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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-13163
ACXIOM® CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 71-0581897
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
No.)
or organization)
1 INFORMATION WAY, P.O. BOX 8180, LITTLE ROCK, ARKANSAS 72203-8180
(Address of principal executive offices)
(Zip
Code)
(501) 342-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 Par Value
(Title of Class)
Preferred Stock Purchase Rights
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing
sale price of the registrant's Common Stock, $.10 par value per share, as of May 10, 2002 as reported on the
Nasdaq National Market, was approximately $1,063,162,963. (For purposes of determination of the above stated
amount only, all directors, officers and 10% or more shareholders of the registrant are presumed to be
affiliates.)
The number of shares of Common Stock, $.10 par value per share, outstanding as of May 10, 2002 was 87,800,901.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Acxiom's Proxy Statement for the 2002 Annual Meeting of Shareholders ("2002 Proxy Statement") are
incorporated by reference into Part III of this Form 10-K.
PART I
Item 1. Business
SUMMARY
Acxiom Corporation (Nasdaq: ACXM) integrates data, services and technology to create and deliver customer and
information management solutions for many of the largest, most respected companies in the world. The core
components of Acxiom's innovative solutions are Customer Data Integration (CDI) technology, data content,
database services, IT outsourcing, consulting and analytics, and privacy leadership. Founded in 1969, Acxiom is
headquartered in Little Rock, Arkansas, with locations throughout the United States, and in the United Kingdom,
France and Australia.
Our products and services enable our clients to use information to improve their business decision-making
processes and to effectively manage existing and prospective customer relationships, thereby positioning them to
increase their profits.
We help our customers with:
o Customer acquisition through our prospect marketing solutions
o Customer growth and retention through our customer marketing solutions
o Multi-Channel integration through our real-time marketing solutions
o Creating a single-customer view through our customer recognition solutions
o Data quality through our Customer Data Integration solutions, including our AbiliTec®, Solvitur® and
InfoBase® offerings
o Large-scale data management through strategic IT infrastructure outsourcing
Our solutions are customized to meet the specific needs of our clients and the industries in which they operate.
We believe that we offer our clients the most technologically advanced, accurate and timely solutions available.
We enable businesses to develop and deepen customer relationships by creating a single, comprehensive customer
view that is accessible, in real-time, throughout the organization. We target organizations that view data as a
strategic competitive advantage and an integral component of their business decision-making process.
Our client base consists primarily of Fortune 1000 companies in the financial services, insurance, information
services, direct marketing, publishing, retail and telecommunications industries. Some of our major clients
include Allstate, AT&T, BankOne, Citigroup, Equifax Direct Marketing Solutions, General Electric Capital
Corporation, IBM, J.P. Morgan Chase & Co., MBNA, Procter & Gamble, R.L. Polk, Sears, Sprint, Trans Union and
Wal-Mart.
Information Services Industry
We believe the following trends and dynamics in the information services industry will continue to provide us
with growth opportunities:
o Increasing importance of customer and information management solutions, and particularly Customer Data
Integration as an integral component of successful Customer Relationship Management systems
o Continuing recognition of data as a competitive resource
o Increasing amount of raw data to manage
o Evolution of one-to-one marketing
o Growth in technology partnering
Competitive Strengths
We intend to reinforce our position as a leading provider of customer and information management solutions by
capitalizing on our competitive strengths, which include:
o Our Industry-leading Customer Data Integration Products and Services
o Real-Time Customer Recognition Software and Infrastructure
o Solvitur4
o Ability to design, build and manage large-scale databases
o Accurate and comprehensive data content
o Comprehensive information management services
o Ability to attract and retain talent
Growth Strategy
Using our competitive strengths, we are continuing to pursue the following strategic initiatives:
o Reinforce our leadership in building Customer Data Integration infrastructure, and leverage our
consulting and analytics heritage
o Further penetrate existing and new client industries and continue development of applications for fraud
detection, risk management, privacy and security
o Expand data content
o Capture cross-selling opportunities
o Pursue international opportunities
o Seek alliances and acquisitions
RISK FACTORS
The risks described below could materially and adversely affect our business, financial condition and results of
future operations. These risks are not the only ones we face. Our business operations could also be impaired by
additional risks and uncertainties that are not presently known to us, or that we currently consider immaterial.
We must continue to improve and gain market acceptance of our technology, particularly AbiliTec and related
technology, in order to remain competitive and grow.
The complexity and uncertainty regarding the development of new high technologies affects our business greatly,
as does the loss of market share through competition, or the extent and timing of market acceptance of innovative
products such as AbiliTec and its related technology. We are also potentially affected by:
o longer sales cycles for AbiliTec due to the nature of that technology as an enterprise-wide solution;
o the introduction of competent, competitive products or technologies by other companies;
o changes in the consumer and/or business information industries and markets;
o the ability to protect our proprietary information and technology or to obtain necessary licenses on
commercially reasonable terms; and
o the impact of changing legislative, judicial, accounting, regulatory, cultural and consumer environments
in the geographies where our products and services will be deployed.
Maintaining technological competitiveness in our data products, processing functionality, software systems and
services is key to our continued success. Our ability to continually improve our current processes and to develop
and introduce new products and services is essential in order to maintain our competitive position and meet the
increasingly sophisticated requirements of our clients. If we fail to do so, we could lose clients to current or
future competitors, which could result in decreased revenues, net income and earnings per share.
General economic conditions could continue to result in a reduced demand for our products and services.
As a result of the current economic climate, we have experienced a reduction in the demand for our products and
services as our clients have looked for ways to reduce their expenses. If we are unable to successfully control
our own expenses, given that a significant portion of our costs are fixed, we could suffer lower net income and
earnings per share.
Changes in legislative, judicial, regulatory, cultural or consumer environments relating to consumer privacy or
information collection and use may affect our ability to collect and use data.
There could be a material adverse impact on our direct marketing, data sales, and AbiliTec business due to the
enactment of legislation or industry regulations, the issuance of judicial interpretations, or simply a change in
customs, arising from public concern over consumer privacy issues. Restrictions could be placed upon the
collection, management, aggregation and use of information that is currently legally available, in which case our
cost of collecting some kinds of data might materially increase. It is also possible that we could be prohibited
from collecting or disseminating certain types of data, which could in turn materially adversely affect our
ability to meet our clients' requirements.
Data suppliers might withdraw data from us, leading to our inability to provide products and services.
Much of the data that we use is either purchased or licensed from third parties. We compile the remainder of the
data that we use from public record sources. We could suffer a material adverse effect if owners of the data we
use were to withdraw the data from us. Data providers could withdraw their data from us if there is a competitive
reason to do so, or if legislation is passed restricting the use of the data, or if judicial interpretations are
issued restricting use of data. If a substantial number of data providers were to withdraw their data, our
ability to provide products and services to our clients could be materially adversely impacted, which could
result in decreased revenues, net income and earnings per share.
Failure to attract and retain qualified personnel could adversely affect our business.
Competition for qualified technical, sales and other personnel is often intense, and we periodically are required
to pay premium wages to attract and retain personnel. There can be no assurance that we will be able to continue
to hire and retain sufficient qualified management, technical, sales and other personnel necessary to conduct our
operations successfully.
The nature of our customer contracts may affect the predictability of our revenues.
While approximately 80% of our total revenue is currently derived from client contracts with initial terms of two
years or longer, these contracts have been entered into at various times over the past several years and
therefore some of them are in the latter years of their term and are approaching their originally scheduled
expiration date. Further, if renewed by the customer, the terms of the renewal contract may not have a term as
long as, or may otherwise be on terms less favorable than, the original contract. With respect to the portion of
our business that is not under long-term contract, revenues are less predictable, and we must engage in continual
sales efforts to maintain revenue stability and future growth. Additionally, even with respect to customers under
long-term contractual obligations, the revenues generated by such contracts may vary depending upon the usage and
requirements of the customer during any particular period.
Our operations outside the U.S. subject us to risks normally associated with international operations.
We conduct business outside of the United States. During the last fiscal year, we received approximately 5% of
our revenues from business outside the United States. As part of our growth strategy, we plan to continue to
pursue opportunities outside the U.S. Accordingly, our future operating results could be negatively affected by
a variety of factors, some of which are beyond our control. These factors include legislative, judicial,
accounting, regulatory, political or economic conditions in a specific country or region, trade protection
measures, and other regulatory requirements. In order to successfully expand non-U.S. revenues in future
periods, we must continue to strengthen our foreign operations, hire additional personnel, and continue to
identify and execute beneficial strategic alliances. To the extent that we are unable to do these things in a
timely manner, our growth, if any, in non-U.S. revenues will be limited, and our operating results could be
materially adversely affected. Although foreign currency translation gains and losses are not currently material
to our consolidated financial position, results of operations or cash flows, an increase in our foreign revenues
could subject us to foreign currency translation risks in the future. Additional risks inherent in our non-U.S.
business activities generally include, among others, potentially longer accounts receivable payment cycles, the
costs and difficulties of managing international operations, potentially adverse tax consequences, and greater
difficulty enforcing intellectual property rights.
Loss of data center capacity or interruption of telecommunication links could adversely affect our business.
Our ability to protect our data centers against damage from fire, power loss, telecommunications failure or other
disasters is critical to our future. The on-line services we provide are dependent on links to telecommunication
providers. We believe we have taken reasonable precautions to protect our data centers and telecommunication
links from events that could interrupt our operations. Any damage to our data centers or any failure of our
telecommunications links that causes interruptions in our operations could materially adversely affect our
ability to meet our clients' requirements, which could result in decreased revenues, income, and earnings per
share.
Failure to favorably negotiate or effectively integrate acquisitions or alliances could adversely affect our
business.
From time to time, our growth strategy has included growth through acquisitions and strategic alliances. While we
believe we have been relatively successful in implementing this strategy during previous years, there is no
certainty that future acquisitions or alliances will be consummated on acceptable terms or that any acquired
assets, data or businesses will be successfully integrated into our operations. Our failure to identify
appropriate candidates, to negotiate favorable terms, or to successfully integrate future acquisitions and
alliances into our existing operations could result in decreased revenues, net income and earnings per share.
Postal rate increases and disruptions in postal services could lead to reduced volume of business.
The direct marketing industry has been negatively impacted from time to time during past years by postal rate
increases. In 2001, first class rates, enhanced carrier route rates, and third class rates were increased, and
another rate increase is expected for 2002. These increases will, in our opinion, be likely to force direct
mailers to mail fewer pieces and to target their prospects more carefully. Additionally, the amount of direct
mailings could be reduced in response to disruptions in and concerns over, the security of the U.S. mail system.
These sorts of responses by direct mailers could negatively affect us by decreasing the amount of processing
services purchased from us, which could result in lower revenues, net income and earnings per share.
ACXIOM'S BUSINESS
Overview
We integrate data, services and technology to create and deliver customer and information management solutions
for many of the largest, most respected companies in the world. The core components of Acxiom's innovative
solutions are Customer Data Integration (CDI) technology, data content, database services, IT outsourcing,
consulting and analytics, and privacy leadership. Founded in 1969, Acxiom is headquartered in Little Rock,
Arkansas, with locations throughout the United States, and in the United Kingdom, France and Australia.
Our products and services enable our clients to use information to improve their business decision-making
processes and to effectively manage existing and prospective customer relationships, thereby positioning them to
increase their profits. Our solutions are customized to meet the specific needs of our clients and the industries
in which they operate. We believe that we offer our clients the most technologically advanced, accurate and
timely solutions available.
Information Services Industry
In today's technologically advanced and competitive business environment, companies are using vast amounts of
customer, prospect and marketplace information to manage their businesses. An information services industry has
evolved that provides a broad range of products and services designed to help companies manage customer
relationships. These products and services include Customer Relationship Management (CRM) applications software,
decision analytics and business intelligence software, and data integration. Our Customer Data Integration
products and services and premier data content allow us to provide the data infrastructure, technology services
and information that allow our clients to efficiently access and manage information throughout the enterprise.
These capabilities help our clients answer important business questions such as:
- - What are the profiles of our existing - How do we service our customers?
customers? - How should we price our products and services?
- - Who are our prospective customers? - What distribution channels should we use?
- - Who are our most profitable customers? - What new products should we develop or what old
- - What do our customers want and when do products should we retire?
they want it?
We believe the trends and dynamics that will provide us growth opportunities include the following:
Importance of customer and information management solutions, in particular the Customer Data Integration
component, as an integral part of successful Customer Relationship Management systems
In the past few years, Customer Relationship Management (CRM) has emerged as one of the most important issues
facing global companies. Whole new markets have been being created around the technologies and services that
underlie CRM. Within the CRM field, there is a growing recognition of the necessity of being able to quickly and
efficiently integrate customer data in order for CRM to work effectively.
According to International Data Corporation (IDC), a worldwide market research, analysis and consulting firm, the
opportunity for overall CRM services, which encompass both packaged and custom-built CRM applications, is
expected to grow from $60.7 billion in 2001 to $148.8 billion by 2005. Additionally, IDC expects the overall data
warehousing market to grow from $17.9 billion in 2001 to $45.5 billion in 2005. The firm forecasts an even higher
growth rate for the data warehousing segment related directly to CRM applications, with projected growth from
$7.6 billion in 2001 to $22.9 billion in 2005.
Properly integrated customer data is required for successful execution of CRM-related data warehousing solutions.
IDC's research shows that the Customer Data Integration process consumes up to 70% of the effort in any data
warehousing solution. IDC estimates that the Customer Data Integration market will grow from $7.1 billion in 2001
to $17 billion in 2005 and views it as a pivotal enabling factor for successful transaction and analytical
applications of a fully functional CRM system.
Continuing recognition of data as a competitive resource
Since the 1970's, businesses have gathered and maintained increasing amounts of customer, product, financial,
sales and marketing data in an electronic format in order to better manage their operations. Generally,
businesses have maintained this data in a number of discrete and often incompatible systems, and therefore, the
data has not been readily accessible. More recently, advances in information technology have allowed this data to
be accessed and processed more cost effectively into useful strategic information and shared more efficiently
within an organization. This has caused many companies to invest in managing and maintaining their own internal
data and integrating their data with external data sources to improve business decision-making.
Companies using data as a competitive resource have traditionally consisted of Fortune 1000 companies in the
financial services, insurance, publishing, information services and retail industries. This group has expanded to
include companies in the telecommunications, pharmaceuticals/healthcare, e-commerce, Internet, utilities,
packaged goods, automotive, technology and media/entertainment industries. Advances in technology and reductions
in hardware and software costs have also helped expand the universe of users to include middle market companies
across multiple industries.
Increasing amount of raw data to manage
The combination of demographic shifts and lifestyle changes, the proliferation of new products and services, and
the evolution of multiple marketing channels have made the information management process increasingly complex.
Marketing channels now include cable and satellite television, telemarketing, direct mail, direct response,
in-store point-of-sale, on-line services and the Internet. The multiplicity of these marketing channels has
created more data and compounded the growth and complexity of managing data. Advances in computer and software
technology have also unlocked vast amounts of customer data which historically was inaccessible, further
increasing the amount of existing data to manage and analyze. As these data resources expand and become more
complex, it also becomes increasingly difficult to integrate all the fragmented, disparate and often outdated
information. The challenge to obtaining accurate and complete customer data lies in obtaining, enhancing and
integrating data from across an organization to form a single, comprehensive view of individual customers.
