. 121 regarding the measurement and the reporting of impairment losses
associated with long-lived assets. The provisions of SFAS No. 144 are effective for financial statements for
fiscal years beginning after December 15, 2001. The Company expects the adoption of this statement will not have
a material impact on its financial position, results of operations or cash flows.
Outlook
The opportunities for Acxiom's products and services continue to grow as companies implement their customer
relationship management ("CRM") strategies. These CRM efforts are putting focus on the need to aggregate customer
information across an enterprise, with the ability to do so in real time. Acxiom's AbiliTec software provides the
Customer Data Integration ("CDI") that can accurately and quickly aggregate all records about an individual or a
business. CDI is the foundational data management process for every use of CRM.
The financial projections stated today are based on the Company's current expectations. These projections are
forward looking, and actual results may differ materially. These projections do not include the potential impact
of any mergers, acquisitions, divestitures or other business combinations that may be completed in the future.
Our current assumption concerning general economic activity is that we do not expect substantial improvement
during this fiscal year, but we do anticipate improving economic conditions next year, and our guidance is
structured accordingly. The Company has updated its guidance based on using straight-line revenue recognition
for major hardware sales associated with data warehousing contracts.
For the third quarter ending December 31, 2001, the Company expects revenue of $220 million to $225 million and
earnings per share of $0.12 to $0.14. For the fiscal year ending March 31, 2002, the revised revenue is
expected to be in the range of $865 million to $880 million excluding $30 to $40 million of deferred hardware
revenue. The earnings per share for fiscal 2002 is expected to be $0.28 to $0.31, after adjusting for
non-recurring items in the first quarter.
For the fiscal year ending March 31, 2002, the Company expects operating cash flow of $90 million to $110 million
as well as positive free cash flow. Depreciation and amortization for the fiscal year is expected to be $110
million to $115 million. Capital expenditures, capitalization of deferred expenses and software development
costs are expected to be $90 million to $110 million.
For the fiscal year ending March 31, 2003, the Company expects revenue growth of approximately 20% and earnings
per share of $0.65 to $0.75.
Forward-looking Statements
This filing contains forward-looking statements that are subject to certain risks and uncertainties that could
cause actual results to differ materially; such statements include but are not necessarily limited to the
following: 1) that the revenue, earnings, cash flow, depreciation, amortization, capital expenditures,
deferrals, capitalization of deferred expenses and software development costs and growth projections for future
time periods will be within the indicated ranges; 2) that the Company expects to generate positive free cash flow
for each remaining quarter of the current fiscal year; and 3) that the Company expects to see continued
improvement in revenues and earnings for the quarter ending December 31, 2001. The following are important
factors, among others, that could cause actual results to differ materially from these forward-looking
statements: The possibility that certain contracts may not be closed or closed within the anticipated time
frames; the possibility that economic or other conditions might lead to a reduction in demand for the Company's
products and services; the possibility that the current economic slowdown may worsen and/or persist for an
unpredictable period of time given the attacks upon the people of the United States of America and other economic
factors; the possibility that economic conditions will not improve as rapidly as expected; the possibility that
significant customers may experience extreme, severe economic difficulty; the possibility that sales cycles may
lengthen; the continued ability to attract and retain qualified technical and leadership associates and the
possible loss of associates to other organizations; the ability to properly motivate the sales force and other
associates of the Company; the ability to achieve cost reductions and avoid unanticipated costs; the continued
availability of credit upon satisfactory terms and conditions; the introduction of competent, competitive
products, technologies or services by other companies; changes in consumer or business information industries and
markets; the Company's ability to protect proprietary information and technology or to obtain necessary licenses
on commercially reasonable terms; changes in the legislative, accounting, regulatory and consumer environments
affecting the Company's business including but not limited to litigation, legislation, regulations and customs
relating to the Company's ability to collect, manage, aggregate and use data; data suppliers might withdraw data
from the Company, leading to the Company's inability to provide certain products and services; short-term
contracts affect the predictability of the Company's revenues; the possibility that the amount of ad hoc project
work will not be as expected; the potential loss of data center capacity or interruption of telecommunication
links or power sources; postal rate increases that could lead to reduced volumes of business; customers that may
cancel or modify their agreements with the Company; the potential disruption of the services of the United States
Postal Service; the successful integration of any acquired businesses; and other competitive factors. With
respect to the providing of products or services outside the Company's primary base of operations in the U.S.,
all of the above factors and the difficulty of doing business in numerous sovereign jurisdictions due to
differences in culture, laws and regulations. Other factors are detailed from time to time in the Company's
periodic reports and registration statements filed with the United States Securities and Exchange Commission.
