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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, 2005
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
(State or Other Jurisdiction of
Incorporation or Organization)
P.O. Box 8180, 1 Information Way,
Little Rock, Arkansas
(Address of Principal Executive Offices)
71-0581897
(I.R.S. Employer
Identification No.)
72203
(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).
Yes [X] No [ ]
The number of shares of Common Stock, $ 0.10 par value per share outstanding as of November 3, 2005 was 85,106,110.
1
ACXIOM CORPORATION AND SUBSIDIARIES
INDEX
REPORT ON FORM 10-Q
September 30, 2005
Part I. Financial Information Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of September 30, 2005 and March 31, 2005 (Unaudited)........................................ 3
Condensed Consolidated Statements of Earnings
for the Three Months ended September 30, 2005 and 2004 (Unaudited)............................. 4
Condensed Consolidated Statements of Earnings
for the Six Months ended September 30, 2005 and 2004 (Unaudited)............................... 5
Condensed Consolidated Statement of Stockholders' Equity and Comprehensive Income (Loss)
for the Six Months ended September 30, 2005 (Unaudited)........................................ 6
Condensed Consolidated Statements of Cash Flows
for the Six Months ended September 30, 2005 and 2004 (Unaudited)............................... 7 - 8
Notes to the Condensed Consolidated Financial Statements (Unaudited)
1. Basis of presentation and summary of significant accounting principles...................... 9
2. Earnings per share and stockholders' equity................................................. 10 - 11
3. Acquisitions and divestitures............................................................... 12 - 13
4. Other current and noncurrent assets......................................................... 14
5. Goodwill.................................................................................... 15
6. Long-term obligations....................................................................... 15 - 16
7. Allowance for doubtful accounts............................................................. 16
8. Segment information......................................................................... 16
9. Restructuring Charges....................................................................... 17
10. Commitments and contingencies............................................................... 17 - 18
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 19 - 32
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................. 33
Item 4. Controls and Procedures..................................................................... 33
Part II. Other Information
Item 1. Legal Proceedings........................................................................... 34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds................................. 34
Item 4. Submissions of Matters to a Vote of Security Holders........................................ 34
Item 6. Exhibits.................................................................................... 35
Signature................................................................................................. 36
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
September 30, March 31,
2005 2005
------------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,962 $ 4,185
Trade accounts receivable, net 258,004 250,653
Deferred income taxes 31,766 31,415
Refundable income taxes - 1,345
Other current assets 42,048 46,034
------------------- ------------------
Total current assets 337,780 333,632
------------------- ------------------
Property and equipment, net of accumulated depreciation and amortization 655,255 581,918
Less - accumulated depreciation and amortization 304,142 258,532
------------------- ------------------
Property and equipment, net 351,113 323,386
------------------- ------------------
Software, net of accumulated amortization 69,927 57,135
Goodwill 474,360 354,182
Purchased software licenses, net of accumulated amortization 161,321 157,999
Unbilled and notes receivable, excluding current portions 21,322 20,410
Deferred costs, net of accumulated amortization 99,035 88,851
Data acquisition costs, net of accumulated amortization 42,861 48,915
Other assets, net 25,431 15,369
------------------- ------------------
$ 1,583,150 $ 1,399,879
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term obligations $ 87,623 $ 83,005
Trade accounts payable 54,920 63,295
Accrued expenses:
Payroll 24,979 27,435
Other 89,905 74,635
Deferred revenue 112,936 115,892
Income taxes 1,025 -
------------------- ------------------
Total current liabilities 371,388 364,262
------------------- ------------------
Long-term obligations:
Long-term debt and capital leases, net of current installments 477,461 104,210
Software and data licenses, net of current installments 31,186 37,494
------------------- ------------------
Total long-term obligations 508,647 141,704
------------------- ------------------
Deferred income taxes 87,147 79,079
Commitments and contingencies (note 10)
Stockholders' equity:
Common stock 10,554 10,440
Additional paid-in capital 620,746 588,156
Unearned stock-based compensation (2,994) -
Retained earnings 368,535 363,556
Accumulated other comprehensive income 4,747 12,616
Treasury stock, at cost (385,620) (159,934)
------------------- ------------------
Total stockholders' equity 615,968 814,834
------------------- ------------------
$ 1,583,150 $ 1,399,879
=================== ==================
See accompanying notes to condensed consolidated financial statements.
3
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
For the Three Months ended
September 30,
--------------------------------------
2005 2004
------------------- ------------------
Revenue:
Services $ 253,193 $ 220,072
Data 77,330 79,037
------------------- ------------------
Total revenue 330,523 299,109
Operating costs and expenses:
Cost of revenue
Services 193,500 168,950
Data 52,124 49,768
------------------- ------------------
Total cost of revenue 245,624 218,718
Selling, general and administrative 53,285 46,020
Gains, losses and other items, net 12,799 -
------------------- ------------------
Total operating costs and expenses 311,708 264,738
------------------- ------------------
Income from operations 18,815 34,371
------------------- ------------------
Other income (expense):
Interest expense (7,416) (4,743)
Other, net 1,050 205
------------------- ------------------
Total other income (expense) (6,366) (4,538)
------------------- ------------------
Earnings before income taxes 12,449 29,833
Income taxes 5,300 11,337
------------------- ------------------
Net earnings $ 7,149 $ 18,496
=================== ==================
Earnings per share:
Basic $ 0.08 $ 0.22
=================== ==================
Diluted $ 0.08 $ 0.20
=================== ==================
See accompanying notes to condensed consolidated financial statements
4
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
For the Six Months ended
September 30,
--------------------------------------
2005 2004
------------------- ------------------
Revenue:
Services $ 491,692 $ 427,919
Data 149,102 160,184
------------------- ------------------
Total revenue 640,794 588,103
Operating costs and expenses:
Cost of revenue
Services 389,469 332,499
Data 101,009 101,587
------------------- ------------------
Total cost of revenue 490,478 434,086
Selling, general and administrative 105,365 94,549
Gains, losses and other items, net 11,162 (344)
------------------- ------------------
Total operating costs and expenses 607,005 528,291
------------------- ------------------
Income from operations 33,789 59,812
------------------- ------------------
Other income (expense):
Interest expense (12,578) (9,813)
Other, net 1,941 614
------------------- ------------------
Total other income (expense) (10,637) (9,199)
------------------- ------------------
Earnings before income taxes 23,152 50,613
Income taxes 9,364 19,233
------------------- ------------------
Net earnings $ 13,788 $ 31,380
=================== ==================
Earnings per share:
Basic $ 0.15 $ 0.36
=================== ==================
Diluted $ 0.15 $ 0.34
=================== ==================
See accompanying notes to condensed consolidated financial statements
5
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
SIX MONTHS ENDED SEPTEMBER 30, 2005
(Unaudited)
(Dollars in thousands)
Common stock Treasury stock
-------------------------- ----------------------------
Accumulated
Additional Unearned other Total
Number Amount paid-in stock-based Comprehensive Retained comprehensive Number stockholders'
of shares capital compensation Income (loss) earnings income (logo) of shares Amount equity
------------- ------------ ------------- ------------- -------------- ------------ ------------- -------------- ------------- -------------
Balances at March 31, 2005 104,400,161 $ 10,440 $ 588,156 $ - $ - $ 363,556 $ 12,616 (9,187,086) $ (159,934) $ 814,834
Employee stock awards, benefit
plans and other purposes 1,138,274 114 21,433 - - - - 270 4 21,551
Acquisition of Digital Impact
-issuance of stock options, net
of forfeitures - - 11,157 (3,616) - - - - - 7,541
Amortization of unearned
stock-based compensation - - - 622 - - - - - 622
Acquisition of treasury stock - - - - - - - (11,839,623) (225,690) (225,690)
Dividends - - - - - (8,809) - - - (8,809)
Comprehensive income (loss):
Foreign currency translation - - - - (7,871) - (7,871) - - (7,871)
Unrealized gain on
marketable securities, net
of tax - - - - 2 - 2 - - 2
Net earnings - - - - 13,788 13,788 - - - 13,788
--------------
Total comprehensive
income (loss) $ 5,919
------------- ------------ ------------- ------------- ============== ------------ ------------- -------------- ------------- -------------
Balances at September 30, 2005 105,538,435 $ 10,554 $ 620,746 $ (2,994) $ 368,535 $ 4,747 (21,026,439) $ (385,620) $ 615,968
============= ============ ============= ============= ============ ============= ============== ============= =============
See accompanying notes to condensed consolidated financial statements
6
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the Six Months ended
September 30,
--------------------------------------
2005 2004
------------------ -------------------
Cash flows from operating activities:
Net earnings $ 13,788 $ 31,380
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization of long-lived assets 112,638 89,099
Net gain on disposal of assets, net (927) -
Deferred income taxes 8,015 19,548
Non-cash stock compensation expense 622 -
Changes in operating assets and liabilities:
Accounts receivable (5,286) (26,149)
Other assets (15,160) (8,446)
Accounts payable and other liabilities (7,429) (8,976)
------------------ -------------------
Net cash provided by operating activities 106,261 96,456
------------------ -------------------
Cash flows from investing activities:
Disposition of operations 1,529 -
Sale of assets 3,613 -
Payments received from investments 762 503
Capitalized software development costs (11,482) (8,828)
Capital expenditures (5,954) (6,636)
Deferral of costs and data acquisition costs (34,895) (20,723)
Net cash paid in acquisitions (141,526) (16,741)
------------------ -------------------
Net cash used in investing activities (187,953) (52,425)
------------------ -------------------
Cash flows from financing activities:
Proceeds from debt 391,289 98,129
Payments of debt (90,776) (135,609)
Dividends paid (8,809) (6,895)
Sale of common stock 21,551 23,671
Acquisition of treasury stock (229,436) (27,368)
------------------ -------------------
Net cash (used) provided by financing activities 83,819 (48,072)
------------------ -------------------
Effect of exchange rate changes on cash (350) (174)
------------------ -------------------
Net increase (decrease) in cash and cash equivalents 1,777 (4,215)
Cash and cash equivalents at beginning of period 4,185 14,355
------------------ -------------------
Cash and cash equivalents at end of period $ 5,962 $ 10,140
================== ===================
7
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Dollars in thousands)
For the Six Months ended
September 30,
--------------------------------------
2005 2004
------------------ -------------------
Supplemental cash flow information:
Cash paid (received) during the period for:
Interest $ 10,473 $ 9,888
Income taxes (1,446) 497
Payments on capital leases and installment payment arrangements 35,896 26,633
Payments on software and data license liabilities 16,266 14,847
Noncash investing and financing activities:
Issuance of stock options for acquisition of Digital Impact 7,541 -
Enterprise software licenses acquired under software obligation 8,380 5,967
Acquisition of property and equipment under capital leases and
installment payment arrangements 55,573 39,070
Construction of assets under construction loans 6,798 13,111
See accompanying notes to condensed consolidated financial statements.