Growth in technology partnering
Companies are increasingly looking outside of their own organizations for help in managing the complexities of
their information needs. The reasons for doing so include:
o allowing a company to focus on its fundamental business operations
o avoiding the difficulty of hiring and retaining scarce technical personnel
o taking advantage of world-class expertise in particular specialty areas
o benefiting from the cost efficiencies of outsourcing
o avoiding the organizational and infrastructure costs of building in-house capability
o benefiting more from the latest technologies
Evolution of one-to-one marketing
Advances in information technology, combined with the ever increasing amounts of raw data and the changing
household and population profiles in the United States, have spurred the transition from traditional mass media
to targeted one-to-one marketing. One-to-one marketing enables the delivery of a customized message to a defined
audience and the measurement of the response to that message. The Internet has rapidly emerged as an ideal
one-to-one marketing channel. It allows marketing messages to be customized to specific consumers and allows
marketers to make immediate modifications to their messages based on consumer behavior and response. The Internet
can also accomplish these objectives far more cost effectively than existing marketing media.
Competitive Strengths
We believe we possess the following competitive strengths which allow us to benefit from the industry trends
described above and offer solutions to the information needs of our clients:
Our Industry-leading Customer Data Integration Products and Services
We believe our Customer Data Integration capabilities, powered by AbiliTec, combined with the related real-time
customer recognition software and infrastructure, is the leading solution for companies seeking to better
integrate their customer data and manage their customer relationships. CRM involves analyzing, identifying,
acquiring and retaining customers. Knowledge delivered directly and immediately to a desktop or customer point of
contact in real time is critical to the CRM process.
As the basic infrastructure for integrated CRM solutions, AbiliTec allows the linking of disparate databases
across a client's business and makes possible personalized, real-time CRM at every customer touch-point. We
believe that AbiliTec's unprecedented scope, accuracy and speed contributes to Acxiom being established as the
Customer Data Integration leader, both as an internal processing tool and as the enabler of the single customer
view that drives true, one-to-one marketing.
AbiliTec permits up-to-the-minute updating of consumer and business information with our data, thereby creating a
new level of data accuracy within the industry. By applying this unique, patented technology, we are able to
properly cleanse data and eliminate redundancies, constantly update the data to reflect real-time changes, and
combine our external data with our clients' internal data.
The financial benefits for our clients generated by faster processing times are multi-faceted. Our clients gain
advantages from AbiliTec by:
o Greatly improving the speed in which campaigns are brought to market in order to seize on opportunities
more quickly.
o Leveraging shorter turnaround times to increase the frequency of data warehouse updates. With AbiliTec,
some Acxiom clients have moved from monthly to weekly updates, others from weekly to nightly, and some
utilize the technology in an on-line transaction processing (OLTP) mode to update their data
continuously, as new information becomes available.
o Basing marketing and other business decisions on more accurate data. In the world of customer or
prospect data warehouses, fresher information equals more accurate information.
We also believe that AbiliTec enables our clients to better serve the consumer privacy preferences of their
customers. Just as AbiliTec allows businesses to create a single view of their customers in real time for
marketing purposes, it makes it much easier for businesses to allow their customers to access, correct and
selectively opt-out their information, provide better safeguards around their customers' information, and
facilitate the addition of information such as preference in time and manner of contact.
Real-Time Customer Recognition Software and Infrastructure
Acxiom continues to expand its real-time multi-channel Customer Data Integration and customer recognition
capabilities with products and services such as Solvitur4. This suite of software and infrastructure capabilities
allows our clients, in real time, to integrate their existing databases together in ways that have previously
been difficult or impossible. Our Customer Data Integration and customer recognition technologies allow our
clients and us to integrate data directly into CRM applications, including:
* customer analysis * campaign management
* interactive web pages * point-of-sale
* call centers * customer service automation
* direct mail * sales force automation
Delivery of information over the Internet or via private network, as opposed to traditional delivery through
CD-ROM, floppy discs, tape cartridges or tapes, significantly reduces the turnaround time from days to minutes or
sub-seconds and reduces the operating costs associated with extended processing and turnaround.
Solvitur4
For clients with multiple product lines, disparate customer databases, or more than one sales or service channel,
Solvitur4 is a Customer Data Integration solution that enables companies to recognize and have a unified view of
their customers and prospects across the enterprise in real time. In the case of most companies, customer data
has typically been inconsistently collected, slowly batch processed, gradually integrated, and eventually
accessible at some, but not all, customer touch points. We believe that AbiliTec and Solvitur4 provide an
accurate and fast Customer Data Integration capability, effectively solving many of the typical CRM problems.
With Solvitur4 and AbiliTec in place, our clients can:
o Instantly integrate both internal and external customer data across the entire enterprise, gaining a
single, unified view of their customers and discovering who their best customers truly are.
o Eliminate isolated silos of customer information that inevitably build up over time. In the past, the
information contained in these "islands" of data typically has been both difficult to access and not
readily available to other areas within a company.
o Understand their customers' product and service expectations significantly better by viewing them in the
context of their purchases and expressed preferences.
o Engage, for the first time, in truly integrated and coordinated multi-channel marketing as a result of
real-time Customer Data Integration.
In addition, Solvitur4 enables our clients to implement AbiliTec and to perform real-time Customer Data
Integration with little or no change to their existing information delivery systems because Solvitur4 is
"non-invasive," i.e., its processes work alongside our clients' existing applications and databases. This results
in significant savings in time, money and internal disruption.
Ability to design, build and manage large-scale databases
We have extensive experience in developing and managing large-scale databases for some of the world's largest
companies, including AT&T, Allstate, Citigroup, General Electric Capital Corporation, Federated Department
Stores, IBM, Procter & Gamble and Sears. Our state-of-the-art data centers, computing capacity and operating
scale enable us to access and process vast amounts of raw data and cost effectively transform the data into
useful information. We house more than 450 terabytes of disk storage for database solutions. A terabyte is
approximately one trillion bytes, and is the scale often used when measuring computer storage.
We provide a complete solution that starts with consulting, integrates data content, applies data management
technology and delivers CRM applications to the desktop. Our open system client/server environment allows our
clients to use a variety of tools, and provides the greatest flexibility in analyzing data relationships. This
open system environment also optimizes our clients' requirements for volume, speed, scalability and functional
performance.
Accurate and comprehensive data content
We believe that we have the most comprehensive and accurate collection of United States consumer, business,
property and telephone marketing data available from a single supplier. We believe we process more mailing lists
than any other company in the United States. Our InfoBase consumer database contains approximately 17 billion
data elements, which we believe covers over 95% of all households in the United States. Our InfoBase business
database covers over 13 million United States businesses. Our real estate database, which includes most major
United States metropolitan areas, covers approximately 70 million properties in a majority of the states. We
believe our InfoBase TeleSource product represents the most comprehensive repository of accurate telephone number
information for business and consumer telephone numbers in the United States and Canada. Our clients use this
data to manage existing customer relationships and to target prospective customers.
During the 2002 fiscal year, we launched Consumer InfoBase in the United Kingdom. We believe that it has the most
comprehensive and accurate collection of United Kingdom consumer marketing data available from a single supplier.
The information is multi-sourced and includes telephone numbers that are available to append to records for
telemarketing purposes. Our InfoBase consumer database contains over 400 different data variables, and we believe
the total file covers over 95% of all households in the United Kingdom. In addition, we also have a substantial
file of business-to-business data in the United Kingdom. Our Business InfoBase database covers approximately 2
million U.K. businesses. As in the U.S., our U.K. clients use the data held in Consumer InfoBase and Business
InfoBase to manage existing customer relationships and to target prospective customers.
In Australia, Acxiom is a leading supplier of consumer, business, telephone and property information for
marketing purposes. Under a range of brand names, Acxiom's data products are used by major financial
institutions, telecommunications companies and retailers to help them strengthen their customer relationships and
grow their market share. Our clients use data from our databases to target prospective customers and strengthen
relationships with their existing customers.
Comprehensive information management services
We offer our clients comprehensive, integrated information management solutions tailored to their specific needs.
We believe our total solution approach is a competitive strength because it allows our clients to use a sole
service provider for all of their information management needs. Our information technology solutions cover the
computing requirements of our clients, ranging from full mainframe information processing centers to desktop
applications. We currently operate several large mainframe and midrange data centers, manage numerous networks,
and host Internet applications. We offer information management services in the following areas:
* mainframe computing operations * help desks
* client server management * high-speed electronic printing
* network management * print and mailing outsourcing
* web hosting and content change management * bill presentation services
Ability to attract and retain talent
We believe our progressive culture allows us to attract and retain top associates, especially those in technology
fields where critical technical skills are scarce. Our culture is based on concepts such as leadership, associate
development, and continuous improvement. Our business culture rewards customer satisfaction, associate
satisfaction and profitability. In addition to our culture, our extensive geographic presence, with locations in
the United States, Europe, and Australia, including Atlanta, Chicago, London, Los Angeles, Memphis, New York,
Phoenix, and Sydney, has enhanced our ability to attract talented associates.
For the fourth time in five years, Fortune magazine named us this year as one of the "100 Best Companies to Work
For" in America. In 2000 and 2001, we were named in ComputerWorld magazine as one of the top 100 information
technology companies to work for, and Business Week ranked us in its list of the top 200 IT companies in the
U.S.
Growth Strategy
Using our competitive strengths, we are pursuing a strategy that includes the following initiatives:
Reinforce our leadership in building Customer Data Integration infrastructure, and leverage our consulting and
analytics heritage
Our primary initiatives are AbiliTec-driven Customer Data Integration solutions, including our real-time
Solvitur4 solution, combined with our traditional consulting and analytical services. We provide strategic
consulting to our clients regarding creation and measurement of CRM programs and the related infrastructure,
particularly in the financial, banking and retail communities, and in the privacy arena. Our proprietary
technologies enable us to provide our clients with what we believe to be the industry's most accurate and
cost-effective means to integrate their customer and prospect data across the entire organization. We then
provide the capability to further enhance and add decision-making intelligence to that data with external data,
including our InfoBase consumer and business data products. All of these Customer Data Integration processes can
take place in a traditional batch mode or in real time over the Internet or via private network.
These technologies are available to a broad range of businesses that desire to better manage their existing and
prospective customer relationships. In addition, we anticipate that AbiliTec may be useful to various
governmental agencies who need to better integrate disparate databases. We are continually developing
AbiliTec-enabled solutions to improve data quality, streamline production, and reduce costs and increase the
efficiency of direct mail and telemarketing.
We are marketing AbiliTec, Solvitur4 and InfoBase through our internal sales organization and through our
strategic alliances, including leading CRM software solution providers such as IBM, Oracle and Siebel. Each of
these Acxiom products can be integrated directly into the decision systems offered by our strategic alliance
partners to enhance their unique value proposition to their customers. This alliance partner strategy provides
the potential for us to extend the scope of our services in our existing markets and expand our client base.
We have developed the Opticxsm process which allows customers to rapidly determine their data quality and the
potential return on their investment in our Customer Data Integration solutions.
Further penetrate existing and new client industries, and continue development of applications for fraud
detection, risk management, privacy and security
Our clients expect information management solutions tailored to the needs of their particular industry. We have
developed specific knowledge for the industries we serve, including the financial services, insurance,
information services, direct marketing, media, retail, technology, telecommunications industries, automotive, and
pharmaceuticals/healthcare. We expect to continue to expand our presence in these industries as well as to
penetrate other industries as their information management needs increase. Other industries which we believe are
undergoing changes that will increase the need for data and information management services include the
e-commerce, packaged goods and entertainment sectors. We also believe our products and services would complement
and are adaptable to the identity verification systems of prospective clients in industries or businesses
concerned about security management, including travel, special events management and building security.
We also believe that in the post-September 11 environment, certain governmental agencies have a need for the type
of data integration solutions enabled by AbiliTec in the areas of fraud detection and identify verification.
Since September 11, we have been actively pursuing government contract work in this regard, and view this sector
as a potentially significant source of business in the future.
Expand data content
We believe that the depth, breadth and quality of our data differentiates us in the marketplace. We continually
enhance our databases by adding new data through multiple sources and increasing the accuracy of the data through
the use of AbiliTec. Expanding our data content offerings enables us to grow existing client relationships,
capture new clients and enter new industries. Data content also represents an attractive business model for us
because we can repackage it into multiple formats or sell it through various distribution channels, at a minimal
incremental cost.
Capture cross-selling opportunities
Our established client base is primarily composed of Fortune 1000 companies. These clients use a single product
or service or a combination of multiple products and services. Our consultative approach, comprehensive set of
services and products and long-standing client relationships, combined with the increasing information needs of
our clients, provide us with a significant opportunity to offer our existing client base new and enhanced
services and products.
Pursue international opportunities
Since 1986, we have had a presence in the United Kingdom. Having successfully launched InfoBase and licensed
AbiliTec there during fiscal 2002, we are committed to expanding our data access and delivery solutions in the
U.K. through the continued emphasis on these products and services. In Sydney, Australia, we have a joint
venture with PBL, a large publisher and broadcasting company, through which we are offering our products and
services in Australia and New Zealand. We also have a strategic alliance with a German media and information
services company, AZ Bertelsmann Direct. Bertelsmann has significant data assets in Germany, and does extensive
work in Austria and Switzerland, as well as in Spain. Together with Bertelsmann, we intend to deliver
international marketing data and information management solutions to multinational clients operating in Germany.
Seek alliances and acquisitions
Acxiom partners with many of the world's leading hardware and software companies and systems integrators,
creating the best customer and information management solutions for the market. Our partners include such
companies as Compaq (now Hewlett Packard), Computer Associates, D&B, HNC Software (to be merged with Fair Isaac),
IBM Corporation, Lockheed Martin, Oracle, PeopleSoft, SAS, Siebel and USADATA.
We will continue to seek alliance opportunities with companies that can complement or expand our business by
offering unique data content, strategic services or market presence in a new industry. We will also consider
acquisitions as opportunities may arise. We continually review our mix of businesses to determine that we have
the correct combination of people, products, services and other resources to allow us to better serve our
customers.
Business Segments
We have three business segments: Services, Data and Software Products, and Information Technology (IT)
Management.
Services
Our Services segment provides solutions that integrate and manage customer, consumer, and business data using our
information management skills and technology, as well as our InfoBase data products. Our AbiliTec software, which
provides Customer Data Integration capabilities, together with Solvitur4 positions us for a greater share of the
growing CRM market. Customer Data Integration lies at the core of effective CRM, providing a single view of the
customer, in real time, across multiple data sources. This unified view, enabled through AbiliTec's linking
technology and Solvitur4, gives our clients the ability to reach their customers more rapidly, efficiently and
accurately and to target their sales efforts accordingly.
Acxiom builds Customer and Information Management solutions for its clients in the following service areas:
Service Description
* Marketing database and data warehouse design * Develops strategies to effectively use and transform
consulting data into actionable information
* Selects data elements that are relevant for a
particular client's goals and industry
* Lays foundation for data warehouse/database
development and marketing campaigns
* Data integration * Using AbiliTec-enabled solutions, provides numerous
Customer Data Integration services for a diversity of
business needs (See Descriptions below under Data and
Software Products)
* Standardizes, converts, cleanses and validates data
to ensure accuracy and remove duplicative and unnecessary
data
* Creates accurate and comprehensive standardized
customer profile from disparate data sources
* Augments client's data with our proprietary data
* Data warehouse/database management and delivery * Designs, models and builds data warehouse/database
* Provides data warehouse/database maintenance and
updates
* Delivers information through a variety of channels,
including the Internet via the Acxiom Data Network®reg;
* CRM applications * Provides market planning, analytical and statistical
modeling, campaign management, channel implementation and
tracking and reporting applications
* Enables client to manage and monitor customer
relationships
List processing * Provides processing tools to increase accuracy,
deliverability and efficiency of marketing lists
* Addresses and pre-sorts mailings to maximize postal
discounts and minimize handling costs * Cleanses and integrates mailing list data
Data and Software Products
Our data and software products segment includes AbiliTec-Enabled Solutions, which provides our services segment
the ability to more effectively integrate and manage data, and our InfoBase data products, which include both
business and consumer data.