Acxiom believes that it has the product and technology offerings, facilities, associates and competitive and
financial resources for continued business success, but future revenues, costs, margins and profits are all
influenced by a number of factors, including those discussed above, all of which are inherently difficult to
forecast. Acxiom undertakes no obligation to update the information contained in this filing or any other
forward-looking statement.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Acxiom's earnings are affected by changes in short-term interest rates primarily as a result of its revolving
credit agreement and term note, which bear interest at a floating rate. Acxiom does not use derivative or other
financial instruments to mitigate the interest rate risk. Risk can be estimated by measuring the impact of a
near-term adverse movement of 10% in short-term market interest rates. If short-term market interest rates
average 10% more during the next four quarters than during 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 September 30, 2001 and March 31, 2001 the fair
value of Acxiom's fixed rate long-term obligations approximated carrying value.
Although Acxiom conducts business in foreign countries, principally the United Kingdom, foreign currency
translation gains and losses are not material to Acxiom's consolidated financial position, results of operations
or cash flows. Accordingly, Acxiom is not currently subject to material foreign exchange rate risks from the
effects that exchange rate movements of foreign currencies would have on Acxiom's future costs or on future cash
flows it would receive from its foreign investment. To date, 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There are various litigation matters that arise in the normal course of the business of the Company.
None of these, however, are believed to be material in their nature or scope.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of the Company was held on August 8, 2001. At the meeting, the
shareholders voted on and approved two proposals:
1) The election of three directors. Voting results for each individual nominee were as follows: Mr.
Rodger S. Kline, 79,247,553 votes for and 3,193,964 votes withheld; Mr. Stephen M. Patterson, 79,284,241
votes for and 3,157,256 votes withheld; and Mr. James T. Womble, 79,228,261 votes for and 3,213,236
votes withheld. These three elected directors will serve with the other five Board members: Mr.
William T. Dillard II, Mr. Harry C. Gambill and Mr. Thomas F. (Mack) McLarty, III, whose terms will
expire at the 2002 Annual Meeting and Dr. Ann Hayes Die, Mr. William J. Henderson and Mr. Charles D.
Morgan, whose terms will expire at the 2003 Annual Meeting.
2) The approval to increase the number of shares available to be issued under the Company's 2000
Associate Stock Option Plan by 2.9 million shares. Voting results for this proposal were as follows:
64,829,925 votes for, 16,205,321 votes against, and 1,406,251 votes abstained.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Not applicable.
(b) Reports on Form 8-K
A report was filed on July 24, 2001, which reported the Company's July 23, 2001 press release regarding
financial earnings for the 1st quarter of fiscal 2002 and the Company's prepared comments of the July
24, 2001 telephone conference call regarding the 1st quarter earnings.
A report was filed on September 14, 2001, which reported that the intended closing date of certain
collateral agreements related to the Company's amended revolving credit agreement and the consummation
of a term loan agreement to fund the settlement of the Company's equity forward contracts had been
mutually extended to September 21, 2001, and that the Company was on track to meet its previously
announced financial guidance.
A report was filed on September 21, 2001, which reported the Company had completed the closing of all
collateral agreements related to its amended revolving credit agreement and had completed the closing of
a term loan agreement to fund the settlement of the Company's equity forward contracts.
ACXIOM CORPORATION AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
Acxiom Corporation
Dated: November 14, 2001
By: /s/ Caroline Rook
(Signature)
Caroline Rook
Chief Financial Operations Officer
(Principal Accounting Officer)