8
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
These condensed consolidated financial statements have been prepared by Acxiom Corporation ("Registrant", "Acxiom" or "the
Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC" or "the
Commission"). In the opinion of the Registrant's management all adjustments necessary for a fair presentation of the results for
the periods included have been made and the disclosures are adequate to make the information presented not misleading. All such
adjustments are of a normal recurring nature. Certain note information has been omitted because it has not changed significantly
from that reflected in notes 1 through 21 of the Notes to Consolidated Financial Statements filed as part of Item 8 of the
Registrant's annual report on Form 10-K for the fiscal year ended March 31, 2005 ("2005 Annual Report"), as filed with the
Commission on June 13, 2005. This report and the accompanying condensed consolidated financial statements should be read in
connection with the 2005 Annual Report. The financial information contained in this report is not necessarily indicative of the
results to be expected for any other period or for the full fiscal year ending March 31, 2006.
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with
accounting principles generally accepted in the United States. Actual results could differ from those estimates. Certain of the
accounting policies used in the preparation of these condensed consolidated financial statements are complex and require management
to make judgments and/or significant estimates regarding amounts reported or disclosed in these financial statements. Additionally,
the application of certain of these accounting policies is governed by complex accounting principles and interpretations thereof. A
discussion of the Company's significant accounting principles and the application thereof is included in note 1 and in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of Operations, to the Company's 2005 Annual Report.
Certain prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications had no effect
on the prior year's net earnings as previously reported.
9
2. EARNINGS PER SHARE AND STOCKHOLDERS' EQUITY:
Earnings Per Share -
- --------------------
A reconciliation of the numerator and denominator of basic and diluted earnings per share is shown below (in thousands, except per
share amounts):
For the quarter ended For the six months ended
September 30, September 30,
------------------------------------- --------------------------------------
2005 2004 2005 2004
------------------ ------------------ ------------------- ------------------
Basic earnings per share:
Numerator - net earnings $ 7,149 $ 18,496 $ 13,788 $ 31,380
Denominator - weighted-average shares
outstanding 86,998 86,010 89,021 86,047
------------------ ------------------ ------------------- ------------------
Basic earnings per share $ 0.08 $ 0.22 $ 0.15 $ 0.36
================== ================== =================== ==================
Diluted earnings per share:
Numerator - net earnings $ 7,149 $ 18,496 $ 13,788 $ 31,380
Interest expense on convertible bonds
(net of tax benefit) - 1,017 - 2,034
------------------ ------------------ ------------------- ------------------
7,149 19,513 13,788 33,414
------------------ ------------------ ------------------- ------------------
Denominator:
Weighted-average shares outstanding 86,998 86,010 89,021 86,047
Dilutive effect of common stock
options and warrants, as computed
under the treasury stock method 2,599 3,464 2,676 3,709
Dilutive effect of convertible debt - 9,589 - 9,589
------------------ ------------------ ------------------- ------------------
89,597 99,063 91,697 99,345
------------------ ------------------ ------------------- ------------------
Diluted earnings per share $ 0.08 $ 0.20 $ 0.15 $ 0.34
================== ================== =================== ==================
At September 30, 2005, the Company had options and warrants outstanding providing for the purchase of approximately 18.9 million
shares of common stock including options to purchase approximately 0.6 million shares issued as a result of the acquisition of
Digital Impact, Inc. ("DI"). Options and warrants to purchase shares of common stock that were outstanding during the period
reported, but were not included in the computation of diluted earnings per share because the exercise price was greater than the
average market price of the common shares are shown below (in thousands, except per share amounts):
For the quarter ended For the six months ended
September 30, September 30,
------------------------------------- --------------------------------------
2005 2004 2005 2004
------------------ ------------------ ------------------- ------------------
Number of shares outstanding under options
and warrants 8,042 6,578 8,129 6,257
------------------ ------------------ ------------------- ------------------
Range of exercise prices $19.96 - $268.55 $22.50 - $62.06 $19.58 - $268.55 $23.10 - $62.06
================== ================== =================== ==================
10
Stock-Based Compensation -
- --------------------------
The Financial Accounting Standards Board recently published Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"). SFAS 123R will require that compensation cost related to stock options be recognized in the
financial statements. Currently, the Company accounts for its stock options under the provisions of APB 25, which does not
necessarily require the recognition of stock options as a compensation cost in the statement of earnings. Accordingly, no
compensation cost has historically been recognized by the Company in the consolidated statements of earnings for any of the fixed
stock options granted. As a result of the acquisition of DI the Company issued options to DI associates that are in-the-money,
resulting in compensation cost under APB 25. Had compensation cost for all options granted been determined on the basis of the fair
value of the awards at the date of grant, consistent with the methodology prescribed by Statement of Financial Accounting Standards
("SFAS") No. 123, as amended, the Company's net earnings would have been reduced to the following unaudited pro forma amounts for
the periods presented (in thousands, except per share amounts):
For the quarter ended For the six months ended
September 30, September 30,
---------------------------------- ----------------------------------
2005 2004 2005 2004
----------------- ---------------- ----------------- ----------------
Net earnings, as reported $ 7,149 $ 18,496 $ 13,788 $ 31,380
Plus: stock-based employee compensation
expense included in determination of net
income, net of income tax benefit 201 - 386 -
Less: stock-based employee compensation
expense under fair value based method, net
of income tax benefit (508) (15,677) (998) (19,138)
----------------- ---------------- ----------------- ----------------
Pro forma net earnings $ 6,842 $ 2,819 $ 13,176 $ 12,242
================= ================ ================= ================
Earnings per share:
Basic - as reported $ 0.08 $ 0.22 $ 0.15 $ 0.36
================= ================ ================= ================
Basic - pro forma $ 0.08 $ 0.03 $ 0.15 $ 0.14
================= ================ ================= ================
Diluted - as reported $ 0.08 $ 0.20 $ 0.15 $ 0.34
================= ================ ================= ================
Diluted - pro forma $ 0.08 $ 0.03 $ 0.14 $ 0.14
================= ================ ================= ================
The per-share weighted-average fair value of stock options granted during the six months ended September 30, 2005 was $3.54 on the
date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: dividend yield of 1.1%;
risk-free interest rate of 3.8%; expected option life of 3 years and expected volatility of 23%.
The decrease in pro forma compensation expense noted above under SFAS No. 123 results from acceleration of vesting in the fiscal
year ended March 31, 2005 of all of the Company's then outstanding unvested stock options except for those granted to the outside
directors of the Company and except for those held by terminated associates which will be forfeited or cancelled with the passage of
time. The decision to accelerate the vesting of these options was made primarily to avoid recognizing compensation expense in
future financial statements upon the effectiveness of SFAS 123R which has now been postponed until April 1, 2006. By accelerating
the vesting of these options, the Company recognized approximately $3.6 million of compensation expense in the fourth quarter of
fiscal 2005. The Company believes that it will thereafter not be required to recognize any material compensation expense in future
periods associated with the affected options. The stock-based employee compensation expense shown in the table above for the current
quarter and year-to-date period relates to options issued during the current year, options held by directors, and options held by DI
employees.
Stockholders' Equity -
- ----------------------
The Company paid dividends on its common stock in the amount of $0.10 and $0.08 per share in the six months ended September 30, 2005
and September 30, 2004, respectively.
During the six months ended September 30, 2005, 11.8 million shares were repurchased pursuant to the Company's common stock
repurchase program for an aggregate purchase price of $225.7 million. The Company also paid $3.7 million in cash for a stock
repurchase which was entered into in the last few days of the prior fiscal year. At September 30, 2005, the maximum dollar value of
shares that may yet be purchased under the program is $165.7 million.
11
3. ACQUISITIONS AND DIVESTITURES:
Acquisitions -
- --------------
In August 2005, the Company completed the acquisition of InsightAmerica ("IA"), a privately held company based in Broomfield,
Colorado. IA specializes in fraud prevention and risk mitigation services. The Company paid approximately $34.5 million in cash for
IA, net of cash acquired, and not including amounts, if any, payable pursuant to the terms and conditions of an earnout agreement.
Under the provisions of the earnout agreement, the Company may pay up to an additional $10 million over the period ending December
31, 2006 based on IA's achievement of certain quarterly revenue and earnings targets. IA's results of operations are included in the
Company's consolidated results beginning August 1, 2005. IA's total annual revenues for their fiscal year ended December 31, 2004
were approximately $18 million. The pro forma effect of this acquisition is not material to the Company's consolidated results for
any of the periods presented
In May 2005, the Company completed the acquisition of Digital Impact, Inc. ("DI"). DI is a provider of integrated email, search and
digital marketing solutions and is based in San Mateo, California. Management believes DI provides the Company with new integrated
email, search and digital marketing capabilities that are complementary to the Company's existing service offerings. The Company
paid approximately $106.9 million in cash for DI, net of cash acquired, and DI's results of operations are included in the Company's
consolidated results beginning May 1, 2005. DI's total annual revenues are approximately $45 million. The pro forma effect of this
acquisition is not material to the Company's consolidated results for any of the periods presented.
The following table shows the allocation of the IA and DI purchase prices to assets acquired and liabilities assumed (dollars in
thousands):
InsightAmerica Digital Impact
------------------ ------------------
Assets acquired:
Cash $ 541 $ 27,025
Goodwill 28,624 101,301
Other intangible assets 5,352 20,800
Other current and noncurrent assets 6,362 14,391
------------------ ------------------
40,879 163,517
Accounts payable, accrued expenses and capital leases assumed 5,850 17,634
------------------ ------------------
Net assets acquired 35,029 145,883
Less:
Cash acquired 541 27,025
Issuance of vested stock options - 7,541
Payments to be made for restricted stock - 4,391
------------------ ------------------
Net cash paid $ 34,488 $ 106,926
================== ==================
The purchase price allocations for the IA and DI acquisitions are subject to adjustment as the Company makes the final determination
of the fair values assigned to assets and liabilities acquired.
The amounts allocated to other intangible assets in the table above include software, customer relationship intangibles, and
databases.
As a result of both the Claritas Europe and Consodata acquisitions in fiscal 2004 and 2005, management formulated plans to
consolidate certain facilities, eliminate duplicative operations, and terminate or relocate certain associates. The Company recorded
aggregate accruals in other accrued liabilities for the estimated costs of the integration process, including lease termination
costs and lease fair value adjustments, costs of terminating or relocating associates, and for other contract termination costs. As
a result of the IA and DI acquisitions, management is also formulating plans for the integration process and has accrued the
estimated costs of associate terminations and lease termination costs and lease fair value adjustments.
12
3. ACQUISITIONS AND DIVESTITURES (continued):
The table below shows adjustments and payments related to these accruals during the six months ended September 30, 2005. Any future
adjustments to these plans may result in future expense or in an increase or decrease to the goodwill recorded for the acquisitions.
Other contract
Associate-related Lease and related termination
reserves reserves reserves Total
------------------ ------------------- ------------------ -------------------
Balance at March 31, 2005 $ 4,887 $ 9,277 $ 3,913 $ 18,077
Acquisition of DI 2,799 2,171 242 5,212
Adjustments (299) (1,271) (156) (1,726)
Payments (2,232) (3,112) (799) (6,143)
Change in foreign currency translation
adjustment (302) (564) (212) (1,078)
------------------ ------------------- ------------------ -------------------
Balance at September 30, 2005 $ 4,853 $ 6,501 $ 2,988 $ 14,342
================== =================== ================== ===================
Most of the associate-related reserves are expected to be paid during the fiscal year ending March 31, 2006 with the remaining
amounts to be paid in fiscal 2007. The lease and other contract reserves will be paid through April 2008.