AbiliTec-Enabled Solutions
As discussed above, we believe that AbiliTec is the leading software solution for companies seeking to integrate
and manage their customer data and customer relationships. It allows the linking of separate, disparate databases
across a client's business, provides unprecedented speed and accuracy and permits real-time updating of consumer
and business information. AbiliTec is a software product that is licensed to our clients and that is sold through
the following markets: enterprise, database, channel partner, service bureaus and direct marketing.
The following AbiliTec-Enabled Solutions demonstrate the power of AbiliTec by delivering accurate, accelerated
data solutions that help businesses reduce costs, gain a better understanding of their customer base and build
loyal, trust-based customer relationships.
Product Description
* Consumer Preference Solution * Consumer Preference Solution improves CRM efforts
by helping companies with legislative compliance and
with the management of consumer contact and data-sharing
preferences.
* Customer Data Quality (CDQ) * Designed for companies with large mail volumes, CDQ
identifies duplicates within a mail file at a
significantly better hit rate than first generation
merge/purge programs. As a result, mail costs can be
substantially reduced.
* Consumer Merge/Purge (CM/P) * Consumer Merge/Purge helps manage the overall data
integration process when records are brought together
from multiple sources. By rapidly standardizing the data
and files, CM/P recognizes and groups individuals and
households, appending incremental data and creating
output files based on client business rules. CM/P
enables data analysis and other processes that support
account acquisition programs.
* Customer File Management (CFM) * Customer File Management helps manage customer
records to provide a foundation for customer analysis
and/or management solutions.
* Customer Decisioning System * Built on a foundation of CFM or CM/P, Customer
Decisioning System (CDS) provides rapid, structured
execution of direct marketing decisions that feeds back
to an operating system.
* Customer Recognition and Segmentation * Customer Recognition and Segmentation helps
companies which have undergone a merger or acquisition.
The three service modules are: pre-merger due-diligence;
customer recognition across the merged entity (which
enables the company to join disparate data files and
reveal a true picture of customers, accounts and
households); and customer retention across the merged
entity.
InfoBase Data Products.
We believe InfoBase represents the industry's most comprehensive and accurate marketing data product offerings
that are sold on a stand-alone basis as well as integrated with our customized service offerings. Our clients use
our data products for a range of decision-making and CRM functions, including some of the following information
driven applications:
* identification, verification and segmentation of * sales force automation
customers and prospects for direct marketing purposes
* campaign management * fraud prevention
* Internet marketing * point of sale marketing
The data that we use is either purchased or licensed from third parties, or it is obtained from public records.
We utilize multiple data sources to compile our consumer database, including telephone directories, voter
registrations, product registration, questionnaires, warranty cards, county real estate property records,
purchase transactions, mail-order transactions and postal service information. Our business database is likewise
obtained from multiple sources and covers practically every business throughout the United States. Business data
is verified by telephone and by matching against other sources of the data. Business data sources include:
yellow and white pages; RBOC monthly business feeds; various direct business franchise feeds and postal service
information. Our real estate database is obtained from county recorders' and assessors files. We update and
maintain our databases frequently in order to provide current information to our clients.
Our primary InfoBase products include the following:
Product Description
* InfoBase Enhancement (Consumer) o InfoBase Enhancement is the leading consumer data
enhancement product containing demographic and
lifestyle information on a majority of U.S. households,
and providing instant access to the first and largest
multi-source database in the U.S.
o InfoBase Enhancement processes customer data through
multiple delivery options including traditional or
"batch" processing for large volumes of data or online
processing using the Acxiom Data Network for smaller
volume for instant processing of individual records.
* InfoBase List (Consumer) o InfoBase List is a comprehensive multi-sourced consumer
list designed to help target prospects more effectively
and efficiently. InfoBase List consists of base name
and address records combined with InfoBase's
industry-leading consumer data including key
demographics, home ownership characteristics, purchase
behavior and lifestyle data.
o We believe that no other compiled list in the business
offers better value in the areas of coverage,
selectivity, deliverability, accuracy, freshness and
customer service.
o The Acxiom Data Network provides on-demand, instant
access to Acxiom's InfoBase Consumer Lists. Through the
Acxiom Data Network, clients may obtain
InfoBase-enhanced snapshots of their existing records
or host prospects for customer acquisition and
retention efforts, quickly and inexpensively.
* InfoBase Business List o InfoBase Business List is a powerful tool for
business-to-business marketing that combines Acxiom's
industry-leading record for superior data quality with
access to over 13 million unique businesses nationwide
and their key employees. We believe that no other
business list exceeds InfoBase Business List's level of
accuracy and deliverability.
* InfoBase TeleSource o We believe that InfoBase TeleSource is the most
comprehensive, multi-sourced telephone data product in
the United States. Averaging a 94% connect rate, it
allows clients to reach a greater number of qualified
customers and prospects. InfoBase TeleSource's national
database contains more than 160 million consumer names,
telephone numbers and addresses. This includes
approximately 35 million not available from any other
source and approximately 12 million business listings.
* InfoBase e-Products o The e-Mail Enhancement database is a database of
consumer names, address, and e-mail addresses that
offers many e-mail address data features like: e-mail
append, reverse append, flag append, reactivation and
eCOA.
o The e-mail List database is a database of confirmed
opt-in consumers that has been enhanced with
demographics and lifestyle selectors from Consumer
Enhancement offering marketers an e-mail format for
prospecting.
* InfoBase Analytics o Data Profile Analysis - DPA provides our clients with
a comprehensive descriptive snapshot or profile of
their customers using InfoBase demographic and
lifestyle interest data. The DPA is currently provided
as a printed document, but is also available in online,
manipulatable PC-compatible formats.
o Modeling Services - Modeling Services can best be
defined as the development of an algorithm used to
predict or model certain customer/consumer behavior.
Models are developed utilizing demographic data and/or
internal customer data. Often times, the models are
deployed or implemented onto a client provided file.
The primary objective of model development/services is
to predict a certain behavior. Response,
client-specific product purchase propensity, and
attrition likelihood are just a few of the behavior
predictor examples.
o Scoring Services - It's the application/implementation
of the model that best describes Scoring Services.
Once a model has been developed, internally or by the
client using demographic data, the analyst then applies
the model to an outside file or an Acxiom-specific file
(i.e., IB List). The file on which the model is being
applied is scored and all records/households are ranked
by score as to their likelihood to behave in a certain
manner (response, purchase, attrite). Scoring
services/models can be applied to Acxiom internally
housed files or client provided files. Scoring Services
turns models into actionable marketable universe.
*
* InfoBase BestAddress™ o InfoBase BestAddress is a direct mail
address-processing product that improves a mailing
list's overall effectiveness by optimizing address
accuracy and deliverability. InfoBase BestAddress
utilizes AbiliTec Links to deliver the most complete
address associated with each delivery point and the
most recent and complete address associated with each
consumer. On average, AbiliTec-Enabled InfoBase
BestAddress delivers results six times faster than
traditional address verification processes.
* InfoBase Suppression o InfoBase Suppression facilitates compliance with legal
and industry privacy guidelines, improves marketing
results by eliminating unresponsive prospects, and
decreases fraud risks associated with mailing to
unqualified prospects. InfoBase Suppression is built
from Acxiom's master suppression file, delivering a
common access to a variety of suppression sources.
Unlike traditional methods of suppression which require
multiple passes of a marketer's list against different
suppression files, InfoBase Suppression delivers
numerous suppression options through a single product.
* InfoBase Telephone Directories o InfoBase Business Directories is the most complete
source of business listings for the U.S. and Canada
consisting of over 20 million combined records. It is
made up of the freshest business listings with
disconnected data removed monthly. Along with address
information, records consist of business
classification, latitude longitude, and yellow page
data elements. The InfoBase Premium White Page Product
is the premier product in the market with public but
not yet published listings incorporated. It consists
of multiple sources including white page data, RBOC and
disconnected data monthly feeds. The PWP file contains
over 90 MM records with name and address information as
well as latitude and longitude.
* InfoBase PersonicxSM o InfoBase Personicx represents the next evolutionary
step in consumer segmentation. Personicx is a
household-level segmentation system that places each
U.S. household into one of 70 segments based on its
specific consumer and demographic characteristics.
This provides a common framework for a business to view
its customers across its product mix and across its
organization. Personicx is driven by Acxiom's InfoBase
household data allowing for the Personicx assignments
to accurately reflect the dynamic nature of today's
households.
* InfoBase Address Append o Address Append is the most recent addition to the
TeleSource product line. Address Append aids companies
in their customer recognition efforts by appending
mailing address information to consumer names and zip
codes captured at the point of contact. Address Append
leverages two of the premier InfoBase products,
TeleSource and InfoBase Consumer List to provide over
220 million unique name and address listings to provide
unprecedented coverage.
* SentricxSM o This product attacks fraud by enabling data-driven
identity verification of customers and prospects.
Sentricx accesses multiple reference databases in
real-time or batch mode to verify information provided
at point-of-sale, in call center or web environments,
or on applications for credit accounts, DDA accounts,
or insurance.
IT Management
Information Technology (IT) outsourcing enables our customers to focus on their core business while Acxiom
manages their technology needs. We provide IT services and solutions for large systems, mid-range and
client/server processors and networks.
Our IT outsourcing services give our customers a secure, high-performance network and computing environment,
supported by experienced IT professionals. The benefits include:
o Maximization of value from IT assets and information system staff
o Computing and network capacity driven by customer demand
o Highly scalable computing and network environments
o 24 x 7 system availability
Overview Services
Our IT solutions cover the computing needs of our We offer technology services in the following areas:
clients, ranging from full mainframe information
processing centers to the desktop. Acxiom currently * Mainframe computing operations
operates several large and hardened data centers, * Client/server management
manages high-speed networks, and hosts Internet * Network management
e-commerce applications * Web hosting and content change management
* Help desk support
* High-speed electronic printing and mail
services
* Electronic bill presentment
Clients
Our clients are primarily in the financial services, insurance, information services, direct marketing,
publishing, retail and telecommunications industries. Our ten largest clients represented approximately 41% of
our revenues in fiscal 2002. Other than Allstate Insurance Company, which accounted for 10.1% of our total
revenue for fiscal 2002, no other client accounted for more than 10% of our revenue during the last fiscal
year. We seek to maintain long-term relationships with our clients. Many of our clients typically operate under
long-term contracts with initial terms of at least two years in length.
Representative clients by most of the industries we serve include:
Financial Services Pharmaceuticals/Healthcare Retail
American Express ALSAC / St. Jude Children's Circuit City Stores, Inc.
Bank One Services Corporation Research Hospital Canadian Tire Acceptance Limited
Bank of America Bristol-Meyers Squibb Jiffy Lube International, Inc.
Citicorp Credit Services, Inc. MedExact USA Lands End, Inc.
Conseco, Inc. Pfizer, Inc. LensCrafters, Inc.
First USA Bank Preference Solutions, LLC Neiman Marcus Group, Inc.
GE Capital Corp Sankyo Pharma Office Depot, Inc.
Household International, Inc. Wellpoint Health Networks, Inc. Sears Roebuck & Company
J.P. Morgan Chase & Co. Staples, Inc.
MBNA America Bank N.A. Sunglass Hut Trading Corporation
Providian Viking Office Products
Wells Fargo Wal-Mart Stores, Inc.
Media/Entertainment Technology Telecommunications
Advance Publications, Inc. BMC Software, Inc. AT&T Wireless Services, Inc.
Bernard C. Harris Publishing E.piphany, Inc. MCI WorldCom Communications,
Discovery Communications, Inc. IBM Corporation Inc.
Guideposts Microsoft Corporation CSC Holdings, Inc.
Primedia Novell, Inc. Sprint/United Management Company
Ralph Lauren Media, LLC Palm, Inc. Verizon
Rodale, Inc. Vodafone Airtouch
USA Electronic Commerce
Solutions, LLC
Insurance Information Services Internet / E-Commerce
Allstate Equifax Direct Marketing eFunds Corporation
Physicians Mutual Insurance Solutions, Inc. E*Trade Group, Inc.
Company R.L. Polk and Company Travelocity.com
Prudential Trans Union LLC
Automotive Packaged Goods
General Motors Conopco, Inc. (Unilever)
Mercedes The Procter & Gamble Distributing
Company
In addition, our Information Technology Management outsourcing customers include a wide array of clients, such as
Baxter Healthcare Corporation, Blue Cross Blue Shield Association, Brooks Brothers, City of Chicago, Deluxe,
eFunds, Hilton Hotels, Jack-in-the-Box, Rexam, R.R. Donnelly, Safety-Kleen, Trans Union, 20th Century Fox, Waste
Management, and Xerox.
Sales and Marketing
Acxiom instituted a divisional structure in 1997 to provide the speed and flexibility needed to grow very
quickly. Each division had its own sales force and marketing team and developed its own strategies to market and
sell Acxiom's data, services and IT outsourcing capabilities. However, on April 1, 2002, the company created a
single sales and marketing organization with a sole goal: selling integrated customer and information management
solutions to our clients. To support that goal, the marketing team includes traditional marketing, public
relations, strategic alliances, sales effectiveness, and consulting and analytics.
The Acxiom sales and marketing organization has always maintained a strong focus on industry expertise to ensure
we understand our clients' unique business opportunities and challenges. We help our clients better use their
customer data to support acquisition, retention, cross-sell, up-sell and risk management activities. Acxiom
promotes a sales and marketing driven culture that encourages every associate to understand how he or she can
better promote the sales of Acxiom solutions and the satisfaction of our clients. It complements the strong
product/service delivery culture that has helped Acxiom succeed in the past. The sales and marketing driven
attitude extends across the enterprise, and sales activities with major clients involve a high level of
collaboration and cooperation across all levels of leadership in sales and operations.
Our sales and marketing organization takes a solution-selling approach that combines the full scope of Acxiom's
strengths to help our clients capitalize on their business opportunities and maximize the potential of every
customer relationship. We combine those core offerings in custom solutions that include data, database, IT
outsourcing, consulting and analytics, technology/CDI, and privacy leadership. We continue to have a dedicated
data sales team to support solution sales and to service data clients.
Effective April 1, 2002, Acxiom and Trans Union LLC (TU) entered into a marketing joint venture that will serve
as a sales agent for both parties for certain existing mutual clients. The purpose of the joint venture is to
provide these joint clients with leading-edge solutions that leverage the strengths of both parties. Expected to
serve a small number of financial services clients, the joint venture will market substantially all of the
products and services currently offered by Acxiom and TU, as well as any new products and services that may be
agreed upon. The parties have agreed to share equally the aggregate incremental increase (or decrease) in
revenue and direct expenses generated from any client supported by the joint venture. If either party
determines that its participation in the joint venture is economically disadvantageous, it may terminate the
arrangement after certain negotiation procedures specified in the agreement have occurred. We do not expect any
material incremental impact to our operating results from this joint venture in fiscal 2003.
Pricing for Products and Services
We have standard pricing guidelines for many services such as list processing, national change of address
processing, data cleansing, merge/purge processing and other standard processing. Data warehousing/database
management services tend to be more custom-designed and are negotiated individually with each client utilizing
the standard pricing guidelines.
Pricing for data warehouses and database builds normally includes separate fees for design, initial build,
ongoing updates, queries and outputs. We also price separately for consulting and statistical analysis services.
We publish standard prices for many of our data products. These products are priced with volume and license
period discounts. Licenses for our entire consumer or business database for one or more years are priced
individually.
AbiliTec is priced as software, and the right to use it is licensed to our clients typically under one to three
year license agreements. The pricing includes separate fees for the annual license and for individual
transactions, if applicable. Both components allow for volume price discounts. AbiliTec may also be utilized as
part of an AbiliTec-enabled service and priced in a bundled service solution.
IT Management services are priced based on the cost of migration, management and operation of the data center,
network and client/server systems.
Competition
The information services industry in which we operate is highly competitive, with no single dominant competitor.
Within the industry, there are data content providers, database marketing service providers, analytical data
application vendors, enterprise software providers, systems integrators, consulting firms, list brokerage/list
management firms and teleservices companies. Many firms offer a limited number of services within a particular
geographic area, and several participants tend to be national or international and offer a broad array of
information services. However, we do not know of a competitor that offers our complete line of products and
services.
In the Services market, we compete primarily with in-house information technology departments of current clients,
as well as firms that provide data warehousing and database services, mailing list processing and consulting
services. Competition is based on the quality and reliability of products and services, technological expertise,
historical experience, ability to develop customized solutions for clients, processing capabilities and price.
Competitors in the data warehousing and database services and mailing list processing sectors include
Harte-Hanks, Metromail and Experian (both subsidiaries of Great Universal Stores), Dynamark (a subsidiary of Fair
Isaac), and Relizon.
In the Data and Software Products market, we compete with two types of firms: data providers and list providers.
Competition is based on the quality and comprehensiveness of the information provided, the ability to deliver the
information in products and formats that the customer needs and, to a lesser extent, on the pricing of
information products and services. Our principal competitors in this market are Abacus Direct, Equifax, Experian,
and infoUSA. We also compete with hundreds of smaller firms that provide list brokerage and list management
services. An emerging market is the Internet-driven data market. This consists of two primary areas of emphasis:
the use of the Internet to collect and deliver data and the use of e-mail addresses for reaching consumers for
marketing. The addition of the Internet into the traditional compilation and distribution channels has made the
market more diverse with potential lower barriers to entry.
In the IT Management services market, competition is based on technical expertise and innovation, financial
stability, past experience with the provider, marketplace reputation, cultural fit, quality and reliability of
services, project management capabilities, processing environments, and price. Our primary competitors include
Affiliated Computer Services, (i)Structure, and the in-house information technology departments of current and
prospective clients. In addition, but on a less frequent basis, we compete with IBM Global Services, Electronic
Data Systems, Computer Sciences Corporation, and Perot Systems.
Privacy
We have always taken an active approach with respect to consumer privacy rights. The growth of e-commerce and
companies wanting consumer information means that we must work even harder to guarantee that our policies offer
individuals the protection to which they are entitled. Consequently, we actively promote adherence to a common
set of strict privacy guidelines for the direct marketing, e-commerce, and data industries as a whole.
Industry-wide compliance helps address U.S. privacy concerns and the rigorous safe-harbor requirements of the
European Union to ensure the continued free flow of information.
Our own Fair Information Practices Policy outlines the variety of measures we currently take to protect
consumers' privacy rights. A copy of this policy is posted on our website at www.acxiom.com. We educate our
clients and associates regarding consumer right-to-privacy issues, guidelines and laws. Our policy also explains
the steps that consumers may take to have their names removed from our InfoBase line of marketing products and to
obtain a copy of the non-public information we maintain about them in our reference products.
Companies are assessing their consumer privacy policies and beginning to recognize that newly developed customer
data integration technology can help them honor individual privacy rights and address consumers' concerns. We
believe that technologies such as AbiliTec will enable businesses to move beyond mere privacy "protection" and
toward aggressive consumer advocacy. Just as AbiliTec allows businesses to create a single view of their
customers in real time for marketing purposes, it should make it much easier for businesses to allow their
customers to access, correct and selectively opt-out their information, provide better safeguards around their
customers' information, and facilitate the addition of information such as preference in time and manner of
contact.
Privacy legislation is currently pending in Congress and in most of the fifty states, and we anticipate that
additional legislation will continue to be introduced in the future. While there has been a significant amount of
potential legislative activity, we believe that as legislators come to better understand the importance of data
as a fundamental building block of a robust economy, reasonable legislative approaches to data use will prevail.
We are supportive of legislation which codifies the current industry guidelines of notice and opt-out regarding
whether or not a consumer's personal information is used for marketing purposes. We recognize that different
types of personal information should be afforded varying safeguards, so with regard to certain types of sensitive
personal information (such as personally identifiable medical data), we support choice on an opt-in basis for
third-party use.
Employees
Acxiom currently employs approximately 5,080 employees (associates) worldwide. None of Acxiom's associates are
currently represented by a labor union or are the subject of a collective bargaining agreement. Acxiom has never
experienced a work stoppage and believes that its employee relations are good.
CAUTIONARY STATEMENTS RELEVANT TO FORWARD LOOKING INFORMATION
This document, the documents that we incorporate by reference, and other written reports and oral statements made
from time to time by us and our representatives contain forward-looking statements. These statements, which are
not statements of historical fact, may contain estimates, assumptions, projections and/or expectations regarding
our financial position, results of operations, market position, product development, growth opportunities,
economic conditions, and other similar forecasts and statements of expectation. We generally indicate 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 our actual results and experiences to
differ materially from the anticipated results and expectations expressed in such forward-looking statements.
The forward-looking statements contained in this report and in Acxiom's Annual Report to Stockholders, portions
of which are incorporated by reference into this report, include: statements on Acxiom's future results of
operations; statements concerning the length and future impact of our investment in customer and information
management solutions, including our Customer Data Integration products and delivery systems on our client base,
future revenue and margins; statements concerning the benefits of our products and services for our clients;
statements concerning any competitive lead or positioning; statements concerning the impact of implementation of
AbiliTec and our products and services in Customer Relationship Management applications; statements concerning
the momentum of CRM applications and e-commerce initiatives; statements concerning the future growth and size of
the CRM market; statements regarding our ability to penetrate existing and new client industries; statements
concerning efficiency gains related to the implementation of our products and services; and statements concerning
potential growth of international markets.
The factors and uncertainties that could cause actual results to differ materially from those expressed in, or
implied by, the forward-looking statements are identified in the "Risk Factors" section and elsewhere in this
document, and include but are not limited to the following:
o the complexity and uncertainty regarding the development of new high technologies;
o the possible loss of market share through competition or the acceptance of our technological offerings
on a less rapid basis than expected;
o the possibility that economic or other conditions might lead to a reduction in demand for our products
and services;
o the possibility that the current economic slowdown may worsen and/or persist for an unpredictable period
of time;
o the possibility that economic conditions will not improve as rapidly as expected;
o the possibility that significant customers may experience extreme, severe economic difficulty;
o the possibility that sales cycles may lengthen;
o the continued ability to attract and retain qualified technical and leadership associates and the
possible loss of associates to other organizations;
o the ability to properly motivate our sales force and other associates;
o the ability to achieve cost reductions and avoid unanticipated costs;
o the continued availability of credit upon satisfactory terms and conditions;
o the introduction of competent, competitive products, technologies or services by other companies;
o changes in consumer or business information industries and markets;
o our ability to protect proprietary information and technology or to obtain necessary licenses on
commercially reasonable terms;
o the difficulties encountered when entering new markets or industries;
o 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 effect of our short-term contracts on the predictability of our revenues or the possibility that
customers may cancel or modify their agreements with us;
o the possibility that the amount of ad hoc project work will not be as expected;
o the potential loss of data center capacity or interruption of telecommunication links or power sources;
o postal rate increases that could lead to reduced volumes of business;
o the potential disruption of the services of the United States Postal Service;
o the successful integration of acquired businesses and strategic alliances;
o with respect to the providing of products or services outside our primary base of operations in the
United States, all of the above factors and the difficulty of doing business in numerous sovereign
jurisdictions due to differences in culture, laws and regulations; and
o other competitive factors.
In light of these risks, uncertainties and assumptions, we caution readers not to place undue reliance on any
forward-looking statements. We undertake 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.
Item 2. Properties
The following table sets forth the location, ownership and general use of the principal properties of Acxiom.
Location Held Use
Acxiom Corporation:
(a) Phoenix, Arizona Held in fee Customer service facilities; data center;
office space
(b) Conway, Arkansas Eleven facilities held in Customer service facilities; data center;
fee; one facility secures a office space
$1,765,000 encumbrance and
another secures a $8,930,000
encumbrance
(c) Little Rock, Arkansas Lease Principal executive offices; customer
service facilities; office space
(d) Fayetteville, Arkansas Lease Office space
(e) Stamford, Connecticut Lease Office space
(f) Southfield, Michigan Lease Office space; data center
(g) Carmel, New York Lease Office space; data center
(h) Memphis, Tennessee Lease Customer service facilities; office space
Acxiom CDC, Inc.:
(a) Chicago, Lease Office space; data center
Illinois
Acxiom Limited:
(a) London, England Lease Customer service facilities; office space
(b) Sunderland, England Held in fee Office space; data center; warehouse space;
data processing and fulfillment service
center and fulfillment service center
(c) Paris, France Lease Office space
(d) Barcelona, Spain Lease Office space
Acxiom / May & Speh, Inc.:
(a) Chatsworth, California Lease Office space; data center; customer service
facilities; print facilities
(b) Atlanta, Georgia Lease Office space
(c) Downer's Grove, Illinois Lease Office space; data center; customer service
facilities
(d) Melville, New York Lease Office space; print facilities
(e) Bolingbrook, IL Lease Office space
(f) Los Angeles, CA Lease Office space; data center
Acxiom Australia Pty Ltd.:
(a) Sydney, Australia Lease Office space
(b) Brisbane, Australia Lease Office space
(c) Melbourne, Australia Lease Office space
(d) North Sydney, Australia Lease Office space
Acxiom is headquartered in Little Rock, Arkansas with additional locations throughout the United States. It also
has operations in the United Kingdom, France and Australia. In general, our offices, customer service and data
processing facilities are in good condition. Construction is expected to be completed by the end of calendar
year 2002 on a new customer service facility in Little Rock. Management believes that our current facilities,
together with those currently underway, are suitable and adequate to meet our current needs. Management believes
that, except for the planned expansions noted above, no substantial additional properties will be required during
fiscal year 2003.
Item 3. Legal Proceedings
On September 20, 1999, the Company and certain of its directors and officers were sued by an individual
shareholder in a purported class action filed in the United States District Court for the Eastern District of
Arkansas ("the Court"). The action alleges that the defendants violated Section 11 of the Securities Act of 1933
("the 1933 Act") in connection with the July 23, 1999 public offering of 5,421,000 shares of the common stock of
the Company. In addition, the action seeks to assert liability against the Company Leader pursuant to Section 15
of the 1933 Act. The action seeks to have a class certified of all purchasers of the stock sold in the public
offering. Two additional suits were subsequently filed in the same venue against the same defendants and
asserting the same allegations. On March 29, 2001, the Court granted the defendants' motion to dismiss. The
plaintiffs appealed the decision to dismiss to the United States Court of Appeals for the Eighth Circuit. Oral
arguments have been conducted and the case is ripe for decision by the Eighth Circuit. The Company continues to
believe the allegations are without merit and will continue to vigorously contest the cases.
There are various other litigation matters that arise in the normal course of our business. We don't believe any
of these, however, are material in their nature or scope.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
EXECUTIVE OFFICERS
Each of Acxiom's executive officers, including position held, age, and year of initial appointment as an
executive officer and business experience for the past five years, is listed below:
Name Position Held Age Year Elected
Charles D. Morgan Chairman of the Board and 59 1972
Company Leader
Rodger S. Kline Director and 58 1975
Company Operations Leader
James T. Womble Director and 59 1975
Client Services Leader
David J. Allen Client Services Leader 49 2000
Robert S. Bloom Company Financial Relations Leader 46 1992
and Treasurer
R. Bruce Carroll Strategic Development Leader 57 2001
Cindy K. Childers Company Organizational 42 2001
Development Leader
C. Alex Dietz Solutions and Products Leader 59 1979
Keith J. Henkel Solutions and Products Leader 41 2002
L. Lee Hodges Outsourcing and IT Services Leader 55 1998
J. Edward Horton Company Marketing Leader 38 2001
Jerry C. Jones Company Legal Leader 46 1999
Caroline Rook Company Financial Compliance Leader 44 2000
Jefferson D. Stalnaker Company Financial Operations Leader 36 2002
Paul M. Williams Company Sales Leader 54 2000
_________________________
Mr. Morgan joined Acxiom in 1972. He has been Chairman of the Board of Directors since 1975, and serves as
Acxiom's Company Leader. He is also a Director and past Chairman of the Board of the Direct Marketing
Association. In addition, he serves as a member and is the past Chairman of the Board of Trustees of
Hendrix College. He was employed by IBM Corporation prior to joining Acxiom. Mr. Morgan holds a mechanical
engineering degree from the University of Arkansas.
Mr. Kline serves as Acxiom's Operations Leader. He joined Acxiom in 1973 and has served as a Director of the
Company since 1975. Mr. Kline holds a degree in electrical engineering from the University of Arkansas at
Fayetteville, where for the past ten years he has served as Chairman of the College of Engineering Advisory
Council. Prior to joining Acxiom, Mr. Kline spent seven years with IBM Corporation and two years as an
officer in the U.S. Army.
Mr. Womble joined Acxiom in 1974 and serves as a Director of the Company as well as one of Acxiom's Client
Services Leaders. Mr. Womble is also a director of Sedona Corporation. Prior to joining Acxiom, he was
employed by IBM Corporation. He holds a degree in civil engineering from the University of Arkansas.
Mr. Allen joined Acxiom in 1997. He currently serves as one of Acxiom's Client Services Leaders and is
responsible for leading Acxiom's global development initiatives. Previously, he served as group leader in
Acxiom's London office. Prior to joining Acxiom, he was employed by IBM and EDS. Mr. Allen holds a
bachelor's degree in biological sciences from the University of East Anglia (UK), where he graduated with
honors.
Mr. Bloom joined Acxiom in 1992. He currently serves as Company Financial Relations Leader and Treasurer. Prior
to joining Acxiom, he was employed for six years with Wilson Sporting Goods Co. as chief financial officer
of its international division. Prior to his employment with Wilson, Mr. Bloom was employed by Arthur
Andersen & Co. for nine years, serving most recently as manager. Mr. Bloom, a Certified Public Accountant,
holds a degree in accounting from the University of Illinois.
Mr. Carroll joined Acxiom in 2000. He currently serves as Strategic Development Leader. Prior to joining
Acxiom, he was Senior Vice President of R.L. Polk, where he managed Polk's data engineering and market
analysis group of companies. Before its acquisition by Polk in 1996, he was President of Blackburn Marketing
Services in Toronto, an information technology conglomerate which included Canadian-based Compusearch and
US-based Carfax. Prior to his nine years with Blackburn and Polk, Mr. Carroll was President/CEO of Claritas
Inc. for ten years, based in Washington, D.C., then was Managing Director of Computerized Marketing
Technologies in London. He holds undergraduate and graduate degrees in history and economics at the
University of Toronto.
Ms. Childers joined Acxiom in 1985. She currently serves as Company Organizational Development Leader. Prior to
joining Acxiom, she was a Certified Public Accountant in audit and tax for KPMG Peat Marwick. Ms. Childers
holds a degree in business administration from the University of Central Arkansas.
Mr. Dietz joined Acxiom in 1970 and served as a Vice President until 1975. From 1975 to 1979 he was an officer
of a commercial bank responsible for data processing matters. Following his return to Acxiom in 1979, Mr.
Dietz served as a senior-level officer of Acxiom and is presently one of Acxiom's Solutions and Products
Leaders. Mr. Dietz holds a degree in electrical engineering from Tulane University.
Mr. Henkel joined Acxiom in 1999 to help develop customer relationship management strategies for the Financial
Services Organization. He was responsible for the development of Solvitur4, Acxiom's real-time marketing
solution. Mr. Henkel presently serves as one of Acxiom's Solutions and Products Leaders. Prior to joining
Acxiom, Mr. Henkel spent 17 years with Alltel Information Systems. Most recently, he was responsible for
Alltel's retail delivery and information warehousing products. Prior to that, Mr. Henkel developed Alltel's
enterprise architecture and built its client/server development capability. Mr. Henkel graduated from Rhodes
College in 1983 with a bachelor's degree in economics and business administration.