Divestitures -
- -------------
Effective July 1, 2005 the Company sold its lettershop operations in Melville, New York. In connection with the sale, the Company
received a note receivable (see note 4) in the amount of $0.9 million and recorded a net loss on the sale of $0.3 million.
Effective September 1, 2005, the Company sold its real property data compilation business and associated assets for net proceeds of
$0.3 million. The loss on the sale was $1.9 million. The receivable for the sales price is included in other current assets at
September 30, 2005.
During September 2005, the Company reached an agreement to sell its 2Touch operation in the United Kingdom for estimated net
proceeds of $8.2 million. The sale is expected to close in the next quarter and to generate a small loss. The estimated loss on
disposal of $0.3 million was recorded in the quarter ended September 30, 2005.
The Company disposed of a leased airplane during the quarter ended June 30, 2005, recording a gain of $1.6 million. During the
quarter ended September 30, 2005, the gain on this transaction was adjusted to $1.5 million.
The Company sold an unused facility in the quarter ended September 30, 2005 for cash proceeds of $3.6 million and recorded a gain of
$2.8 million.
Gains, losses and other items for the periods presented are as follows (dollars in thousands):
For the quarter ended For the six months ended
September 30, September 30,
-------------------------------------- --------------------------------------
2005 2004 2005 2004
------------------ ------------------- ------------------ -------------------
Losses on divestitures $ 2,478 $ - $ 2,478 $ 31
Restructuring charges and adjustments
(note 9) 13,019 - 13,019 525
Leased airplane disposal 89 - (1,548) -
Gain on sale of building (2,787) - (2,787) -
Montgomery Ward recovery - - - (900)
------------------ ------------------- ------------------ -------------------
$ 12,799 $ - $ 11,162 $ (344)
====================================== ================== ===================
13
4. OTHER CURRENT AND NONCURRENT ASSETS:
Unbilled and notes receivable are from the sales of software, data licenses, and equipment and from the sale of divested operations,
net of the current portions of such receivables. Other current assets include the current portion of the unbilled and notes
receivable of $8.5 million and $11.7 million at September 30, 2005 and March 31, 2005, respectively. Except as disclosed below,
there are no allowances recorded against any of the unbilled and notes receivable (dollars in thousands).
September 30, March 31,
2005 2005
------------------ -------------------
Notes receivable from DMI, net of future credits of $1.5 million at September 30, $ 4,163 $ 6,497
2005 and $1.7 million at March 31, 2005
Notes receivable from other divestitures, net of allowance for uncollectible note
of $0.9 million at both September 30, 2005 and March 31, 2005 4,029 3,446
------------------ -------------------
Notes receivable from divestitures 8,192 9,943
Less current portion 711 2,545
------------------ -------------------
Long-term portion 7,481 7,398
------------------ -------------------
Unbilled and notes receivable arising from operations 21,584 22,128
Less current portion 7,743 9,116
------------------ -------------------
Long-term portion 13,841 13,012
------------------ -------------------
Unbilled and notes receivable, excluding current portions $ 21,322 $ 20,410
================== ===================
The remainder of other current assets consists of prepaid expenses, non-trade receivables and other miscellaneous assets.
September 30, March 31,
2005 2005
------------------ -------------------
Current portion of unbilled and notes receivable $ 8,454 $ 11,661
Prepaid expenses 13,955 15,582
Non-trade receivables 6,467 5,598
Other miscellaneous assets 13,172 13,193
------------------ -------------------
Other current assets $ 42,048 $ 46,034
================== ===================
Other noncurrent assets consist of the following (dollars in thousands):
September 30, March 31,
2005 2005
------------------ -------------------
Investments in marketable and nonmarketable securities $ 7,802 $ 7,655
Acquired intangible assets, net 13,647 5,342
Other miscellaneous noncurrent assets 3,982 2,372
------------------ -------------------
Other assets $ 25,431 $ 15,369
================== ===================
The acquired intangible assets noted above include customer relationship intangibles acquired through purchase acquisitions, net of
accumulated amortization.
14
5. GOODWILL:
Goodwill represents the excess of acquisition costs over the fair values of net assets acquired in business combinations. Goodwill
is reviewed at least annually for impairment under a two-part test. Impairment exists to the extent that the reporting unit's
recorded goodwill exceeds the residual fair value assigned to such goodwill. Any impairment that results from the completion of the
two-part test is recorded as a charge to operations during the period in which the impairment test is completed. Completion of the
Company's most recent annual impairment test during the quarter ended June 30, 2005 indicated that no potential impairment of its
goodwill balances exists.
The carrying amount of goodwill, by business segment, for the six months ended September 30, 2005 is presented in the following
table. As discussed in note 8 to the condensed consolidated financial statements, the previously reported IT Management segment has
been consolidated with the US Services and Data segment as a result of a change in the Company's business segments in the quarter
ended June 30, 2005.
US Services and International Total
(dollars in thousands) Data Services and Data
------------------ ------------------- -------------------
Balance at March 31, 2005 $ 217,730 $ 136,452 $ 354,182
Acquisition of DI 101,301 - 101,301
Acquisition of IA 28,624 - 28,624
Disposals of operations (111) - (111)
Purchase adjustments 91 (1,943) (1,852)
Change in foreign currency translation adjustment - (7,784) (7,784)
------------------ ------------------- -------------------
Balance at September 30, 2005 $ 347,635 $ 126,725 $ 474,360
================== =================== ===================
6. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following (dollars in thousands):
September 30, March 31,
2005 2005
------------------ -------------------
Revolving credit agreement $ 367,386 $ 10,921
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 9% ; remaining terms up to fifteen years 130,520 109,222
Warrants 1,500 1,612
Other debt and long-term liabilities 42,691 39,307
------------------ -------------------
Total long-term debt and capital leases 542,097 161,062
Less current installments 64,636 56,852
------------------ -------------------
Long-term debt, excluding current installments $ 477,461 $ 104,210
================== ===================
Software license liabilities payable over terms up to seven years;
effective interest rates ranging from approximately 4% to 8% $ 54,173 $ 57,178
Long-term data license agreement with related party, due over two years;
interest at 6% - 6,469
------------------ -------------------
Total license liabilities 54,173 63,647
Less current installments 22,987 26,153
------------------ -------------------
License liabilities, excluding current installments $ 31,186 $ 37,494
================== ===================
15
6. LONG-TERM OBLIGATIONS(continued):
The Company maintains a revolving credit facility that provides for aggregate borrowings and letters of credit of up to $500 million
through March 31, 2010. Borrowings under the revolving credit facility of $367.4 million at September 30, 2005 and $10.9 million at
March 31, 2005 bear interest at LIBOR plus 1.25% or at an alternative base rate or at the federal funds rate plus 2.0%, depending
upon the type of borrowing, and are secured by accounts receivable. The weighted average interest rate on the revolving credit
facility was 4.72% at September 30, 2005 and 4.87% at March 31, 2005. Outstanding letters of credit at September 30, 2005 and March
31, 2005 were $4.0 and $3.7 million, respectively.
Under the terms of certain of the above borrowings, the Company is required to maintain certain tangible net worth levels,
debt-to-cash flow and debt service coverage ratios, among other restrictions. At September 30, 2005, the Company was in compliance
with these covenants and restrictions. Accordingly, the Company has classified all portions of its debt obligations due after
September 30, 2006 as long-term in the accompanying condensed consolidated financial statements.
7. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Trade accounts receivable are presented net of allowances for doubtful accounts, returns, and credits of $7.4 million and $7.6
million at September 30, 2005 and March 31, 2005, respectively.
8. SEGMENT INFORMATION:
The Company reports segment information consistent with the way management internally disaggregates its operations to assess
performance and to allocate resources. In the current fiscal year, to better reflect the way management operates and reviews the
business, the Company changed its business segments to consist of US Services and Data and International Services and Data. The
previously reported IT Management segment has been consolidated with the US Services and Data segment. Both US and International
segments include consulting, database and data warehousing, list processing services, the Company's data content and software
products. US Services and Data now also includes information technology outsourcing and facilities management for data center
management, network management, client/server management and other complementary IT services. The Company evaluates performance of
the segments based on segment operating income, which excludes certain gains, losses and other items.
The following tables present information by business segment (dollars in thousands):
For the quarter ended For the six months ended
September 30, September 30,
-------------------------------------- --------------------------------------
2005 2004 2005 2004
------------------ ------------------- ------------------ -------------------
Revenue:
US Services and Data $ 286,326 $ 251,216 $ 551,760 $ 486,768
International Services and Data 44,197 47,893 89,034 101,335
------------------ ------------------- ------------------ -------------------
Total revenue $ 330,523 $ 299,109 $ 640,794 $ 588,103
====================================== ================== ===================
Income (loss) from operations:
US Services and Data $ 32,646 $ 34,978 $ 47,363 $ 57,267
International Services and Data (1,032) (607) (2,412) 2,201
Corporate and other (12,799) - (11,162) 344
-------------------------------------- ------------------ -------------------
Income from operations $ 18,815 $ 34,371 $ 33,789 $ 59,812
====================================== ================== ===================
16
9. RESTRUCTURING CHARGES:
During the quarter ended September 30, 2005, the Company recorded a total of $13.0 million in restructuring and other impairment
charges included in gains, losses and other items in the accompanying condensed consolidated statements of earnings. The charges
included $6.8 million in severance and other associate-related reserves for payments to be made to approximately 160 associates who
were notified during the quarter that they were to be involuntarily terminated; $3.7 million in lease termination costs or costs to
be incurred after exiting certain leased facilities; and $2.5 million in other costs including the write-off of certain
non-productive assets and other contract termination costs. The following table shows the portion of the above charges which are yet
to be paid as of September 30, 2005:
Balance at
September 30,
2005
-------------------
Severance and associate-related $ 3,321
Lease terminations and facility exit costs 3,681
Other contract costs 1,104
-------------------
$ 8,106
===================
The bulk of the severance and associate-related costs are expected to be paid by the end of the fiscal year. The remaining accrued
costs are expected to be paid out over the terms of the related leases or contracts, of which the longest one runs through fiscal
2012.
10. COMMITMENTS AND CONTINGENCIES:
On June 3, 2005, ValueAct Capital sent Charles Morgan, in his capacity as CEO and chairman of the board, a letter which indicated
ValueAct was prepared to offer $23 per share for the 89% of outstanding shares of Acxiom stock that ValueAct did not already own.
On June 23, 2005, a class action lawsuit was filed against the board of directors alleging breach of fiduciary duty. Among other
things, the putative class action plaintiff alleges that the board members are not independent from Charles Morgan. Based on this
purported lack of independence, the lawsuit alleges that the board did not use good faith in considering the June 3, 2005 letter
from ValueAct.
The lawsuit, Indiana State District Council of Laborers and HOD Carriers Pension Fund v. Morgan, et al., CV05-8498, is pending in
Pulaski County, Arkansas Circuit Court. In addition to seeking class action status, the plaintiffs are also seeking an order
requiring the defendants to properly consider the ValueAct transaction or any other transaction in the best interests of Acxiom
shareholders and to rescind any measures that would prevent ValueAct from negotiating for the purchase of the Company. The suit is
in its early stages and the defendants have not yet responded to the complaint. However, they intend to vigorously contest the
suit. The Company does not believe the ultimate outcome of the lawsuit will have a material impact on the Company or its operations
or financial position.
On July 12, 2005, ValueAct sent a letter to the Acxiom board of directors outlining a proposal to negotiate an acquisition of the
Company. Based on the board's evaluation of the proposal, and with assistance from its legal and financial advisors, the board
unanimously determined that pursuing ValueAct's proposal was not in the best interests of the Company or its shareholders.
On October 21, 2005, ValueAct sent a letter to the Acxiom board of directors outlining a proposal to acquire, for a cash price of
$25 per share, all the outstanding shares of Acxiom that ValueAct and its affiliates do not already own. The board, with assistance
from its legal and financial advisors, will evaluate and consider the merits of this proposal.
17
10. COMMITMENTS AND CONTINGENCIES (continued):
The Company leases data processing equipment, software, office furniture and equipment, land and office space under noncancellable
operating leases. Additionally, the Company has entered into synthetic operating leases for computer equipment, furniture and
aircraft ("Leased Assets"). These synthetic operating lease facilities are accounted for as operating leases under generally
accepted accounting principles and are treated as capital leases for income tax reporting purposes. Initial lease terms under the
synthetic computer equipment and furniture facility range from two to six years, with the Company having the option at expiration of
the initial lease to return the equipment, purchase the equipment at a fixed price, or extend the term of the lease. The lease term
of one aircraft expires in January 2011, with the Company having the option to purchase the aircraft, renew the lease for an
additional twelve months, or return the aircraft to the lessor. In December 2003 the Company entered into a lease for an additional
aircraft which would have expired in November 2013. During the quarter ended June 30, 2005, the Company terminated the lease for the
second aircraft and the lessor sold the aircraft. Under the terms of the lease the Company was entitled to the proceeds of the
airplane sale, net of the payoff value of the lease. As a result of this lease termination the Company received net proceeds of $1.5
million which is included in gains, losses and other items.
Since the inception of the facility, the total amount drawn under these synthetic operating lease facilities was $214.5 million and
the Company has a future commitment for lease payments of $7.9 million over the next ten years. In the event the Company elects to
return the Leased Assets, the Company has guaranteed a portion of the residual value to the lessors. Assuming the Company elects to
return the Leased Assets to the lessors at its earliest opportunity under the synthetic lease arrangements and assuming the Leased
Assets have no significant residual value to the lessors, the maximum potential amount of future payments the Company could be
required to make under these residual value guarantees was $3.7 million at September 30, 2005.
The Company also has an aircraft leased from a business controlled by an officer and director of the Company. Should the Company
elect early termination rights under the lease or not extend the lease beyond the initial term and the lessor sells the aircraft,
the Company has guaranteed a residual value of 70% of the then outstanding indebtedness of the lessor, or $3.2 million at September
30, 2005.
In connection with certain of the Company's facilities, the Company has entered into 50/50 joint ventures with local real estate
developers. In each case, the Company is guaranteeing portions of the loans for the buildings. In addition, in connection with the
disposal of certain assets, the Company has guaranteed loans for the buyers of the assets. These guarantees were made by the Company
primarily to facilitate favorable financing terms for those third parties. Should the third parties default on this indebtedness,
the Company would be required to perform under its guarantee. Substantially all of the third-party indebtedness is collateralized by
various pieces of real property. At September 30, 2005 the Company's maximum potential future payments under all of these guarantees
of third-party indebtedness were $5.3 million.
The Company is involved in various claims and legal actions in the ordinary course of business. In the opinion of management, the
ultimate disposition of all of these matters will not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.
18
Management's Discussion and Analysis of Financial Condition and Results of Operations
Introduction and Overview
Acxiom Corporation ("Acxiom" or "the Company") integrates data, services and technology to create and deliver customer and
information management solutions for many of the largest and most respected companies in the world. The core components of Acxiom's
innovative solutions are customer data integration ("CDI") technology and services, data, database services, information technology
("IT") outsourcing, consulting and analytics, and privacy leadership. Founded in 1969, Acxiom is headquartered in Little Rock,
Arkansas, with locations throughout the United States ("US") and Europe, and in Australia and China.
The Company is aligned into two operating segments: US Services and Data and International Services and Data (see note 8 to the
condensed consolidated financial statements). Both operating segments provide data and database services, data integration,
consulting and analytic services, data content and software, and customer marketing services to large corporations in a number of
vertical industries. The US Services and Data segment also includes information technology outsourcing and facilities management for
data center management, network management, client/server management and other complementary IT services.
Highlights of the most recently completed fiscal quarter are identified below.
o Revenue of $330.5 million was up 11 percent from $299.1 million in the second quarter a year ago. The net impact of
acquisitions and divestitures contributed 4 percentage points of this 11 percentage-point growth in revenue.
o Net unusual charges of $15.8 million, which include:
o A net $12.8 million in gains, losses and other items, which consist of:
o Restructuring charges of $13.0 million
o Losses on the sale of assets and operating units of $2.6 million
o A gain of $2.8 million on the sale of an unused Phoenix facility
o $2.2 million in legal, investment banking and other fees associated with representation of the Company related to
activities
by ValueAct Capital
o $0.8 million in expenses related to a lawsuit resolved in the quarter.
o Income from operations of $18.8 million, which was reduced by the $15.8 million noted above, compared to $34.4 million in
the second quarter last year.
o Pre-tax earnings of $12.4 million, which was reduced by the $15.8 million noted above, compared to $29.8 million in the
second quarter a year ago.
o The Company's diluted earnings per share were $0.08, which was reduced by the $0.12 impact of the items noted above,
compared to $0.20 in the second quarter last year.
o Operating cash flow of $44.8 million and free cash flow of $20.9 million. The free cash flow (as defined under "Capital
Resources and Liquidity" below) of $20.9 million is a non-GAAP financial measure.
o The acquisition of Insight America, a Broomfield, Colorado-based company that provides data-driven solutions, analytic
tools and background screening services to help clients mitigate risks, prevent identity theft and limit fraud.
o The purchase of 3.5 million shares of common stock through the Company's buy-back program at a total cost of $69.1 million
o New contracts that will deliver $49 million in annual revenue and renewals that total $17 million in annual revenue. The
$49 million in new annual revenue equals the highest new contract annual revenue total for any quarter.
o Committed new deals in the pipeline that are expected to generate $61 million in annual revenue.
The highlights above are intended to identify to the reader some of the more significant events and transactions of the Company
during the quarter ended September 30, 2005. However, these highlights are not intended to be a full discussion of the Company's
results for the quarter or the six months ended September 30, 2005. These highlights should be read in conjunction with the
following discussion of Results of Operations and Capital Resources and Liquidity and with the Company's condensed consolidated
financial statements and footnotes accompanying this report.
19
Results of Operations
- ---------------------
A summary of selected financial information for each of the periods reported is presented below (dollars in millions, except per
share amounts):
For the quarter ended For the six months ended
September 30, September 30,
-------------------------------------------- ---------------------------------------------
2005 2004 % Change 2005 2004 % Change
-------------- -------------- -------------- -------------- -------------- --------------
Revenue
Services $ 253.2 $ 220.1 15.1% $ 491.7 $ 427.9 14.9%
Data 77.3 79.0 (2.2) 149.1 160.2 (6.9)
-------------- -------------- -------------- -------------- -------------- --------------
$ 330.5 $ 299.1 10.5 $ 640.8 $ 588.1 9.0
Total operating costs and
expenses 311.7 264.7 17.7 607.0 528.3 14.9
Income from operations 18.8 34.4 (45.3) 33.8 59.8 (43.5)
Diluted earnings per share 0.08 0.20 (60.0) 0.15 0.34 (55.9)
============== ============== ============== ============== ============== ==============
Revenues
For the quarter ended September 30, 2005, the Company's revenue was $330.5 million, compared to revenue of $299.1 million in fiscal
2004, reflecting an increase of $31.4 million. Services revenue increased $33.1 million, or 15.1%, while data revenue decreased $1.7
million, or 2.2%. The increase in services revenue is primarily attributable to increases in revenue of $5.7 million from clients in
the financial services, retail, automotive and background screening industries, and an increase of $17.1 million in IT Management
revenue. Revenue from acquisitions completed since the second quarter of last year contributed $17.9 million of the increase, while
divested operations resulted in a decrease of $4.9 million. All other services revenue combined resulted in a net $2.7 million
decrease. The decrease in data revenue is primarily attributable to a decrease in International data revenue of $2.1 million, of
which $1.1 million was related to divested operations. Partially offsetting the decreases in International data revenue was Acxiom's
InfoBase suite of products, which were up 2.5%.
For the six months ended September 30, 2005, the Company's revenue was $640.8 million, compared to revenue of $588.1 million in
fiscal 2004, reflecting an increase of $52.7 million. Services revenue increased $63.8 million, or 14.9%, while data revenue
decreased $11.1 million, or 6.9%. The increase in services revenue is primarily attributable to increases in revenue of $6.6 million
from clients in the financial services, retail, telecommunications and background screening industries, and an increase of $40.6
million in IT Management revenue. Revenue from acquisitions completed since the second quarter of last year contributed $28.9
million, while divested operations resulted in a decrease of $6.9 million. All other services revenue combined resulted in a net
$5.4 million decrease. The decrease in data revenue is primarily attributable to a decrease in International data revenue of $9.6
million, of which $1.1 million was related to divested operations, and to a decrease in real estate property data revenue of $2.3
million. Partially offsetting these decreases was Acxiom's InfoBase suite of products, which were up 3.8%.
During the current fiscal year, the Company changed its business segments to consist of US Services and Data and International
Services and Data. Both segments include consulting, database and data warehousing, list processing services, the Company's data
content and software products. The US Services and Data segment also includes information technology outsourcing and facilities
management for data center management, network management, client/server management and other complementary IT services. The new
segments reflect how the Company is organized internally for management purposes.
The previously reported IT Management segment has been consolidated with the US Services and Data segment in the following table
which shows the Company's revenue by business segment for each of the periods presented below (dollars in millions):
For the quarter ended For the six months ended
September 30, September 30,
-------------------------------------------- ---------------------------------------------
2005 2004 % Change 2005 2004 % Change
-------------- -------------- -------------- -------------- -------------- --------------
US Services and Data $ 286.3 $ 251.2 14.0% $ 551.8 $ 486.8 13.4%
International Services and Data 44.2 47.9 (7.7) 89.0 101.3 (12.1)
Total Revenue $ 330.5 $ 299.1 10.5% $ 640.8 $ 588.1 9.0%
============== ============== ============== ============== ============== ==============
20
US Services and Data segment revenue for the quarter ended September 30, 2005 increased $35.1 million over fiscal 2005 and reflects
increases of $6.7 million from clients in the financial services, retail, automotive and background screening industries, and an
increase of $17.1 million in IT Management revenue. Revenue from acquisitions completed since the second quarter of last year
contributed $17.3 million of the increase, while divested operations resulted in a decrease of $2.1 million. All other revenue
combined resulted in a net $3.9 million decrease.
US Services and Data segment revenue for the six months ended September 30, 2005 increased $65.0 million over fiscal 2005 and
reflects increases of $8.9 million from clients in the financial services, retail, media and publishing and background screening
industries, and an increase of $40.6 million in IT Management revenue. Revenue from acquisitions completed since the second quarter
of last year contributed $27.8 million, while divested operations resulted in a decrease of $2.5 million. All other revenue combined
resulted in a net $9.8 million decrease.