Mr. Hodges joined Acxiom in 1998 and currently serves as Outsourcing and IT Leader for the Company. Prior to
joining Acxiom, he was employed for six years with Tascor, the outsourcing subsidiary of Norrell
Corporation, most recently serving as a Senior Vice President. Prior to that time, Mr. Hodges served in a
number of engineering, sales, marketing and executive positions with IBM for 24 years. Mr. Hodges holds a
bachelor's degree in industrial engineering from The Pennsylvania State University.
Mr. Horton joined Acxiom in 1987. He currently serves as Acxiom's Marketing Leader. Prior to joining Acxiom, he
was employed by Diversified Human Resources Group, most recently serving as a data processing consultant.
Mr. Horton holds a bachelor's degree in data processing and quantitative analysis from the University of
Arkansas and has completed New York University's Diploma Program in direct marketing.
Mr. Jones joined Acxiom in 1999 and currently serves as Legal Leader for the Company. Prior to joining Acxiom,
he was employed for 19 years as an attorney in private practice with the Rose Law Firm in Little Rock,
Arkansas, representing a broad range of business interests. Mr. Jones holds a degree in public
administration and a law degree from the University of Arkansas.
Ms. Rook joined Acxiom in 2000 and currently serves as Financial Compliance Leader. Prior to joining Acxiom, she
was employed by Sterling Software, Inc. for eight years, most recently serving as group vice president of
finance and administration of the Business Intelligence Group. Previously, Ms. Rook was a finance manager at
Barclays Bank, PLC in England and a senior management consultant with Ernst & Whinney in Hong Kong. Ms.
Rook, a Fellow of the Institute of Chartered Accountants in England and Wales, holds a degree in computer
sciences from the University of Manchester Institute of Science and Technology (UK).
Mr. Stalnaker currently serves as Acxiom's Financial Operations Leader. He joined the company in 1995 and during
his tenure has served in a number of roles in the financial organization. For the past four years, Mr.
Stalnaker served as the financial leader of Acxiom's largest operating organization while also serving in a
business development role for several key clients. Prior to joining Acxiom, he was employed by the Arkansas
Public Service Commission as a senior financial analyst. Prior to that, Mr. Stalnaker worked for a regional
public accounting firm located in Little Rock, Arkansas. He is a Certified Public Accountant and holds a
degree in business administration in accounting from the University of Central Arkansas.
Mr. Williams joined Acxiom in 1989. He currently serves as Company Sales Leader. Prior to joining Acxiom, he
held a number of positions within the information services and financial services industries, including
Computer Associates International. Prior to that, he was a systems engineer for IBM. Mr. Williams holds a
degree in management from the University of Arkansas and is a graduate of the SMU Intermediate Banking
School and the Stonier Graduate School of Bank Management. He also served four years in the United States
Air Force.
There are no family relationships among any of Acxiom's executive officers and/or directors.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
The outstanding shares of Acxiom's Common Stock are listed and traded on the NASDAQ National Market and trade
under the symbol ACXM. The following table reflects the range of high, low and closing prices of Acxiom's Common
Stock as reported by Dow Jones & Company, Inc. for each quarter in fiscal 2002 and 2001.
Fiscal 2002 High Low
Fourth quarter 19.15 12.85
Third quarter 18.05 9.32
Second quarter 13.50 7.85
First quarter 19.87 10.89
Fiscal 2001 High Low
Fourth quarter 39.25 20.69
Third quarter 44.16 31.75
Second quarter 31.78 20.19
First quarter 32.13 25.25
As of May 10, 2002, the approximate number of stockholders of record was 2,280.
Acxiom has never paid cash dividends on its Common Stock. We intend to retain future earnings for use in our
business, and do not anticipate paying any cash dividends in the foreseeable future. In addition, our senior
indebtedness limits our ability to declare and pay cash dividends.
The equity plan compensation information required by this Item appears under the heading "Equity Compensation
Plan Information " in Acxiom's 2002 Proxy Statement, which information is incorporated herein by reference.
Item 6. Selected Financial Data
For information pertaining to Selected Financial Data of Acxiom, refer to page F-25 of the Financial Supplement,
which is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The information required by this Item appears in the Financial Supplement at pp. F-2 - F-22, which is
incorporated herein by reference
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Acxiom's earnings are affected by changes in short-term interest rates primarily as a result of its revolving
credit agreement and term note, which bear interest at a floating rate. Acxiom does not use derivative or other
financial instruments to mitigate the interest rate risk. Risk can be estimated by measuring the impact of a
near-term adverse movement of 10% in short-term market interest rates. If short-term market interest rates
average 10% more during the next four quarters than during the previous four quarters, there would be no material
adverse impact on Acxiom's results of operations. Acxiom has no material future earnings or cash flow expenses
from changes in interest rates related to its other long-term debt obligations as substantially all of Acxiom's
remaining long-term debt instruments have fixed rates. At March 31, 2002, the fair value of Acxiom's fixed rate
long-term obligations approximated carrying value.
Although Acxiom conducts business in foreign countries, principally the United Kingdom, foreign currency
translation gains and losses are not material to Acxiom's consolidated financial position, results of operations
or cash flows. Accordingly, Acxiom is not currently subject to material foreign exchange rate risks from the
effects that exchange rate movements of foreign currencies would have on Acxiom's future costs or on future cash
flows it would receive from its foreign investment. To date, Acxiom has not entered into any foreign currency
forward exchange contracts or other derivative instruments to hedge the effects of adverse fluctuations in
foreign currency exchange rates.
Item 8. Financial Statements and Supplementary Data
The Financial Statements required by this Item appear in the Financial Supplement at pp. F26 - F-61 , which
information is incorporated herein by reference.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Pursuant to general instruction G(3) of the instructions to Form 10-K, information concerning Acxiom's executive
officers is included under the caption "Executive Officers" at the end of Part I of this Report. The remaining
information required by this Item appears under the captions "Proposals You May Vote On," "Information About the
Board of Directors," and "Section 16(a) Reporting Delinquencies" in Acxiom's 2002 Proxy Statement, which
information is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item appears under the heading "Executive Compensation" in Acxiom's 2002 Proxy
Statement, which information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item appears under the heading "Stock Ownership" in Acxiom's 2002 Proxy
Statement, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this Item appears under the heading "Certain Transactions" in Acxiom's 2002 Proxy
Statement, which information is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this Report:
Financial Statements.
The following consolidated financial statements of the registrant and its subsidiaries included in the
Financial Supplement and the Independent Auditors' Reports thereof are incorporated herein by reference.
Page references are to page numbers in the Financial Supplement.
Page
Consolidated Balance Sheets as of March 31, 2002 and 2001 F-26
Consolidated Statements of Operations for the years ended
March 31, 2002, 2001 and 2000 F-27
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 2002, 2001 and 2000 F-28
Consolidated Statements of Cash Flows for the years ended
March 31, 2002, 2001 and 2000 F-29 - F-30
Notes to Consolidated Financial Statements F-31 - F-61
Reports of Independent Public Accountants F-23 - F-24
Financial Statement Schedule.
All schedules are omitted because they are not applicable or not required or because the required
information is included in the consolidated financial statements or notes thereto.
Exhibits and Executive Compensation Plans.
The following exhibits are filed with this Report or are incorporated by reference to previously filed
material.
Exhibit No.
3(a) Amended and Restated Certificate of Incorporation (previously filed as Exhibit 3(i) to Acxiom's
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996, Commission File No. 0-13163,
and incorporated herein by reference)
3(b) Amended and Restated Bylaws (previously filed as Exhibit 3(b) to Acxiom's Annual Report on Form 10-K for
the fiscal year ended March 31, 1991, Commission File No. 0-13163, and incorporated herein by reference)
4(a) Rights Agreement dated January 28, 1998 between Acxiom and First Chicago Trust Company of New York, as
Rights Agent, including the forms of Rights Certificate and of Election to Exercise, included in Exhibit
A to the Rights Agreement and the form of Certificate of Designation and Terms of Participating
Preferred Stock of Acxiom, included in Exhibit B to the Rights Agreement (previously filed as Exhibit
4.1 to Acxiom's Current Report on Form 8-K dated February 10, 1998, Commission File No. 0-13163, and
incorporated herein by reference)
4(b) Indenture dated as of February 6, 2002 between Acxiom Corporation and U.S. Bank National Association, as
trustee, with Form of Security attached as Exhibit "A" for the 3.75% Convertible Subordinated Notes due
2009 of Acxiom Corporation (previously filed as Exhibit 4 to Acxiom's Quarterly Report on Form 10-Q for
the quarter ended December 31, 2001, Commission File No. 0-13163, and incorporated herein by reference)
4(c) Form of Indenture with Form of Note attached as Exhibit "A" for the 5.25% Convertible Subordinated Notes
due 2003 of Acxiom/May & Speh, Inc. (f/k/a May & Speh, Inc.) (previously filed as Exhibit 4.1 to the
Form S-3 Registration Statement of May & Speh, Inc., filed on February 19, 1998, Commission File No.
333-46547, and incorporated herein by reference)
10(a) Data Center Management Agreement dated July 27, 1992 between Acxiom and Trans Union Corporation
(previously filed as Exhibit A to Schedule 13-D of Trans Union Corporation dated August 31, 1992,
Commission File No. 5-36226, and incorporated herein by reference)
10(b) Agreement to Extend and Amend Data Center Management Agreement and to Amend Registration Rights
Agreement dated August 31, 1994 (previously filed as Exhibit 10(b) to Form 10-K for the fiscal year
ended March 31, 1995, as amended, Commission File No. 0-13163, and incorporated herein by reference)
10(c) Data Management Outsourcing Agreement dated April 1, 1999 between Acxiom and Allstate Insurance Company
(previously filed as Exhibit 10(c) to Acxiom's Annual Report on Form 10-K for the fiscal year ended
March 31, 1999, Commission file No. 0-13163, and incorporated herein by reference)
10(d) Acxiom Corporation Deferred Compensation Plan (previously filed as Exhibit 10(b) to Acxiom's Annual
Report on Form 10-K for the fiscal year ended March 31, 1990, Commission File No. 0-13163, and
incorporated herein by reference)
10(e) Amended and Restated Key Associate Stock Option Plan of Acxiom Corporation (previously filed as Exhibit
10(e) to Acxiom's Annual Report on Form 10-K for the fiscal year ended March 31, 2000, Commission File
No. 0-13163, and incorporated herein by reference)
10(f) 2000 Associate Stock Option Plan of Acxiom Corporation (previously filed as Exhibit 10(f) to Acxiom's
Annual Report on Form 10-K for the fiscal year ended March 31, 2000, Commission File No. 0-13163, and
incorporated herein by reference)
10(g) Acxiom Corporation U.K. Share Option Scheme (previously filed as Exhibit 10(f) to Acxiom's Annual Report
on Form 10-K for the fiscal year ended March 31, 1997, Commission File No. 0-13163, and incorporated
herein by reference)
10(h) Acxiom Corporation Leadership Team Compensation Plan (filed as Exhibit 10(h) to Acxiom's Annual Report
on Form 10-K for the fiscal year ended March 31, 2001, Commission File No. 0-13163, and incorporated
herein by reference)
10(i) Acxiom Corporation Non-Qualified Deferred Compensation Plan (previously filed as Exhibit 10(i) to
Acxiom's Annual Report on Form 10-K for the fiscal year ended March 31, 1996, Commission File No.
0-13163, and incorporated herein by reference)
10(j) General Electric Capital Corporation Master Lease Agreement, dated as of September 30, 1999 (previously
filed as Exhibit 10(m) to Acxiom's Annual Report on Form 10-K for the fiscal year ended March 31, 2001,
Commission File No. 0-13163, and incorporated herein by reference)
10(k) Amended and Restated Credit Agreement dated as of January 28, 2002 among Acxiom Corporation and JPMorgan
Chase Bank (successor in interest by merger to The Chase Manhattan Bank who was a successor in interest
by merger to Chase Bank of Texas, National Association), as agent, and certain other lenders party
thereto (previously filed as Exhibit 10(a) to Acxiom's Quarterly Report on Form 10-Q for the quarter
ended December 31, 2001, Commission File No. 0-13163, and incorporated herein by reference)
10(l) Term Credit Agreement dated as of September 21, 2001 between Acxiom Corporation and The Chase Manhattan
Bank (previously filed as Exhibit 10(b) to Acxiom's Quarterly Report on Form 10-Q for the quarter ended
December 31, 2001, Commission File No. 0-13163, and incorporated herein by reference)
10(m) First Amendment to Term Credit Agreement dated as of January 28, 2002 between Acxiom Corporation and
JPMorgan Chase Bank (successor in interest by merger to The Chase Manhattan Bank) (previously filed as
Exhibit 10(c) to Acxiom's Quarterly Report on Form 10-Q for the quarter ended December 31, 2001,
Commission File No. 0-13163, and incorporated herein by reference)
10(n) Participation Agreement dated as of October 24, 2000 (the "Participation Agreement") among Acxiom
Corporation, the various parties thereto from time to time as the guarantors, First Security Bank,
National Association, as the Owner Trustee under the AC Trust 2000-1, First Security Trust Company of
Nevada, as Trustee under the AC Trust 2000-2, the various banks and other lending institutions which are
parties thereto from time to time, as the holders, the various banks and other lending institutions
which are parties thereto from time to time, as the lenders, Bank of America, N.A., as the agent for the
lenders and respecting the Security Documents, as the agent for the lenders and the holders, to the
extent of their interests ABN-AMRO Bank, N.V., as syndication agent and Suntrust Bank, as documentation
agent (previously filed as Exhibit 10(d) to Acxiom's Quarterly Report on Form 10-Q for the quarter ended
December 31, 2001, Commission File No. 0-13163, and incorporated herein by reference)
10(o) Lease Agreement dated as of October 24, 2000 between First Security Bank, National Association, as the
Owner Trustee under the AC Trust 2000-1, as Lessor and Acxiom Corporation, as Lessee (previously filed
as Exhibit 10(e) to Acxiom's Quarterly Report on Form 10-Q for the quarter ended December 31, 2001,
Commission File No. 0-13163, and incorporated herein by reference)
10(p) Waiver and First Amendment to the Participation Agreement and certain operative agreements dated as of
August 14, 2001 ((previously filed as Exhibit 10(f) to Acxiom's Quarterly Report on Form 10-Q for the
quarter ended December 31, 2001, Commission File No. 0-13163, and incorporated herein by reference)
10(q) Second Amendment to the Participation Agreement and certain operative agreements dated as of
September 14, 2001 (previously filed as Exhibit 10(g) to Acxiom's Quarterly Report on Form 10-Q for the
quarter ended December 31, 2001, Commission File No. 0-13163, and incorporated herein by reference)
10(r) Third Amendment to the Participation Agreement and certain operative agreements dated as of
September 21, 2001 (previously filed as Exhibit 10(h) to Acxiom's Quarterly Report on Form 10-Q for the
quarter ended December 31, 2001, Commission File No. 0-13163, and incorporated herein by reference)
10(s) Fourth Amendment to the Participation Agreement and certain operative agreements dated as of January 28,
2002 (previously filed as Exhibit 10(i) to Acxiom's Quarterly Report on Form 10-Q for the quarter ended
December 31, 2001, Commission File No. 0-13163, and incorporated herein by reference)
10(t) Form of Executive Security Agreement dated as of August 23, 2001, between Acxiom and the executive
officers listed pursuant to Part III, Item 10 above
21 Subsidiaries of Acxiom
23(a) Consent of KPMG LLP
23(b) Consent of Arthur Andersen LLP
24 Powers of Attorney
99 Letter from Acxiom to the SEC with respect to representations received from Arthur Andersen LLP
Listed below are the executive compensation plans and arrangements currently in effect and which are required to
be filed as exhibits to this Report:
o 2000 Associate Stock Option Plan of Acxiom Corporation
o Acxiom Corporation Leadership Team Compensation Plan
o Acxiom Corporation Non-Qualified Deferred Compensation Plan
o Acxiom Corporation U.K. Share Option Scheme
o Amended and Restated Key Associate Stock Option Plan of Acxiom Corporation
(b) Reports on Form 8-K.