International Services and Data segment revenue for the quarter ended September 30, 2005 decreased $3.7 million from fiscal 2005.
The decrease is primarily attributable to the sale of the German Lettershop business, which resulted in a decrease of $3.8 million.
International Services and Data segment revenue for the six months ended September 30, 2005 decreased $12.3 million from fiscal
2005. The decrease is primarily attributable the sale of the German Lettershop business, which resulted in a decrease of $5.5
million, and to a decrease in data sales to existing clients.
Operating Costs and Expenses
The following table presents the Company's operating costs and expenses for each of the periods reported (dollars in millions):
For the quarter ended For the six months ended
September 30, September 30,
-------------------------------------------- ---------------------------------------------
2005 2004 % Change 2005 2004 % Change
-------------- -------------- -------------- -------------- -------------- --------------
Cost of revenue
Services $ 193.5 $ 169.0 14.5% $ 389.5 $ 332.5 17.1%
Data 52.1 49.7 4.7 101.0 101.6 (0.6)
-------------- -------------- -------------- -------------- -------------- --------------
Total cost of revenue $ 245.6 $ 218.7 12.3 $ 490.5 $ 434.1 13.0
Selling, general and
administrative 53.3 46.0 15.8 105.3 94.5 11.4
Gains, losses and other items,
net 12.8 - 11.2 (.3)
-------------- -------------- -------------- -------------- -------------- --------------
Total operating costs and
expenses $ 311.7 $ 264.7 17.7% $ 607.0 $ 528.3 14.9%
============== ============== ============== ============== ============== ==============
The following table presents the Company's operating costs and expenses in functional categories for each of the periods reported
(dollars in millions):
For the quarter ended For the six months ended
September 30, September 30,
-------------------------------------------- ---------------------------------------------
2005 2004 % Change 2005 2004 % Change
-------------- -------------- -------------- -------------- -------------- --------------
Salaries and benefits $ 123.4 $ 105.9 16.5% $ 246.8 $ 210.7 17.1%
Computer, communications and
other equipment 76.3 69.4 9.8 153.9 138.3 11.2
Data costs 46.2 40.7 13.6 88.0 81.7 7.8
Other operating costs and
expenses 53.0 48.7 8.8 107.1 97.9 9.4
Gains, losses and other items,
net 12.8 - 11.2 (.3)
-------------- -------------- -------------- -------------- -------------- --------------
Total operating costs and
expenses $ 311.7 $ 264.7 17.7% $ 607.0 $ 528.3 14.9%
============== ============== ============== ============== ============== ==============
21
The cost of services for the quarter ended September 30, 2005 of $193.5 million increased $24.6 million or 14.5% over the quarter
ended September 30, 2004. Cost of services as a percent of services revenue was 76.4% in the quarter ended September 30, 2005
compared to 76.8% in the quarter ended September 30, 2004. Cost of services was up related to the increase in IT Management revenue
and to other new contracts in the US Services and Data segment. Additionally, cost of services was up by $11.9 million due to the
acquisitions completed since the second quarter of last year.
The cost of services for the six months ended September 30, 2005 of $389.5 million increased $57.0 million or 17.1% over the six
months ended September 30, 2004. Cost of services as a percent of services revenue was 79.2% in the six months ended September 30,
2005 compared to 77.7% in the six months ended September 30, 2004. Cost of services was up related to the increase in IT Management
revenue and to other new contracts in the US Services and Data segment. Additionally, cost of services was up by $19.8 million due
to the acquisitions completed since the second quarter of last year, and up by $4.2 million due to expenses incurred in the first
quarter for additional resources assigned to a major client installation that has now gone into production.
Cost of data includes acquired data, data royalties, compilation costs and the costs of building the Company's various data
products. The cost of data for the quarter ended September 30, 2005 of $52.1 million increased $2.4 million or 4.7% from the quarter
ended September 30, 2004. Cost of data as a percent of data revenue was 67.4% for the quarter ended September 30, 2005 compared to
63.0% for the same quarter a year ago. The increase is primarily attributable to an increase in the amortization of survey costs in
the European business. The cost of data for the six months ended September 30, 2005 of $101.0 million decreased slightly from the
six months ended September 30, 2004. Cost of data as a percent of data revenue was 67.7% for the six months ended September 30, 2005
compared to 63.4% for the comparable period in the prior year. The decrease in cost of data is primarily attributable to a decrease
in International data expense which was down in the first quarter due to a reduction in variable and royalty expenses, partially
offset by the slight increase in the second quarter.
Selling, general and administrative expenses for the quarter ended September 30, 2005 of $53.3 million increased $7.3 million or
15.8% from the quarter ended September 30, 2004. Selling, general and administrative expense as a percent of total revenue was 16.1%
in the quarter ended September 30, 2005 as compared to 15.8% in the quarter ending September 30, 2004. Selling, general and
administrative expenses for the six months ended September 30, 2005 increased $10.8 million or 11.4% compared to the six months
ended September 30, 2004. Acquisitions completed since the second quarter of last year accounted for $5.8 million of the $7.3
million increase in the current quarter and $9.4 million of the $10.8 million increase in the six months. Additionally expenses of
$2.2 million in legal, investment banking and other fees associated with representation of the Company related to activities by
ValueAct Capital, and $0.8 million in expenses related to a lawsuit that was resolved in the quarter were incurred in the second
quarter.
Gains, losses and other items for each of the periods presented are as follows (dollars in thousands):
For the quarter ended For the six months ended
September 30, September 30,
-------------------------------------- --------------------------------------
2005 2004 2005 2004
------------------ ------------------- ------------------ -------------------
Losses on divestitures $ 2,478 $ - $ 2,478 $ 31
Restructuring charges and adjustments
(note 9) 13,019 - 13,019 525
Leased airplane disposal 89 - (1,548) -
Gain on sale of building (2,787) - (2,787) -
Montgomery Ward recovery - - - (900)
------------------ ------------------- ------------------ -------------------
$ 12,799 $ - $ 11,162 $ (344)
================== =================== ================== ===================
During the quarter ended June 30, 2005, the Company terminated the lease on an airplane which was then sold by the lessor. Under the
terms of the lease, the Company was entitled to the proceeds of the airplane sale, net of the payoff value of the lease. As a result
of this lease termination, the Company received proceeds of $1.6 million. During the quarter ended September 30, 2005, the gain on
this transaction was adjusted to $1.5 million due to additional costs related to the disposal.
22
During the quarter ended September 30, 2005, the Company recorded a total of $13.0 million in restructuring and other impairment
charges (see note 9 to the condensed consolidated financial statements). The charges included $6.8 million in severance and other
associate-related reserves for payments to be made to involuntarily terminated associates; $3.7 million in lease termination costs
or costs to be incurred after exiting certain leased facilities; and $2.5 million in other costs including the write-off of certain
non-productive assets and other contract termination costs. The bulk of the severance and associate-related costs are expected to be
paid by the end of the fiscal year. The remaining accrued costs are expected to be paid out over the terms of the related leases or
contracts, of which the longest one runs through fiscal 2012.
During the quarter ended September 30, 2005 the Company sold its lettershop operations in Melville, New York and its real property
data compilation business recording net losses on these sales of $0.3 million and $1.9 million, respectively. In addition, the
Company reached an agreement to sell its 2Touch operation in the United Kingdom. The sale is expected to close in the next quarter
and to generate a small loss. The estimated loss on disposal of $0.3 million was recorded in the quarter ended September 30, 2005.
The Company sold an unused facility in the quarter ended September 30, 2005 for cash proceeds of $3.6 million and recorded a gain of
$2.8 million.
Gross Profit
For the quarter ended For the six months ended
September 30, September 30,
----------------------------------------------------------------------------------------
2005 2004 % Change 2005 2004 % Change
-------------- --------------- ------------ -------------- -------------- --------------
Services
Revenue $ 253.2 $ 220.1 15.1% $ 491.7 $ 427.9 14.9%
Cost of revenue 193.5 169.0 14.5 389.5 332.5 17.1
-------------- --------------- ------------ -------------- -------------- --------------
Gross profit $ 59.7 $ 51.1 16.8% $ 102.2 $ 95.4 7.1%
============== =============== ============ ============== ============== ==============
Gross profit % of services 23.6% 23.2% 20.8% 22.3%
revenue
Data
Revenue $ 77.3 $ 79.0 (2.2)% $ 149.1 $ 160.2 (6.9)%
Cost of revenue 52.1 49.8 4.7 101.0 101.6 (0.6)
-------------- --------------- ------------ -------------- -------------- --------------
Gross profit $ 25.2 $ 29.2 (13.9)% $ 48.1 $ 58.6 (17.9)%
============== =============== ============ ============== ============== ==============
Gross profit % of data revenue 32.6% 37.0% 32.3% 36.6%
Consolidated
Revenue $ 330.5 $ 299.1 10.5% $ 640.8 $ 588.1 9.0%
Cost of revenue 245.6 218.7 12.3 490.5 434.1 13.0
------------------------------ ------------ -------------- -------------- --------------
Gross profit $ 84.9 $ 80.4 5.6% $ 150.3 $ 154.0 (2.4)%
=========================================== ============== ============== ==============
Gross profit % of
consolidated revenue 25.7% 26.9% 23.5% 26.2%
Gross profit margins for services were 23.6% in the quarter ended September 30, 2005 which compares with 23.2% in the quarter ended
September 30, 2004. Gross profit margins for services were 20.8% in the six months ended September 30, 2005 which compares with
22.3% in the six months ended September 30, 2004.
The gross profit margin for data was 32.6% in the quarter ended September 30, 2005 which compares to 37.0% for the quarter ended
September 30, 2004. The gross profit margin for data was 32.3% in the six months ended September 30, 2005 which compares to 36.6%
for the six months ended September 30, 2004.
The consolidated gross profit margin for the quarter ended September 30, 2005 was 25.7% which compares to 26.9% for the quarter
ended September 30, 2004. Consolidated gross profit margins for the six months ended September 30, 2005 and September 30, 2004 were
23.5% and 26.2%, respectively.
23
Operating Margins
Operating margin for the quarter ended September 30, 2005 was 5.7% compared to 11.5% in the quarter ended September 30, 2004.
Operating margin for the six months ended September 30, 2005 was 5.3% compared to 10.2% in the six months ended September 30, 2004.
Other Income (Expense), Income Taxes and Other Items
Interest expense of $7.4 million in the quarter ended September 30, 2005 increased $2.7 million over the quarter ended September 30,
2004. Interest expense of $12.6 million in the six months ended September 30, 2005 increased $2.8 million over the six months ended
September 30, 2004. These increases reflect increased levels of borrowings during the current fiscal year. The Company's
weighted-average interest rate on long-term debt was 5.0% at September 30, 2005 and 4.7% at September 30, 2004.
Other, net increased $1.3 million in the six months ended September 30, 2005 compared to the same period in the prior year,
primarily due to a $0.4 million gain on an equity distribution from a joint venture investment in the first quarter and a $0.5
million gain related to an investment in the quarter ended September 30, 2005. Other, net includes interest income on notes
receivable of $0.9 million in the six months ended September 30, 2005 and $0.6 million in the six months ended September 30, 2004.
The effective tax rate for the quarter and six month periods ended September 30, 2005 was 42.6% and 40.4%, respectively. In
comparable prior-year periods the effective tax rate was 38%. The increase in the effective rate for both the quarter and six months
is due to certain costs incurred related to the Company's defense against ValueAct's attempted takeover, which may not be deductible
for federal income tax purposes and have therefore been accounted for as nondeductible expense. Management expects the effective tax
rate for the remainder of the year ended March 31, 2006 will be approximately 38%.
The Company is regularly audited by federal and state tax authorities, which, from time to time, results in proposed assessments
and/or adjustments to certain of the Company's tax positions. As a result of certain tax deductions and exclusions taken by the
Company in recent years for which no specific or clear guidance is included in the Internal Revenue Code and the possibility that
the Company's position with respect to these deductions and/or exclusions could be challenged and disallowed by tax authorities, the
Company has established a tax liability to cover its potential exposure.
Capital Resources and Liquidity
Working Capital and Cash Flow
Working capital at September 30, 2005 totaled a negative $33.6 million compared to a negative $30.6 million at March 31, 2005. Total
current assets increased $4.1 million, including a $7.4 million increase in accounts receivable, and current liabilities increased
$7.1 million. Cash provided by operating activities was $106.3 million in the six months ended September 30, 2005 as compared to
$96.5 million in the six months ended September 30, 2004. Depreciation and amortization increased by $23.5 million in the six months
ended September 30, 2005 and the net effect of changes in operating assets and liabilities was a negative $27.9 million in the
current year compared to a negative $43.6 million in the prior year.
Accounts receivable days sales outstanding ("DSO") was 72 days at September 30, 2005 and 70 days at March 31, 2005, and is
calculated as follows (dollars in thousands):
September 30, March 31,
2005 2005
------------------ -------------------
Numerator - trade accounts receivable, net $ 258,004 $ 250,653
Denominator:
Quarter revenue 330,523 322,534
Number of days in quarter 92 90
------------------ -------------------
Average daily revenue $ 3,593 $ 3,584
------------------ -------------------
Days sales outstanding 72 70
================== ===================
24
Investing activities used $188.0 million in the six months ended September 30, 2005 compared to $52.4 million in the same period in
the prior year. Investing activities in the current fiscal year included capitalized software development costs of $11.5 million as
compared to $8.8 million in the prior period. Capital expenditures of $6.0 million decreased $0.7 million in the current fiscal year
compared to the prior fiscal year. Deferrals of costs increased by $14.2 million compared to the prior year due primarily to
increased deferrals related to new contracts.
Investing activities also includes net cash paid for acquisitions of $141.5 million in the six months ended September 30, 2005. Of
this amount, $106.9 million relates to the acquisition of Digital Impact, Inc. ("DI") and $34.5 million relates to the acquisition
of InsightAmerica ("IA") (see note 3 to the condensed consolidated financial statements) and the remainder represents fees paid on
investments made in prior periods. Cash paid in acquisitions for the six months ended September 30, 2004 reflects the April 2004
acquisition of the Consodata German operations. Cash received from dispositions of operations includes collection on a note received
on a disposition made in a prior year, net of cash given up as part of the Melville disposition (see note 3 to the condensed
consolidated financial statements). The Company received $3.6 million as a result of the sale of an unused facility and $0.8 million
in investment distributions.
With respect to certain of its investments in joint ventures and other companies, the Company has provided cash advances to fund
losses and cash flow deficits. Although the Company has no commitment to continue to do so, it may continue funding such losses and
deficits until such time as these investments become profitable. The Company may, at its discretion, discontinue providing financing
to these investments during future periods. In the event that it ceases to provide funding and these investments have not achieved
profitable operations, the Company may be required to record an impairment charge up to the amount of the carrying value of these
investments ($7.6 million at September 30, 2005).
The Company generated free cash flows of $57.5 million in the six months ended September 30, 2005 and $60.3 million in the six
months ended September 30, 2004, as shown below (in thousands):
For the quarter ended For the six months ended
September 30, September 30,
----------------------------- -----------------------------
(Dollars in thousands) 2005 2004 2005 2004
-------------- -------------- -------------- --------------
Operating cash flow $ 44,785 $ 61,742 $ 106,261 $ 96,456
Proceeds received from disposition of assets 3,613 - 3,613 -
Capitalized software development costs (5,809) (4,721) (11,482) (8,828)
Capital expenditures (3,025) (4,813) (5,954) (6,636)
Deferral of costs and data acquisition costs (18,703) (11,113) (34,895) (20,723)
-------------- -------------- -------------- --------------
Free cash flow $ 20,861 $ 41,095 $ 57,543 $ 60,269
============== ============== =============================
Free cash flow is not a generally accepted accounting principle ("GAAP") financial measure. A "non-GAAP financial measure" is
defined as a numerical measure of the Company's financial performance, financial position or cash flow that excludes (or includes)
amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with
GAAP in the Company's condensed consolidated financial statements. The Company defines free cash flow as cash provided by operating
activities less cash used by investing activities excluding the impact of investments in joint ventures and other business alliances
and cash paid and/or received in business acquisitions and dispositions. Free cash flow, as defined by the Company, may not be
comparable to similarly titled measures reported by other companies. Management of the Company has included free cash flow in this
filing because although free cash flow does not represent the amount of money available for the Company's discretionary spending
since certain obligations of the Company must be funded out of free cash flow, particularly payments on capital leases and other
scheduled debt payments, management believes that it provides investors with a useful alternative measure of liquidity by allowing
an assessment of the amount of cash available for general corporate and strategic purposes, including debt payments, after funding
operating activities and capital expenditures, capitalized software expenses and deferred costs and data acquisition. The above
table reconciles free cash flow to cash provided by operating activities, the nearest comparable GAAP measure.
25
The Company has federal, state and foreign loss carryforwards and credits from past operations. Additional loss carryforwards and
credits are available to the Company as the result of acquisitions, although their utilization is limited annually under US tax law.
As a result of the carryforwards, the Company did not pay any significant federal, state or foreign income taxes in any of the
periods reported. The Company expects that the federal net operating loss carryforwards from past operations will be fully utilized
and the Company will begin paying federal income taxes during fiscal 2006, although the Company will not pay full regular taxes
until 2007. State and foreign tax payments are not expected to be significant in either fiscal 2006 or 2007.
Based on the completion of its evaluation of the foreign earnings repatriation provision of the American Jobs Creation Act of 2004,
the Company has decided it will not repatriate any earnings under this provision, and will therefore not have any impact to its
income tax expense as a result of any repatriation.
On November 14, 2002, the Company announced a common stock repurchase program. From that date until September 30, 2005, the Company
has repurchased 21.0 million shares of its common stock for an aggregate purchase price of $384.3 million under this repurchase
program. During the six months ended September 30, 2005, 11.8 million shares were repurchased for an aggregate purchase price of
$225.7 million. The Company also paid an additional $3.7 million in cash for trades entered into in the prior period which settled
in the current fiscal year.
Financing activities in the six months ended September 30, 2005 generated $83.8 million as compared to $48.1 million used in the six
months ended September 30, 2004. During the six months ended September 30, 2005, proceeds from the sale of common stock through
stock options and the employee stock purchase plan of $21.6 million and from debt financings of $391.3 million were offset by $90.8
million in repayments of debt, $8.8 million in cash dividends and $229.4 million in stock repurchases as discussed above.
The Company also incurred long-term obligations through non-cash investing and financing activities during the six months ended
September 30, 2005 of $55.6 million for the acquisition of property and equipment under capital leases, $6.8 million for
construction of assets and $8.4 million for software licenses acquired under software obligations.
The Company intends to use its future free cash flow to repay debt, to buy back shares of its common stock (when accretive to
earnings per share), for possible future acquisitions, for payments of dividends which may be declared by the board at its
discretion, and for other general business purposes.
Credit and Debt Facilities
The Company had available credit lines of $500 million of which $367.4 million was outstanding at September 30, 2005, compared to
$10.9 million outstanding at March 31, 2005. The Company's debt-to-capital ratio, as calculated below, was 45% at September 30,
2005 compared to 15% at March 31, 2005 (dollars in thousands).
September 30, March 31,
2005 2005
------------------ -------------------
Numerator - long-term obligations, net of current installments $ 508,647 $ 141,704
------------------ -------------------
Denominator:
Long-term obligations, net of current installments 508,647 141,704
Stockholders' equity 615,968 814,834
------------------ -------------------
$ 1,124,615 $ 956,538
------------------ -------------------
Debt-to-capital ratio 45% 15%
================== ===================
The foregoing calculation of the debt-to-capital ratio excludes current maturities of long-term obligations in the amounts of $87.6
million and $83.0 million at September 30, 2005 and March 31, 2005, respectively. The increase in the ratio is largely due to the
Company's use of debt in the current fiscal year to acquire treasury stock and to finance the acquisitions of DI and IA.
26
Off-Balance Sheet Items and Commitments
The Company has entered into synthetic operating lease facilities for computer equipment, furniture and aircraft ("Leased Assets").
These synthetic operating lease facilities are accounted for as operating leases under GAAP and are treated as capital leases for
income tax reporting purposes. Lease terms under the computer equipment and furniture facility range from two to six years, with the
Company having the option at expiration of the initial term to return, or purchase at a fixed price, or extend or renew the term of
the leased equipment. The synthetic lease term for one aircraft expires in January 2011, with the Company having the option at
expiration to either purchase the aircraft at a fixed price, enter into a lease for an additional twelve-month period (with a
nominal purchase price paid at the expiration of the renewal period), or return the aircraft in the condition and manner required by
the lease. In the event the Company elects to return the Leased Assets, the Company has guaranteed a portion of the residual value
to the lessors. Assuming the Company elects to return the Leased Assets to the lessors at its earliest opportunity under the
synthetic lease arrangements and assuming the Leased Assets have no significant residual value to the lessors, the maximum potential
amount of future payments the Company could be required to make under these residual value guarantees was $3.7 million at September
30, 2005. Since the inception of the facility, the total amount drawn under these synthetic operating lease facilities was $214.5
million, and as of September 30, 2005 the Company has a future commitment for lease payments of $7.9 million over the next ten
years.
During the six months ended September 30, 2005, the Company terminated the lease for a second aircraft which was then sold by the
lessor. Under the terms of the lease, the Company was entitled to the proceeds of the airplane sale, net of the payoff value of the
lease. As a result of this lease termination, the Company received net proceeds of $1.5 million which is included in gains, losses
and other items.
The Company has begun construction on an additional 30,000 square foot data center in Little Rock, Arkansas and it is expected to be
completed in fiscal 2006. Total construction cost of this facility is expected to be approximately $18 million. In connection with
certain of the Company's other buildings and facilities, the Company has entered into 50/50 joint ventures with local real estate
developers. In each case, the Company is guaranteeing portions of the loans for the buildings. In addition, in connection with the
disposal of certain assets, the Company has guaranteed loans for the buyers of the assets. Substantially all of the third party
indebtedness for which the Company has provided guarantees is collateralized by various pieces of real property. The aggregate
amount of the guarantees at March 31, 2005 was $5.3 million.