On January 29, 2002, Acxiom filed a Report on Form 8-K reporting its announcement of a convertible debt
offering. On February 1, 2002, Acxiom filed a Report on Form 8-K reporting an increase in the size of the
convertible debt offering and announcing the pricing thereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this Report to be signed on its behalf by the undersigned.
ACXIOM CORPORATION
Date: May 15, 2002 By:
Catherine L. Hughes
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the registrant and in the capacities and as of the dates indicated.
Signature
General Wesley K. Clark* Director May 15, 2002
General Wesley K. Clark
Dr. Ann Hayes Die* Director May 15, 2002
Dr. Ann Hayes Die
William T. Dillard II* Director May 15, 2002
William T. Dillard II
Harry C. Gambill* Director May 15, 2002
Harry C. Gambill
William J. Henderson* Director May 15, 2002
William J. Henderson
Rodger S. Kline* Company Operations Leader May 15, 2002
Rodger S. Kline and Director
Thomas F. McLarty, III* Director May 15, 2002
Thomas F. McLarty, III
Charles D. Morgan* Chairman of the Board and May 15, 2002
Charles D. Morgan Company Leader
(Principal executive officer)
Stephen M. Patterson* Director May 15, 2002
Stephen M. Patterson
Caroline Rook* Company Financial Compliance Leader May 15, 2002
Caroline Rook (Principal financial and accounting officer)
James T. Womble* Client Services Leader and Director May 15, 2002
James T. Womble
*By: /s/ Catherine L. Hughes
Catherine L. Hughes
Attorney-in-Fact
INDEX TO FINANCIAL SUPPLEMENT
TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED MARCH 31, 2002
Management's Discussion and Analysis of Financial Condition and
Results of Operations F-2 - F-22
Reports of Independent Auditors F-23 - F-24
Selected Financial Data F-25
Annual Financial Statements:
Consolidated Balance Sheets
as of March 31, 2002 and 2001 F-26
Consolidated Statements of Operations
for the years ended March 31, 2002, 2001 and 2000 F-27
Consolidated Statements of Stockholders' Equity
for the years ended March 31, 2002, 2001 and 2000 F-28
Consolidated Statements of Cash Flows
for the years ended March 31, 2002, 2001 and 2000 F-29 - F-30
Notes to the Consolidated Financial Statements F-31 - F-61
F-1
Management's Discussion and Analysis of Financial Condition and Results of Operations
Introduction
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, most respected companies in the world.
The core components of Acxiom's innovative solutions are Customer Data Integration ("CDI") technology, data
content, 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 and in the United Kingdom ("U.K."), France and Australia.
Critical Accounting Policies
Financial Reporting Release No. 60 ("FRR 60") was released by the Securities and Exchange Commission ("SEC")
during December 2001. FRR 60 requires that all registrants include a discussion of critical accounting policies
used in the preparation of financial statements. Note 1 to the audited consolidated financial statements
includes a summary of significant accounting policies used in the preparation of Acxiom's consolidated financial
statements. Of those policies, we have identified the following as the most critical because they require
management's use of complex and/or significant judgments:
Revenue Recognition - Revenues from services, including consulting, list processing and data warehousing,
and from information technology outsourcing services, including facilities management contracts and
hardware and certain other equipment, are recognized ratably over the service term of the contract. In
certain multiple element arrangements, revenue is recognized on each element based on the objective
evidence of the fair values of each element. If evidence of fair value does not exist for all elements of
the arrangement, then all revenue for the multiple element arrangement is recognized ratably over the term
of the agreement. In the case of certain long-term contracts, up-front fees earned are deferred and
capital expenditures and start-up costs that are direct and incremental to obtaining the contract are
capitalized and amortized on a straight-line basis over the service term of the contract, in accordance
with SEC Staff Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition in Financial Statements."
Whenever it is determined that such costs will not be recovered under a contract, the costs are written
off. In certain outsourcing contracts, additional revenue is recognized based upon attaining certain
annual margin improvements or cost savings over performance benchmarks as specified in the contracts. Such
additional revenue is recognized when such benchmarks have been met. Additionally, if third party
software, hardware and certain other equipment are sold along with services, the Company records such sales
over the service period unless fair value of the undelivered service element can be determined. The
Company evaluates revenue from the sale of hardware and equipment in accordance with the provisions of
Emerging Issues Task Force ("EITF") Abstract 99-19, "Reporting Revenue Gross as a Principal versus net as
an Agent," to determine whether such revenues should be recognized on a gross or a net basis over the term
of the related service agreement.
Revenues from the licensing of data are recognized upon delivery of the data to the customer in
circumstances where no update or other obligations exist. Revenue from the licensing of data in which the
Company is obligated to provide future updates on a monthly, quarterly or annual basis is recognized on a
straight-line basis over the license term.
Revenues from the licensing of software are recognized in accordance with the American Institute of
Certified Public Accountants Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as amended
by SOP 98-9, "Modification of SOP 97-2, Software
F-2
Revenue Recognition, with Respect to Certain Transactions." SOP 97-2, as amended, generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements. The
fair value of an element must be based on evidence that is specific to the vendor. If evidence of fair
value does not exist for all elements of a license arrangement, then all revenue for the license
arrangement is recognized ratably over the term of the agreement. If evidence of fair value of all
undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is
recognized using the residual method. Generally, prior to April 1, 2001, revenue from the licensing of
AbiliTec software was recognized up front in accordance with SOP 97-2, as amended. Effective April 1,
2001, the Company made certain modifications to its standard software license agreements such that
vendor-specific objective evidence is not attainable on many of its software license transactions entered
into subsequent to that date. Accordingly, the Company now recognizes revenue from the licensing of its
AbiliTec software ratably over the term of the agreement unless the license is sold without support or
other services.
Additionally, the Company earns revenue for the maintenance of its software, which provides for the Company
to provide technical support and software updates to customers. Revenue on technical support and software
update rights is recognized ratably over the term of the support agreement.
Effective January 1, 2001, the Company changed its method of accounting for certain transactions,
retroactive to April 1, 2000, in accordance with SAB 101. Previously, the Company had recognized revenue
from the licensing of data when the data was delivered using a percentage of completion method of
accounting, based on the percentage of unique records delivered to the customer. Additionally, revenue
from services and from information technology outsourcing services was recognized as such services were
performed. The Company is now recognizing revenue in accordance with the policies stated above. The
cumulative effect of the change on prior years resulted in a charge to earnings of $37.5 million, which is
included in the Company's consolidated earnings for the year ended March 31, 2001. The effect of the
change on the year ended March 31, 2001 was to decrease earnings before the cumulative effect of the change
in accounting principle by $18.2 million ($.20 per diluted share). The Company recognized revenue of
approximately $19 million in 2002 and approximately $29 million in 2001 that was included in the cumulative
effect adjustment.
Software, Purchased Software Licenses and Research and Development Costs - The Company capitalizes software
development costs incurred in connection with software development projects upon reaching technological
feasibility in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No.
86, "Accounting for the Cost of Computer Software to Be Sold, Leased, or Otherwise Marketed." Once
technological feasibility is established, costs are capitalized until the software is available for general
release. Research and development costs incurred prior to establishing technological feasibility of
software products are charged to operations as incurred. Costs of internally developed software, upon its
general release, are amortized on a straight-line basis over the estimated economic life of the product,
generally two to five years, or the amortization that would be recorded by using the ratio of gross
revenues for a product to total current and anticipated future gross revenues for that product, whichever
is greater. The Company recorded amortization expense related to internally developed computer software of
$23.6 million in 2002, $19.9 million in 2001 and $10.3 million in 2000. Additionally, research and
development costs associated with internally developed software of $17.8 million in 2002, $22.3 million in
2001 and $26.4 million in 2000 were charged to operations during those years.
F-3
Purchased software licenses include both capitalized future software obligations for which the liability is
included in long-term debt and prepaid software. Costs of purchased software licenses are amortized using
a units-of-production basis over the estimated economic life of the license, generally not to exceed ten
years. The Company recorded amortization of purchased software licenses of $19.5 million in 2002, $17.4
million in 2001 and $9.6 million in 2000.
Capitalized software, including both purchased and internally developed, are reviewed each period and, if
necessary, the Company reduces the carrying value of each product to its net realizable value. During
2002, the Company recorded a charge of $10.3 million for the write-down of certain of its purchased and
internally developed software to net realizable value. (See further discussion of this write-down in note
2 to the consolidated financial statements.) At March 31, 2002, the Company's most recent impairment
analysis of its purchased and internally developed software indicates that no further impairment exists.
However, no assurance can be given that future analysis of the Company's capitalized software will not
result in an impairment charge.
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 future net operating cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell. During the year ended March
31, 2002, in connection with the restructuring plan discussed in note 2 to the consolidated financial
statements, the Company recorded a charge to earnings of $33.6 million for the loss associated with the
sale and leaseback of certain computer equipment and the impairment of certain other equipment. At March
31, 2002, the Company believes that no further impairment exists with respect to its long-lived assets.
However, no assurance can be given by Company management 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 (see notes 3 and 5 to the consolidated financial
statements). Under the provisions of SFAS No. 142, "Goodwill and other Intangible Assets," goodwill is no
longer 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 impairment test is completed. As
required by SFAS No. 142, 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, 2001.
Accordingly, step two of the goodwill impairment test was not required. The Company is required under the
provisions of SFAS No. 142 to perform an annual impairment test of its goodwill balances, which is expected
to be performed as of the beginning of the Company's fiscal year. No assurance can be given by the Company
that these additional impairment tests will not require an impairment charge during future periods should
circumstances indicate that the Company's goodwill balances are impaired.
F-4
Assets Under Operating Lease - The Company leases a substantial portion of its furniture and data
processing equipment under third party leases. The Company evaluates these leases under SFAS No. 13,
"Accounting for Leases," as amended. The evaluation process includes making judgments regarding matters
such as estimated useful life, fair market value of assets, and cost to remove assets at the end of the
lease term. The majority of leases the Company has entered into in recent years have been accounted for as
operating leases under SFAS No. 13. There can be no assurance that all future leases will meet the
criteria for operating lease treatment. Leases that do not meet the criteria for operating lease treatment
are required to be accounted for as capital leases, with the obligation and the underlying asset recorded
on the balance sheet.
Allowance for Doubtful Accounts - The Company maintains its allowance for doubtful accounts at a balance
adequate to reduce accounts receivable to the amount of cash expected to be realized upon collection. The
methodology used by the Company to determine the appropriate balance of its allowance for doubtful accounts
is based on the accounts receivable aging categories. Balances that are deemed to be uncollectable are
written off in the period in which the determination is made. The Company recorded bad debt expense of
$8.3 million in 2002, $3.6 million in 2001 and $2.3 million in 2000. While credit losses have historically
been within management's expectations and the provisions established, the Company cannot guarantee that it
will continue to experience the same credit loss rates as in the past, or that additional allowances might
not be required during future periods.
Results of Operations
For the fiscal year ended March 31, 2002, the Company's revenue was $866.1 million. This represents a decrease
of 14% compared to revenue of $1,009.9 million in fiscal 2001. Adjusting both years for divested operations, and
adjusting 2001 for AbiliTec software revenue and the loss of Wards discussed below, the decrease in revenue was
2%. The decrease in revenue is principally due to the economic slowdown and its impact on the business this
year. For 2001, the revenue increased 5% over fiscal 2000. Again adjusting for divested operations, AbiliTec
software revenue, Wards and the retroactive application of SAB 101 in 2000, the increase would have been 14%.
The following table shows the Company's revenue by business segment for each of the years in the three-year
period ended March 31, 2002 (dollars in millions):
2002 to 2001 to
2002 2001 2000 2001 2000
----- ----- ----- -------- --------
Services $633.4 $732.6 $675.1 - 14 % + 9 %
Data and Software
Products 162.5 228.7 168.5 - 29 + 36
Information Technology
Management 220.4 223.4 194.9 - 1 + 15
Intercompany
eliminations (150.2) (174.8) (74.0) - 14 + 136
------ -------- ------- --------- ----------
$866.1 $1,009.9 $964.5 - 14 % + 5 %
====== ======== ======= ========= ==========
The Services segment, the Company's largest segment, provides data warehousing, list processing and consulting
services to large corporations in a number of vertical industries. Revenue for fiscal 2002 decreased for this
segment by 14% from fiscal 2001. Fiscal year 2001 grew by 9% over fiscal 2000. Excluding divested operations
and adjusting the prior years for the impact of the change in AbiliTec software revenue and the impact of SAB
101, the decrease for 2002 was 1% from 2001 and the increase for 2001 was 10% over 2000.
F-5
The Data and Software Products segment provides data content and software primarily in support of their
customers' direct marketing activities. Data and Software Products segment revenue decreased 29% in 2002 from
2001 after increasing 36% between 2000 and 2001. Adjusting for divestitures, AbiliTec software revenue and the
effect of SAB 101, 2002 increased 12% over 2001 and 2001 increased 60% from 2000. The increase in revenue as
compared to the prior year amounts is primarily attributable to increased data and data license sales.
Additionally, the Data and Software Products segment provides a significant portion of its data content and
software activities to customers of the Services and IT Management segments. For internal reporting purposes,
these revenues are included in both segments and then adjusted through the intercompany elimination. As
evidenced by the table above, Data and Software Products revenues from the Services and IT Management segments'
customers decreased 14% in 2002 after increasing 136% in 2001. Again adjusting on the same basis as described
above, the intercompany elimination increased 60% in 2002 after increasing 85% in 2001.
The IT Management segment reflects outsourcing services primarily in the areas of data center, client server and
network management. This segment's revenue decreased 1% in 2002 and grew 15% in 2001. Adjusting for
divestitures, the loss of Wards as discussed below, AbiliTec software revenue and the retroactive impact of SAB
101, the increases were 11% in 2002 and 21% in 2001.
The following table presents the Company's operating expenses for each of the years in the three-year period
ended March 31, 2002 (dollars in millions):
2002 to 2001 to
2002 2001 2000 2001 2000
--------- ---------- ---------- --------- -----------
--------- ---------- ---------- --------- -----------
Salaries and benefits $ 325.1 $ 363.5 $ 361.8 - 11 % + 1 %
Computer, communications and
other equipment 245.2 186.0 151.8 + 32 + 22
Data costs 115.4 112.0 113.1 + 3 - 1
Other operating costs and
expenses 153.6 211.5 173.9 - 27 + 22
Gains, losses and nonrecurring
items, net 45.5 35.3 - + 29 -
--------- ---------- ---------- --------- -----------
Total operating expenses $ 884.8 $ 908.3 $ 800.6 - 3 % + 13 %
========= ========== ========== ========= ===========
Salaries and benefits for the Company decreased by 11% from 2001 to 2002 after increasing 1% from 2000 to 2001.
After adjusting for divestitures, nonrecurring expenses, the loss of Wards and the impact of SAB 101, the
decrease for 2002 was 6% after increasing 19% in 2001. The decrease during fiscal 2002 is primarily attributable
to the work force reductions that were a component of the restructuring plan discussed below and certain
mandatory and voluntary salary reductions effective April 2001. The Company's associates received stock options
to offset these mandatory and voluntary salary reductions. The voluntary portion of the salary reduction was
reinstated on April 1, 2002, and the involuntary portion of the salary reductions is currently scheduled to be
reinstated during the second and third quarters of fiscal 2003, contingent upon the Company achieving certain
performance targets. The net impact of reinstatement of the voluntary and involuntary salary reductions is
expected to be approximately $16 million during fiscal 2003. The increase in 2001 over 2000 was generally due to
headcount and normal salary increases to support the Company's revenue growth.
Computer, communications and other equipment costs increased 32% for 2002 and 22% for 2001. After adjusting for
divestitures, nonrecurring items, the loss of Wards, and the impact of SAB 101, the increase for 2002 would have
been 20% and the increase for 2001 would have been 27%. The increase for 2002 reflects increases in leased data
processing equipment and software amortization, while the increase in 2001 reflects depreciation on capital
expenditures and amortization of
F-6
software costs made to accommodate business growth, in particular the outsourcing business in the IT Management segment. Capitalized software, including purchased and internally
developed, and data processing equipment is evaluated for impairment on an annual basis, or whenever events or
changes in circumstances indicate the carrying amount of the asset might not be recoverable. At March 31, 2002,
the Company's most recent impairment analysis of its software and its data processing equipment indicates that no
impairment exists. However, no assurance can be given that future analysis of the Company's capitalized software
or its data processing equipment might not result in an impairment charge.
Data costs increased 3% from the prior year in 2002 and decreased 1% in 2001. Revenue from Allstate Insurance
Company ("Allstate"), historically the single largest driver of data costs, decreased 4% in 2002 compared to
2001, and increased 8% in 2001 from the previous year. The decrease in 2002 is more than offset by increases in
data costs attributed to Infobase sales and other data products. The increase in Allstate revenue in 2001 is
offset by decreases in other data costs incurred by the Company. As a result of changes in data requirements for
Allstate, the Company expects both its data revenues and the associated data costs for Allstate to decline in
fiscal 2003.
Other operating costs and expenses decreased by 27% in 2002 after increasing 22% in 2001. After adjusting for
divestitures, nonrecurring expenses, the loss of Wards, the impact of SAB 101, and the elimination of goodwill
amortization in prior years, the decrease for 2002 was 24% after increasing 34% in 2001. The decrease in the
current year is a result of lower hardware sales (down 43%). Other factors included lower travel and
entertainment expenses (down 59%), office supplies (down 53%) and advertising (down 47%). The decline in these
expenses during 2002 reflects initiatives taken during the current year to reduce the Company's cost structure.
These decreases were partially offset by an increase in bad debt expense of approximately $4.7 million, primarily
in response to customer bankruptcies. The increase in other operating expenses in 2001 over 2000 is primarily the
result of increased cost of sales associated with hardware (up 15%), along with increases in advertising (up
66%), travel and entertainment (up 25%), consulting (up 35%), and other facility costs (up 45%).
During 2002, the Company recorded gains, losses and nonrecurring items, net totaling $45.5 million as compared to
a charge of $35.3 million during the prior year and none during 2000. The charge for fiscal 2002 consists of a
$45.3 million charge during the first quarter related to the restructuring plan discussed below, a net loss on
the disposal of certain operations of $0.9 million discussed below, and an adjustment during the fourth quarter
to certain of the restructuring accruals recorded earlier in fiscal 2002.
On June 25, 2001, the Company announced a restructuring plan ("Restructuring Plan") in reaction to the continued
economic slowdown and the related revenue impact. The Restructuring Plan included a seven percent workforce
reduction; the sale-leaseback of certain computer equipment; and certain other asset impairments, adjustments and
accruals (see note 2 to the consolidated financial statements). The aggregate amount of these Restructuring Plan
charges recorded by the Company totaled $45.3 million (included in gains, losses and nonrecurring items, net for
the year ended March 31, 2002) and consisted of a $31.2 million loss on the sale-leaseback of computer equipment;
$8.3 million in associate-related reserves, principally employment contract termination and severance costs; $3.6
million for lease and contract termination costs and $2.2 million for abandoned or otherwise impaired assets and
transaction costs to be paid to accountants and attorneys. In addition, the Company recorded accelerated
depreciation and amortization and other charges of $25.8 million on certain other assets that are no longer in
service or were otherwise deemed impaired. The Company also incurred $18.4 million of expenses in the quarter
that are not expected to recur.
F-7
The associate-related charges include payments to be made under existing employment agreements with four
terminated associates and involuntary termination benefits to 450 associates whose positions were eliminated.
The contract termination costs consist primarily of lease terminations that occurred during the quarter-ended
June 30, 2001 in an effort to consolidate portions of the Company's operations and the termination of certain
other contracts on or prior to June 30, 2001 for services no longer utilized by the Company. The transaction
costs are fees that were incurred as a direct result of the workforce reductions, the sale-leaseback transaction,
and certain other restructuring and cost-cutting measures put in place during the quarter ended June 30, 2001.
Total amounts accrued in connection with this Restructuring Plan were $12.2 million, of which $10.3 million were
paid out during the current year. During the fourth quarter of 2002, the Company revised certain estimates about
the remaining Restructuring Plan obligations and, accordingly, reduced the remaining impairment accrual by $0.7
million.
During 2002, the Company completed the sale of three of its business operations (see note 4 to the consolidated
financial statements for more detail). The gross proceeds from the sale of these operations were $15.1 million,
consisting of cash of $6.8 million and notes receivable of $8.3 million. The Company recorded a net loss of $0.9
million, including an adjustment during the fourth quarter to reduce the previously recorded gain on the
dispositions by $2.0 million. This net loss is included in gains, losses and nonrecurring items, net in the
accompanying consolidated statements of operations. The net loss recorded by the Company reflects the write-off
of $1.9 million of goodwill in accordance with SFAS No. 142.
During 2001, the Company recorded gains, losses and nonrecurring items, net totaling $35.3 million. Included in
these charges were $34.6 million related to the bankruptcy of Wards. These charges consisted of approximately
$8.1 million for the write-down of property and equipment; $13.7 million of deferred contract costs; $5.3 million
of pre-petition receivables; $3.5 million for the write-down of software; $2.3 million in ongoing contract costs
and $1.7 million of other accruals. See note 2 to the consolidated financial statements for more information
regarding the Wards write-downs.
Also included in the gains, losses and nonrecurring items, net for 2001 were a $39.7 million gain on the sale of
the DataQuick operation in April 2000, a $3.2 million loss on the sale of the CIMS business unit, a $20.4 million
write-down of the Company's remaining interest in the DMI operation, a $7.6 million write-down of campaign
management software, a $6.3 million accrual to fund over-attainment incentives and $2.9 million in additional
write-offs. See note 2 to the consolidated financial statements for additional information regarding these
write-offs.
Total spending on capitalized software and research and development expense was $41.9 million in 2002 compared to
$58.9 million in 2001 and $63.7 million in 2000. Research and development expense was $17.8 million, $22.3
million and $26.4 million for 2002, 2001 and 2000, respectively. The Company's operations for fiscal 2001 were
heavily impacted by investment in the AbiliTec software. The investment totaled approximately $79 million for
2001, including $25 million of capitalized software development, with the remaining $54 million being expensed as
advertising, training, sales and marketing, research and development and the AbiliTec infrastructure.
The Company's income (loss) from operations for the year was a loss of $18.7 million as compared to income of
$101.6 million a year ago and $163.9 million in 2000. The operating margin was a negative 2% for 2002, 10% for
2001 and 17% for 2000. Adjusting for divestitures, AbiliTec software revenue, the loss of Wards, the retroactive
impact of SAB 101, the nonrecurring expenses, and the elimination of goodwill amortization in the prior years,
income from operations would have been $68.6 million for 2002, $60.6 million for 2001 and $101.2 million for
2000. The operating margins would have been 8%, 7% and 13% for 2002, 2001 and 2000, respectively.
F-8
Interest expense for the year of $28.5 million increased from $26.5 million last year reflecting higher average
debt levels this year including increases in the revolving credit facility during the first and second quarters,
the conversion of the equity forward contracts to a term note, and the issuance of $175 million of new
convertible notes during the fourth quarter of 2002. The increase in interest expense as a result of the higher
average debt level is partially offset by declines in the weighted average interest rates. Interest expense in
2001 increased $3.0 million over 2000 due to increased average debt level, including increases on the Company's
revolving credit facility and increases in enterprise software license liabilities.
Other, net for 2002 includes write-downs on marketable and nonmarketable investments of $1.1 million. Other, net
for 2001 includes a $6.2 million gain on the sale of the Company's investment in Ceres and a write-down on
marketable and nonmarketable investments of $12.7 million, net of realized gains (see note 1 to the consolidated
financial statements). The remainder of this category consists primarily of interest income on unbilled and
notes receivable together with equity pickup on joint ventures. Other, net decreased from a loss of $3.8 million
in 2001 to a loss of $3.3 million in 2002. Other, net for 2000 was income of $4.2 million, primarily comprised
of interest income and equity pickup.
Earnings (loss) before income taxes were a loss of $50.5 million for the current year, compared to income of
$71.3 million in 2001 and $144.6 million in 2000. Adjusting for divestitures, AbiliTec software revenue, the
loss of Wards, the retroactive impact of SAB 101, the nonrecurring expenses, and the elimination of goodwill
amortization in the prior years, earnings before income taxes would have been $38.7 million for 2002, $36.8
million for 2001 and $80.7 million for 2000.
The Company's effective tax rate was 39.3% in 2002 compared to 38.5% in 2001 and 37.5% in 2000. In each year,
the effective rate exceeded the U.S. statutory rate because of state income taxes, partially offset by research,
experimentation and other tax credits. An adjustment was made in the fourth quarter of 2002 to increase the tax
benefit related to certain losses recorded in the first quarter. The Company expects the tax rate to be in the
36% to 39% range in 2003.
In connection with the retirement of certain debt facilities from the proceeds of the convertible note offering
in 2002, the Company recorded a charge for previously deferred debt issuance costs and for certain premiums paid
in connection with this retirement of $1.3 million, net of related income tax benefit. This charge is reflected
as an extraordinary item in the accompanying consolidated statement of operations in accordance with SFAS No. 4,
"Reporting Gains and Losses from the Extinguishment of Debt." Additionally, the Company implemented SAB 101
during 2001, retroactive to April 1, 2000. The cumulative effect of this change in accounting principle, net of
related income tax benefit, was $37.5 million in that year.
Net income (loss) was a loss of $32.0 million for 2002, as compared to income of $6.4 million in 2001 and $90.4
million in 2000. Adjusting for divestitures, AbiliTec software revenue, the loss of Wards, the extraordinary
item, the retroactive impact of SAB 101, the nonrecurring expenses, and the elimination of goodwill amortization
in the prior years, net income was $23.5 million for both 2002 and 2001, as compared to $50.7 million for 2000.
During April 2001, the Company initiated a series of expense reduction and control measures. The most
significant of these was a mandatory 5% pay reduction for most U.S. associates with the offer to take additional
pay reductions of up to an additional 15%. Approximately 38% of associates volunteered for some amount of
additional reduction. The Company's associates received stock options on a one-for-one basis for the 5%
mandatory pay reduction and on a two-for-one basis for any additional voluntary pay reductions. Share dilution
as a result of these additional options was approximately 3%, which the Company believes will be more than offset
by
F-9
the cost savings and increased productivity of virtually every Acxiom associate having a financial stake in
the future of the Company.
Capital Resources and Liquidity
Working capital at March 31, 2002 totaled $182.6 million, compared to $138.1 million a year previously. At March
31, 2002, the Company had available credit lines of $175 million of which none was outstanding. The Company's
debt-to-capital ratio (capital defined as long-term debt plus stockholders' equity) was 44% at March 31, 2002
compared to 37% at March 31, 2001. Also included in long-term debt are software license liabilities representing
the present value of software license obligations payable over terms of up to seven years with several vendors.
These liabilities will be satisfied with scheduled payments that generally increase each year as the Company uses
additional capacity. Excluding these software license liabilities, the Company's debt-to-capital ratio was 39%
at March 31, 2002. The increase for 2002 largely relates to the new $64.2 million term loan entered into in
settlement of the pre-existing equity forward agreements and the $175 million of convertible debt issued during
February 2002. Included in long-term debt is $62.6 million and $115.0 million at March 31, 2002 and 2001,
respectively, of 5.25% convertible debt for which the conversion price is $19.89 per share. The remainder of
these notes were redeemed on April 1, 2002. Additionally, included in long-term debt at March 31, 2002 is $175
million of 3.75% convertible debt for which the conversion price is $18.25 per share. If the Company's common
stock price increases above the conversion price of the 3.75% notes, this debt may be converted to equity. Total
stockholders' equity has decreased to $510.9 million at March 31, 2002. The components of this decrease are
detailed in the consolidated statement of stockholders' equity.
Cash provided by operating activities was $150.6 million for 2002, compared to $48.1 million for 2001 and $104.6
million for 2000. Earnings before interest expense, taxes, depreciation and amortization ("EBITDA") of $127.2
million, excluding the impact of the gains, losses and nonrecurring items, net and excluding other non-cash
write-offs and nonrecurring items, which are reported elsewhere in the consolidated statements of operations,
decreased by 54% in 2002 after increasing by 3% in 2001 (after adjusting 2000 for the impact of the adoption of
SAB 101). EBITDA is not intended to represent cash flows for the period, is not presented as an alternative to
operating income as an indicator of operating performance, may not be comparable to other similarly titled
measures of other companies, and should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting principles. However, EBITDA is a relevant
measure of the Company's operations and cash flows and is used internally as a surrogate measure of cash provided
by operating activities.
Operating cash flow was reduced by $19.1 million in 2002, $146.2 million in 2001 and $110.3 million in 2000, due
to the net change in operating assets and liabilities. The decrease in 2002 primarily reflects a decrease in
accounts payable and other liabilities. The decreases in 2001 and 2000 are primarily the result of increases in
accounts and unbilled and notes receivable. Accounts receivable days sales outstanding ("DSO") was 63 days at
March 31, 2002, and 70 days at March 31, 2001.
Investing activities used $85.0 million in 2002, compared to $115.6 million in 2001 and $157.8 million in 2000.
Investing activities in 2002 included capitalized software development costs of $24.1, compared to $36.6 million
in 2001 and $37.3 million in 2000. Capital expenditures were $14.9 million in 2002, compared to $61.9 million in
2001 and $99.2 in 2000. Cost deferrals were $48.1 million in 2002, compared to $49.6 million and $21.5 million in
2001 and 2000, respectively. Capitalized software development costs decreased in 2002 compared to the previous
years due to leveraging investments made during recent years to develop the AbiliTec infrastructure. Capitalized
software costs in 2002, 2001 and 2000 included approximately $9
F-10
million, $25 million and $19 million, respectively, related to the Acxiom Data Network and AbiliTec products. The remainder of the capitalized
software includes software tools and databases developed for customers in all three segments of the business.
Capital expenditures, which are principally purchases of data center equipment to support the Company's
outsourcing agreements, together with additional data center equipment in the Company's core data centers, have
decreased each year due to measures the Company has put into place to control costs, as well as the Company's
decision to generally lease equipment which is needed to support customers to better match cash inflows from
customer contracts and cash outflows. Additionally, the Company has invested heavily in prior years to create
the AbiliTec infrastructure now in place. Deferral of costs, which are primarily salaries and benefits and other
third party costs incurred in connection with servicing customer contracts, decreased slightly from 2001 to 2002,
but increased by $28.1 million from 2000 to 2001 as a result of increases in the number of customer service
contracts entered into by the Company. These cost deferrals are being recognized in expense over the life of the
related customer service agreement.