Outstanding letters of credit, which reduce the borrowing capacity under the Company's revolving credit facility, were $4.0 million
at September 30, 2005 and $3.7 million at March 31, 2005.
Contractual Commitments
The following table presents Acxiom's contractual cash obligations and purchase commitments at September 30, 2005 (dollars in
thousands). The column for 2006 represents the six months ending March 31, 2006. All other columns represent fiscal years ending
March 31.
27
For the years ending March 31
--------------------------------------------------------------------------------------------
2006 2007 2008 2009 2010 Thereafter Total
------------ ------------- ------------ ------------ ------------ ------------ -------------
Capital lease and
installment payment
obligations $ 33,895 $ 47,153 $ 28,833 $ 7,428 $ 1,128 $ 12,083 $ 130,520
Software and data license
liabilities 13,308 18,553 15,148 7,164 - - 54,173
Warrant liability - - - - - 1,500 1,500
Other long-term debt 5,720 3,671 2,968 12,545 368,461 16,712 410,077
------------ ------------- ------------ ------------ ------------ ------------ -------------
Total long-term
obligations 52,923 69,377 46,949 27,137 369,589 30,295 596,270
------------ ------------- ------------ ------------ ------------ ------------ -------------
Synthetic aircraft leases 466 931 931 931 931 698 4,888
Synthetic equipment and
furniture leases 1,645 964 402 - - - 3,011
------------ ------------- ------------ ------------ ------------ ------------ -------------
Total synthetic
operating leases 2,111 1,895 1,333 931 931 698 7,899
Equipment operating leases 6,274 8,412 2,536 158 31 - 17,411
Building operating leases 10,137 19,398 14,811 13,794 10,633 58,900 127,673
Partnerships building leases 1,062 2,133 2,143 2,156 47 - 7,541
Related party aircraft lease 451 376 - - - - 827
-------------------------- ------------ ------------ ------------ ------------ -------------
Total operating lease
payments 20,035 32,214 20,823 17,039 11,642 59,598 161,351
Operating software license
obligations 2,481 4,809 4,800 4,621 4,605 2,718 24,034
-------------------------- ------------ ------------ ------------ ------------ -------------
Total operating lease
and software license
obligations 22,516 37,023 25,623 21,660 16,247 62,316 185,385
-------------------------- ------------ ------------ ------------ ------------ -------------
Total contractual cash
obligations $ 75,439 $ 106,400 $ 72,572 $ 48,797 $ 385,836 $ 92,611 $ 781,655
========================== ============ ============ ============ ============ =============
For the years ending March 31
--------------------------------------------------------------------------------------------
2006 2007 2008 2009 2010 Thereafter Total
------------ ------------- ------------ ------------ ------------ ------------ -------------
Purchase commitments on
synthetic aircraft leases $ - $ - $ - $ - $ - $ 4,398 $ 4,398
Purchase commitments on
synthetic equipment and
furniture leases 1,560 464 1,862 - - - 3,886
Other purchase commitments 50,680 24,436 18,836 6,066 6,066 9,576 115,660
-------------------------- ------------ ------------ ------------ ------------ -------------
Total purchase commitments $ 52,240 $ 24,900 $ 20,698 $ 6,066 $ 6,066 $ 13,974 $ 123,944
========================== ============ ============ ============ ============ =============
The related party aircraft lease relates to an aircraft leased from a business owned by an officer and director. The Company has
also agreed to pay the difference, if any, between the sales price of the aircraft and 70% of the related loan balance
(approximately $3.2 million at September 30, 2005) should the Company elect to exercise its early termination rights or not extend
the lease beyond its initial term and the lessor sells the equipment as a result.
The purchase commitments on the synthetic equipment, furniture and aircraft leases assume the leases terminate and are not renewed,
and the Company elects to purchase the assets. The other purchase commitments include contractual commitments for the purchase of
data and open purchase orders for equipment, paper, office supplies, construction of buildings and other items. Other 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.
28
The following table shows contingencies or guarantees under which the Company could be required, in certain circumstances, to make
cash payments as of September 30, 2005 (dollars in thousands):
Residual value guarantee on the synthetic computer equipment and furniture lease $ 1,065
Residual value guarantee on synthetic aircraft lease 2,639
Residual value guarantee on related party aircraft lease 3,224
Guarantees on certain partnership and other loans 5,301
Outstanding letters of credit 3,966
The total of loans "on certain partnerships and other loans," of which the Company guarantees the portion noted in the above table,
are $13.0 million.
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. It is the Company's current
intention generally to lease any new required equipment to better match cash outflows with customer inflows. In some cases, the
Company also sells software and hardware to clients. In addition, new outsourcing or facilities management contracts frequently
require substantial up-front capital expenditures to acquire or replace existing assets. Management believes that the Company's
existing available debt and cash flow from operations will be sufficient to meet the Company's working capital and capital
expenditure requirements for the foreseeable future. The Company also evaluates acquisitions from time to time, which may require
up-front payments of cash. Depending on the size of the acquisition it may be necessary to raise additional capital. If additional
capital becomes necessary as a result of any material variance of operating results from projections or from potential future
acquisitions, the Company would first use available borrowing capacity under its revolving credit agreement, followed by the
issuance of debt or equity securities. However, no assurance can be given that the Company would be able to obtain funding through
the issuance of debt or equity securities at terms favorable to the Company, or that such funding would be available.
For a description of certain risks that could have an impact on results of operations or financial condition, including liquidity
and capital resources, see the "Risk Factors" contained in Part I, Item 1. Business, of the Company's annual report on Form 10-K for
the fiscal year ended March 31, 2005.
Acquisitions and Divestitures
In August 2005, the Company completed the acquisition of InsightAmerica ("IA"), a privately held company based in Broomfield,
Colorado. IA specializes in fraud prevention and risk mitigation services. The Company paid approximately $34.5 million in cash for
IA, net of cash acquired, and not including amounts, if any, payable pursuant to the terms and conditions of an earnout agreement.
Under the provisions of the earnout agreement, the Company may pay up to an additional $10 million over the period ending December
31, 2006 based on IA's achievement of certain revenue and earnings targets. IA's results of operations are included in the
Company's consolidated results beginning August 1, 2005. IA's total annual revenues are approximately $18 million.
In May 2005, the Company completed the acquisition of Digital Impact, Inc. ("DI"). DI is a provider of integrated email, search and
digital marketing solutions and is based in San Mateo, California. Management believes DI provides the Company with new digital
services capabilities that are complementary to the company's existing service offerings. The Company paid approximately $106.9
million in cash for Digital, net of cash acquired, and Digital's results of operations are included in the Company's consolidated
results beginning May 1, 2005. Digital's total annual revenues are approximately $45 million.
During the quarter ended September 30, 2005 the Company sold its lettershop operations in Melville, New York and its real property
data compilation business recording net losses on these sales of $0.3 million and $1.9 million, respectively. In addition, the
Company reached an agreement to sell its 2Touch operation in the United Kingdom. The sale is expected to close in the next quarter
and to generate a small loss. The estimated loss on disposal of $0.3 million was recorded in the quarter ended September 30, 2005.
The Company sold an unused facility in the quarter ended September 30, 2005 for cash proceeds of $3.6 million and recorded a gain of
$2.8 million.
See note 3 to the condensed consolidated financial statements for more information about the Company's acquisitions and
divestitures.
29
Related Parties
- ---------------
In accordance with a data center management agreement dated July 27, 1992 between Acxiom and TransUnion, Acxiom (through its
subsidiary, Acxiom CDC, Inc.) acquired all of TransUnion's interest in its Chicago data center and agreed to provide TransUnion with
various data center management services. In a 1992 letter agreement, Acxiom agreed to use its best efforts to cause one person
designated by TransUnion to be elected to Acxiom's board of directors. TransUnion designated its CEO and President, Harry C.
Gambill, who was appointed to fill a vacancy on the board in November 1992 and was elected at the 1993 annual meeting of
stockholders to serve a three-year term. He was elected to serve additional three-year terms at the 1996, 1999, 2002 and 2005 annual
stockholders meetings. During the quarter ended September 30, 2004, the agreement was extended to run through December 31, 2010.
In addition to this agreement, the Company has other contracts with TransUnion related to data, software and other services. Acxiom
recorded revenue from TransUnion of $55.3 million for the six months ended September 30, 2005 and $43.0 million for the six months
ended September 30, 2004.
See note 14 to the consolidated financial statements contained in the Company's annual report on Form 10-K for additional
information on certain relationships and related transactions.
International Operations
- ------------------------
The Company has a presence in the United Kingdom, France, The Netherlands, Germany, Spain, Portugal, Poland, Australia and China.
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 condensed 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. The consolidated financial statements in the
Company's 2005 annual report include a summary of significant accounting policies used in the preparation of Acxiom's consolidated
financial statements. In addition, the Management's Discussion and Analysis filed as part of the 2005 annual report contains a
discussion of the policies which management has identified as the most critical because they require management's use of complex
and/or significant judgments. The following paragraphs are intended to update that discussion only for the critical accounting
policies or estimates which have materially changed since the date of the last annual report.
Valuation of Long-Lived Assets and Goodwill - Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
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. In cases where cash flows cannot be
associated with individual assets, assets are grouped together in order to associate cash flows with the asset group. If such
assets or asset groups 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 reported at the lower of the
carrying amount or fair value less costs to sell. No assurance can be given by management of the Company that future impairment
charges to its long-lived assets will not be required as a result of changes in events and/or circumstances.
Goodwill represents the excess of acquisition costs over the fair values of net assets acquired in business combinations
treated as purchase transactions. Under the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill is not
amortized, but is reviewed annually for impairment under a two-part test. In the event that part one of the impairment test
indicates potential impairment of goodwill, performance of part two of the impairment test is required. Any impairment that
results from the completion of the two-part test is recorded as a charge to operations during the period in which the
30
impairment test is completed. The Company performs its annual goodwill impairment evaluation as of the beginning of its fiscal
year. The Company has completed part one of an annual, two-part impairment analysis of its goodwill and has determined that no
impairment of its goodwill existed as of April 1, 2005. Accordingly, step two of the goodwill impairment test was not required
for fiscal 2006. Changes in circumstances may require the Company to perform impairment testing on a more frequent basis. No
assurance can be given by the Company that additional impairment tests will not require an impairment charge during future
periods should circumstances indicate that the Company's goodwill balances are impaired.
In completing step one of the test and making the assessment that no potential impairment of the Company's goodwill existed,
management has made a number of estimates and assumptions. In particular, the growth in operating income and discount rates
used by management in determining the fair value of each of the Company's reporting units through a discounted cash flow
analysis significantly affect the outcome of the impairment test, as well as numerous other factors. In performing step one of
the impairment analysis, management has used growth rates ranging from minus 5% up to 50% for the International segment and 15
percent up to 25 percent for the US segment and used a discount rate of 12 percent for all segments, representing an
approximation of the Company's weighted-average cost of capital, which resulted in an excess of fair value over the net assets
of each of the Company's reporting units. Assuming the same growth rates, a discount rate of greater than 14 percent would be
necessary to indicate potential impairment of the International segment and a discount rate of 30% would be necessary to
indicate impairment of the US segment, resulting in the need to proceed to step two of the impairment test. Alternatively,
assuming the 12 percent discount rate but assuming no growth for the US segment and only 9 percent growth for the International
segment would also not indicate impairment. Additionally, the Company has determined that its reporting units should be
aggregated up to reportable segments for use in analyzing its goodwill and assessing any potential impairment thereof, on the
basis of similar economic characteristics in accordance with the guidance in SFAS No. 131 and SFAS No. 142. However, should a
determination be made that such aggregation of some or all of the Company's reporting units is not appropriate, the results of
step one of the goodwill impairment test might indicate that potential impairment does exist, requiring the Company to proceed
to step two of the test and possibly recording an impairment of its goodwill.
Stock-Based Compensation Accounting - The Company has elected to continue using the intrinsic-value method of accounting for
stock-based compensation to associates. Accordingly, the Company has not historically recognized compensation expense for the
fair value of its stock-based awards to associates in its condensed consolidated financial statements. The Company has included
the pro forma disclosures in note 2 to its condensed consolidated financial statements as if the fair-value based method of
accounting had been applied. As a result of the acquisition of DI the Company has issued options to DI associates that are
"in-the-money" resulting in the Company recording compensation cost under the intrinsic-value method.
Forward-looking Statements
- --------------------------
This document and other written reports and oral statements made from time to time by the Company and its representatives contain
forward-looking statements. These statements, which are not statements of historical fact, may contain estimates, assumptions,
projections and/or expectations regarding the Company's financial position, results of operations, market position, product
development, growth opportunities, economic conditions, and other similar forecasts and statements of expectation. The Company
generally indicates these statements by words or phrases such as "anticipate," "estimate," "plan," "expect," "believe," "intend,"
"foresee," and similar words or phrases. These forward-looking statements are not guarantees of future performance and are subject
to a number of factors and uncertainties that could cause the Company's actual results and experiences to differ materially from the
anticipated results and expectations expressed in such forward-looking statements.
The factors and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, the
forward-looking statements include but are not limited to the following:
o the possibility that we may incur expenses related to unsolicited proposals or others to acquire the Company;
o the possibility that certain contracts may not be closed, or may not be closed within the anticipated time frames;
o the possibility that certain contracts may not generate the anticipated revenue or profitability;
o the possibility that negative changes in economic or other conditions might lead to a reduction in demand for our products
and services;
31
o the possibility of an economic slowdown or that economic conditions in general will not be as expected;
o the possibility that significant customers may experience extreme, severe economic difficulty;
o the possibility that the integration of acquired businesses may not be as successful as planned;
o the possibility that the fair value of certain of our assets may not be equal to the carrying value of those assets now or
in future time periods;
o the possibility that sales cycles may lengthen;
o the possibility that we may not be able to attract and retain qualified technical and leadership associates, or that we may
lose key associates to other organizations;
o the possibility that we won't be able to properly motivate our sales force or other associates;
o the possibility that we won't be able to achieve cost reductions and avoid unanticipated costs;
o the possibility that we won't be able to continue to receive credit upon satisfactory terms and conditions;
o the possibility that competent, competitive products, technologies or services will be introduced into the marketplace by
other companies;
o the possibility that we may be subjected to pricing pressure due to market conditions and/or competitive products and
services;
o the possibility that there will be changes in consumer or business information industries and markets;
o the possibility that changes in accounting pronouncements may occur and may impact these projections;
o the possibility that we won't be able to protect proprietary information and technology or to obtain necessary licenses on
commercially reasonable terms;
o the possibility that we may encounter difficulties when entering new markets or industries;
o the possibility that there will be changes in the legislative, accounting, regulatory and consumer environments affecting
our business, including but not limited to litigation, legislation, regulations and customs relating to our
ability to collect, manage, aggregate and use data;
o the possibility that data suppliers might withdraw data from us, leading to our inability to provide certain products and
services;
o the possibility that we may enter into short-term contracts which would affect the predictability of our revenues;
o the possibility that the amount of ad hoc, volume-based and project work will not be as expected;
o the possibility that we may experience a loss of data center capacity or interruption of telecommunication links or power
sources;
o the possibility that we may experience failures or breaches of our network and data security systems, leading to potential
adverse publicity, negative customer reaction, or liability to third parties;
o the possibility that postal rates may increase, thereby leading to reduced volumes of business;
o the possibility that our clients may cancel or modify their agreements with us;
o the possibility that we will not successfully complete customer contract requirements on time or meet the service levels
specified in the contracts, which may result in contract penalties or lost revenue;
o the possibility that we may experience processing errors which result in credits to customers,
re-performance of services or payment of damages to customers;
o the possibility that the services of the United States Postal Service, their global counterparts and other delivery systems
may be disrupted;
o and the possibility that we may be affected by other competitive factors.
In light of these risks, uncertainties and assumptions, the Company cautions readers not to place undue reliance on any
forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements based
on the occurrence of future events, the receipt of new information or otherwise.
32
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Acxiom's earnings are affected by changes in short-term interest rates primarily as a result of its revolving credit agreement,
which bears 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 increase 10% 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 September 30, 2005 and March 31, 2005, the fair value of Acxiom's fixed rate long-term
obligations approximated carrying value.
The Company has a presence in the United Kingdom, France, The Netherlands, Germany, Spain, Portugal, Poland, Australia, and China.
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.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
An evaluation as of the end of the period covered by this quarterly report was carried out under the supervision and with
the participation of the Company's management, including the Company Leader (Chief Executive Officer) and Chief Finance and
Administration Leader (Chief Financial Officer), of the effectiveness of the design and operation of the Company's
"disclosure controls and procedures," which are defined under SEC rules as controls and other procedures of a company that
are designed to ensure that information required to be disclosed by a company in the reports that it files under the
Exchange Act is recorded, processed, summarized and reported within required time periods. Based upon that evaluation, the
Company Leader and Chief Finance and Administration Leader concluded that the Company's disclosure controls and procedures
were effective.
(b) Changes in Internal Control over Financial Reporting
The Company's management, including the Company Leader (Chief Executive Officer) and the Chief Finance and Administration
Leader (Chief Financial Officer), has evaluated any changes in the Company's internal control over financial reporting that
occurred during the quarterly period covered by this report, and has concluded that there was no change during the quarterly
period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various claims and litigation matters that arise in the ordinary course of the business. None of
these, however, are believed to be material in their nature or scope.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Not Applicable
(b) Not Applicable
(c) The table below provides information regarding purchases by Acxiom of its Common Stock during the periods
indicated.
Average Total Number of Shares Maximum Number (or Approximate
Total Number Price Purchased as Part of Dollar Value) of Shares that
of Shares Paid Publicly Announced Plans May Yet Be Purchased Under the
Period Purchased Per Share or Programs Plans or Programs
---------------------- -------------- --------------- ------------------------- ---------------------------------
7/1/05 -- 7/31/05 284,289 20.80 284,289 $ 228,857,711
8/1/05 -- 8/31/05 1,452,917 19.72 1,452,917 200,212,997
9/1/05 -- 9/30/05 1,765,907 19.54 1,765,907 165,689,568
-------------- --------------- ------------------------- ---------------------------------
Total 3,503,113 19.85 3,503,113 $ 165,689,568
============== =============== ========================= =================================
The repurchases listed above were made pursuant to a repurchase program adopted by the Board of Directors on October 30,
2002. Since that time the Board has approved increases in the maximum dollar amount which may be repurchased from $50
million to $550 million. The repurchase program has no designated expiration date.
Item 4. Submissions of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on August 3, 2005. At the meeting, the shareholders voted on the
following three proposals:
1) A proposal for the election of three directors - Voting results for each individual nominee were as follows: William
T. Dillard II, 66,116,385 votes for and 15,525,893 votes withheld; Harry C. Gambill, 63,379,154 votes for and
18,263,124 votes withheld; and Thomas F. (Mack) McLarty, III, 63,694,540 votes for and 17,947,738 votes withheld.
These three elected directors will serve with the other current Board members: Dr. Ann Die Hasselmo, William J.
Henderson, and Charles D. Morgan, whose terms will expire at the 2006 Annual Meeting, and Dr. Mary L. Good, Rodger
S. Kline and Stephen M. Patterson, whose terms will expire at the 2007 annual meeting.
2) A proposal to amend our 2000 Associate Stock Option Plan - Voting results for this proposal were as follows:
50,574,145 votes for; 16,810,455 votes against and 137,561 votes abstained.
3) A proposal to adopt a new stock purchase plan - Voting results for this proposal were as follows: 62,515,033 votes
for; 4,884,444 votes against and 122,684 votes abstained.
34
Item 6. Exhibits
(a) The following exhibits are filed with this Report:
10.1 Form of Third Amendment dated September 2, 2005 to the Third Amended and Restated Credit Agreement dated
as of March 24, 2005 among Acxiom Corporation, JP Morgan Chase Bank, N.A., CS agent, and the lenders
party thereto (previously filed as Exhibit 10.1 to Acxiom Corporation's Current Report on Form 8-K dated
September 2, 2005 and incorporated herein by reference).
31.1 Certification of Company Leader (principal 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 Finance and Administration Leader (principal financial and accounting 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 Company Leader (principal 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 Finance and Administration Leader (principal financial and accounting officer)
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
35
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 8, 2005
By: /s/Rodger S. Kline
------------------------------------------------
(Signature)
Rodger S. Kline
Chief Finance and Administration Leader
(principal financial and accounting officer)
36
EXHIBIITS
Exhibit No. Description
10.1 Form of Third Amendment dated September 2, 2005 to the Third Amended and Restated Credit Agreement dated
as of March 24, 2005 among Acxiom Corporation, JP Morgan Chase Bank, N.A., CS agent, and the lenders
party thereto (previously filed as Exhibit 10.1 to Acxiom Corporation's Current Report on Form 8-K dated
September 2, 2005 and incorporated herein by reference).
31.1 Certification of Company Leader (principal 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 Finance and Administration Leader (principal financial and accounting 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 Company Leader (principal 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 Finance and Administration Leader (principal financial and accounting officer)
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 31.1
ACXIOM CORPORATION AND SUBSIDIARIES
CERTIFICATION
I, Charles D. Morgan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Acxiom Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this quarterly report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors:
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Dated: November 8, 2005
By: /s/ Charles D. Morgan
-----------------------------------------
(Signature)
Charles D. Morgan
Company Leader
(principal executive officer)
EXHIBIT 31.2
ACXIOM CORPORATION AND SUBSIDIARIES
CERTIFICATION
I, Rodger S. Kline, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Acxiom Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we
have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors:
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Dated: November 8, 2005
By: /s/ Rodger S. Kline
--------------------------------------------
(Signature)
Rodger S. Kline
Chief Finance & Administration Leader
(principal financial officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report of Acxiom Corporation (the Company) on Form 10-Q for the
period ending September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the
Report), I, Charles D. Morgan, Company Leader (principal executive officer) of the Company, certify, pursuant to
18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
/s/ Charles D. Morgan
- ---------------------------------------------
Charles D. Morgan
Company Leader
(principal executive officer)
November 8, 2005
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report of Acxiom Corporation (the Company) on Form 10-Q for the
period ending September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the
Report), I, Rodger S. Kline, Chief Finance & Administration Leader (principal financial officer) of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my
knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
/s/ Rodger S. Kline
- ------------------------------------------
Rodger S. Kline
Chief Finance & Administration Leader
(principal financial officer)
November 8, 2005