The Company has entered into certain synthetic operating lease facilities for computer equipment, furniture and
an aircraft. 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. These
synthetic operating lease arrangements provide the Company with a more cost-effective way to acquire equipment
than alternative financing arrangements. Lease terms under the computer equipment and furniture facility range
from three to seven 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. These synthetic operating leases
better match inflows of cash from customer contracts to outflows related to lease payments. The Company's
potential future purchase commitments, should it elect to purchase the equipment upon expiration of the initial
term, are as follows: 2003, $10.2 million; 2004, $22.2 million; 2005, $5.5 million; 2006, $1.5 million and 2007,
$1.6 million.
The lease term under the aircraft facility expires in January 2010, with the Company having the option at
expiration to either purchase the aircraft at a fixed price, renew the lease for an additional twelve month
period (with a nominal purchase price being paid at the expiration of the renewal period) or return the aircraft
in the condition and manner required by the lease.
At March 31, 2002, the total amount drawn under these synthetic operating lease facilities was $177.5 million and
the remaining capacity for additional funding (for computer equipment and furniture only) was $76.0 million.
The Company has also entered into a real estate synthetic lease arrangement with respect to a facility under
construction in Little Rock, Arkansas and land in Phoenix, Arizona. This synthetic lease arrangement provides
the Company with more desirable pricing terms than other alternative construction financing options. Under the
arrangement, the Company has agreed to lease each property for an initial term of five years with an option to
renew for an additional two years, subject to certain conditions. The lessors have committed to fund up to a
maximum of $45.8 million for the construction of the Little Rock building and acquisition of the land at both
sites. At March 31, 2002, the remaining amount of the commitment available from the lessors was approximately
$13.1 million. The Little Rock building is expected to cost approximately $30 to $35 million, including interest
during construction, and is expected to be completed in October 2002. The impact of the leasing arrangement is
expected to reduce operating cash flow by approximately $3 million per year over the term of the lease, which
will be offset by reductions in temporary leased facilities. At any time during the term of the lease, Acxiom
may, at its option, purchase the land and building for a price approximately equal to the amount expended by the
lessors. If the Company does not purchase the land and building, the Company has guaranteed a
F-11
residual value of 87% of the land and construction costs or approximately $40 million at the end of the lease term.
The Financial Accounting Standards Board ("FASB") is considering the issuance of a proposed interpretation of
SFAS No. 94, "Consolidation of All Majority-Owned Subsidiaries." Under the provisions of the proposed
interpretation, the Company may be required to record on its consolidated balance sheet the underlying real
estate asset and the related debt associated with the real estate synthetic lease arrangement discussed above.
However, there would be no material impact on the Company's statement of operations or its net equity in the
period of adoption under the proposed interpretation in its current form. No final interpretation has been
released and the proposal may change prior to issuance in its final form. The Company will continue to monitor
this proposed interpretation and the expected impact on its consolidated financial statements.
Investing activities also reflect cash paid for acquisitions of $5.3 million in 2002, $16.0 million in 2001 and
$33.0 million in 2000. Dispositions of assets in 2002 included cash proceeds from the sale of three of the
Company's business operations of $6.8 million, while 2001 includes cash proceeds of $55.5 million from the sale
of DataQuick. Notes 3 and 4 to the consolidated financial statements discuss the acquisitions and dispositions
in more detail. Investing activities also reflect cash payments of $7.9 million in 2002, $20.5 million in 2001
and $5.8 million in 2000 by the Company to fund its investments in joint ventures and other companies.
Investments made in the current year primarily include an additional advance of $4.4 million to the Company's
joint venture in Australia and $1.7 million investment in USADATA.com, Inc. Investing activities in 2001 also
include proceeds from the sale of certain marketable securities of $8.9 million that had been received in
exchange for one of the Company's previous investments. The Company also received proceeds of $6.0 million in
2002 from the sale and leaseback transaction entered into in connection with the Restructuring Plan previously
discussed (see note 2 to the consolidated financial statements for additional information). Proceeds received
from sale and leaseback transactions in 2000 were $ 34.8 million.
Over the last three quarters of 2002, the Company has generated positive cash flows from operating activities
totaling $190.0 million. Additionally, the Company had positive free cash flow (defined as cash flow from
operating activities less cash used by investing activities) of $131.9 million, including approximately $9
million from the disposition of assets. Additionally, as a result of losses during 2002, the Company expects to
recover during 2003 approximately $40 million of income tax payments previously made upon the filing of its March
31, 2002 income tax returns. The Company also expects to file amended tax returns for certain years prior to
2002. Estimated refunds to be received in 2003 from the filing of these amended tax returns should be
approximately $1 million. The Company does not expect to pay any significant amounts of income taxes in 2003 due
to the net operating loss and income tax credit carryforwards.
With respect to its joint venture investments in Australia and HealthCareProConnect, LLC, Acxiom has provided
cash advances to fund losses and cash flow deficits of $4.8 million during 2002. Although the Company has no
commitment to continue to do so, it expects to continue funding such losses and deficits until such time as these
joint ventures become profitable. Acxiom may, at its discretion, discontinue providing financing to these joint
ventures during future periods. In the event that Acxiom ceases to provide funding and these joint ventures 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 joint venture investments. Additionally, in the event that either of Acxiom's
joint venture partners cease financial support of the joint venture, Acxiom may be required to either fund all
future losses of the joint venture or to discontinue its financial support and record an impairment charge for
the carrying amount of the joint venture investment ($8.8 million at March 31, 2002). The Company has also
recorded an impairment charge on certain of its investments of $1.1 million, and it has recorded temporary
impairment of certain of its
F-12
investments as a component of other comprehensive income (loss) in the amount of $1.1 million, net of the related income tax benefit of $0.7 million. In the event that further declines in the
value of its investments continue, the Company may be required to record further temporary and/or "other than
temporary" impairment charges of its investments. Moreover, the temporary impairment charge mentioned above may
become "other than temporary" in the future, requiring the charge to be recorded in earnings.
On June 29, 2001, in connection with the Restructuring Plan, the Company entered into an agreement whereby it
sold equipment to Technology Investment Partners, LLC ("TIP") (see note 2 to the consolidated financial
statements). Simultaneous with the sale of this equipment, the Company also agreed to lease the equipment back
from TIP for a period of thirty-six months. The Company received $2.0 million of the sale proceeds from TIP
during July 2001 and received an additional $4.0 million of the sales proceeds during December 2001 as discussed
above. The remaining $13.5 million of the sales proceeds has been applied as a prepayment of the lease.
Included in property and equipment at March 31, 2002 is equipment of $14.7 million, net of accumulated
depreciation and amortization, related to the assets under this leaseback arrangement. Additionally, the Company
recorded a capital lease obligation in the amount of $5.6 million, representing the sales proceeds that must be
repaid to TIP under the leaseback provision of this agreement.
Financing activities in the current year used $74.1 million, a large portion of which relates to net repayments
of the Company's revolving credit facility, along with the retirement of $52.4 million of convertible debt, and
$25.7 million of senior notes. These repayments and retirements were made from the proceeds of the new
convertible bond offering during February 2002 discussed below. The Company also paid $23.5 million in aggregate
payments on certain equity forward contracts during the current year prior to the settlement of those contracts
during September 2001 through a term note, payable in 2005. The equity forward contracts are discussed in
further detail below. Proceeds from the sale of common stock through stock options and the employee stock
purchase plan were $11.4 million during 2002.
On February 6, 2002, the Company completed an offering of $160 million of 3.75% convertible subordinated notes
due 2009. The initial purchasers had an option to purchase a maximum of $15 million additional principal amount
of notes to cover over-allotments. This over-allotment was subsequently exercised so the Company had $175
million of notes outstanding at March 31, 2002 in connection with this debt issuance. The notes are convertible
at the option of the holder into shares of the Company's common stock at a conversion price of $18.25 per share.
The notes are also redeemable, in whole or in part, at the option of the Company at any time on or after February
17, 2005 at a redemption premium. The holders of the notes also have the option to require the Company to
repurchase the notes, at 100% of the principal amount, on February 15, 2007. The net proceeds to the Company of
approximately $169.2 million (after deducting underwriting discounts and commissions and estimated offering
expenses) were used to repay $25.7 million of the 6.92% senior notes payable ("6.92% Notes") and to redeem the
$115 million of existing 5.25% convertible subordinated notes due in 2003 ("5.25% Notes"). During February and
March 2002, the Company repurchased $52.4 million of the 5.25% Notes in the open market. The remaining $62.6
million of the 5.25% Notes were retired on April 1, 2002. The Company also recorded an extraordinary item, net
of tax, of $1.3 million associated with the redemption of the 5.25% Notes and the 6.92% Notes (see note 8 to the
consolidated financial statements).
Simultaneous with the offering of the convertible subordinated notes discussed above, the Company entered into an
agreement to amend and restate its revolving credit facility whereby the committed amount available under the
revolver was reduced from $265 million to $175 million. Borrowings under the revolving credit facility bear
interest at LIBOR plus 2.25%, or at an alternative base rate plus 0.75% or at the Federal funds rate plus 1.75%,
depending upon the type
F-13
of borrowing. At March 31, 2002, there were no borrowings outstanding under this revolving credit facility. All subsequent borrowings under this credit facility are secured by substantially all
of the Company's assets and are due January 2005. As a result of the payment of the remaining $62.6 million of
the 5.25% Notes on April 1, 2002, as discussed above, the Company's revolving credit facility balance was $54.4
million as of May 10, 2002.
Financing activities in 2001 provided $58.0 million, the majority of which related to proceeds received from
advances on the Company's revolving credit facility. The Company also paid $6.7 million on equity forward
contracts and repurchased $7.5 million of its common stock in the open market. Proceeds from the sale of common
stock through stock options and the employee stock purchase plan were $26.1 million during 2001.
Financing activities in 2000 provided $64.6 million, including the sale of stock by the Company in a secondary
offering which generated approximately $51.3 million in cash, along with sales of stock through the Company's
stock option and employee stock purchase plans of $33.7 million. The Company also repaid approximately $20.4
million of long-term debt during 2000.
During 2000 and 2001, the Company had entered into three equity forward purchase agreements with a commercial
bank under which the Company would purchase 3.7 million shares of its common stock for a total notional amount of
$83.8 million. The Company had accounted for these forward contracts as permanent equity under the consensus of
EITF Abstract 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock." During April 2001, prior to the settlement of the equity forward contracts discussed
below, the Company paid $22.5 million to reduce the notional amounts under the contracts to $64.2 million. On
September 21, 2001, the Company executed an agreement for the settlement of the equity forward contracts through
borrowings of $64.2 million from a bank under a term loan facility. The borrowings under this term loan bear
interest, payable semiannually, at LIBOR plus 3.75% or an alternative base rate depending upon the type of
borrowing. At March 31, 2002, the interest rate under this facility was 5.61%. These borrowings under this
facility are secured by substantially all of the Company's assets. The entire principal amount outstanding under
this term loan is due November 30, 2005. The funds from the term loan were used to pay the notional amount under
the equity forward contracts and have been recorded as a reduction of stockholders' equity in the accompanying
consolidated financial statements. The Company has taken delivery of and retired the shares of common stock
subject to the contracts and is no longer obligated under any equity forward contracts as of March 31, 2002.
In connection with the construction of 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. The aggregate amount of the guarantees at March 31,
2002 was $5.7 million. The Company has not recorded any of the guarantee obligations or the underlying assets in
the accompanying consolidated financial statements.
F-14
The following table presents Acxiom's contractual cash obligations and purchase commitments at March 31, 2002
(dollars in thousands):
For the years ending March 31,
-------------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter Total
--------- -------- --------- --------- --------- ---------- -----------
--------- -------- --------- --------- --------- ---------- -----------
Long-term debt (1) $ 23,274 $ 82,894 $ 18,617 $ 75,263 $ 13,281 $ 206,795 $ 420,124
--------- -------- --------- --------- --------- ---------- -----------
Synthetic airplane 1,378 1,378 1,378 1,378 1,378 5,167 12,057
lease
Synthetic equipment
and furniture 41,572 25,008 7,279 1,293 607 304 76,063
leases
Synthetic real
estate lease 1,500 3,000 3,000 1,500 - - 9,000
--------- -------- --------- --------- --------- ---------- -----------
--------- -------- --------- --------- --------- ---------- -----------
Total synthetic 44,450 29,386 11,657 4,171 1,985 5,471 97,120
leases
Equipment operating
leases 8,927 6,991 4,348 1,124 174 - 21,564
Building operating
leases 11,046 9,717 8,084 7,690 7,690 45,967 90,194
Partnerships
building leases 2,414 2,389 2,140 2,084 2,084 4,382 15,493
Related party
airplane lease 902 902 902 902 902 2,707 7,217
--------- -------- --------- --------- --------- ---------- -----------
--------- -------- --------- --------- --------- ---------- -----------
Total lease payments 67,739 49,385 27,131 15,971 12,835 58,527 231,588
Operating software
license obligations 16,353 11,389 4,415 4,235 - - 36,392
--------- -------- --------- --------- --------- ---------- -----------
--------- -------- --------- --------- --------- ---------- -----------
Total operating
lease and software
license obligations 84,092 60,774 31,546 20,206 12,835 58,527 267,980
--------- -------- --------- --------- --------- ---------- -----------
--------- -------- --------- --------- --------- ---------- -----------
Total contractual
cash obligations $107,366 $143,668 $ 50,163 $ 95,469 $ 26,116 $ 265,322 $ 688,104
========= ======== ========= ========= ========= ========== ===========
Purchase commitment
on synthetic
airplane lease - - - - - 4,398 4,398
Purchase commitments
on synthetic
equipment and
furniture leases 10,243 22,246 5,489 1,515 1,626 - 41,119
Purchase commitment
on synthetic real
estate lease - - - 45,800 - - 45,800
--------- -------- --------- --------- --------- ---------- -----------
--------- -------- --------- --------- --------- ---------- -----------
Total purchase
commitments $10,243 $22,246 $5,489 $47,315 $1,626 $4,398 $91,317
========= ======== ========= ========= ========= ========== ===========
(1) The scheduled payments of long-term debt for 2004 includes the remaining amount of the 5.25% Notes. These
5.25%
Notes were repaid April 1, 2002, and refinanced on a long-term basis through the revolving credit facility.
The synthetic lease term for the aircraft expires in January 2010, with the company having the option at
expiration to either purchase the aircraft at a fixed price, renew the 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. The purchase commitment on the synthetic airplane lease assumes
the lease terminates and is not renewed, and the Company elects to purchase the aircraft.
The related party airplane lease relates to an aircraft leased from a business partially owned by an officer.
See note 13 to the consolidated financial statements. 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 $6.4 million at March
31, 2002) 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.
F-15
The purchase commitments on the synthetic equipment and furniture leases assume the leases terminate and are not
renewed, and the Company elects to purchase the assets. The purchase commitment on the synthetic real estate
lease assumes the Company elects to purchase the building from the lessor at the end of the original lease term.
The Company also has the option to renew the lease for two one-year periods, or to allow the lessor to sell the
building.
The following table shows certain other contingencies or guarantees under which the Company could be required, in
certain circumstances, to make cash payments as of March 31, 2002 (dollars in thousands):
Residual value guarantee on the synthetic
real estate lease $ 40,000
Guarantees on certain partnership and
other loans 5,733
Outstanding letters of credit 10,658
===============
The total loans of the partnerships and other loans, of which the Company guarantees the portion noted above, are
$14.3 million.
While the Company does not have any other material contractual commitments for capital expenditures, minimum
levels of investments in facilities and computer equipment continue to be necessary to support the growth of the
business. It should be noted, however, that the Company has spent considerable capital over the last two years
building the AbiliTec infrastructure. It is the Company's current intention 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 customers. In the current year, the Company changed its policy of charging for these sales under
extended payment terms or notes receivable collectible generally over three years to up-front payment by the
customer. Subsequently, the up-front expenditures of cash, which were repaid over the life of the agreement, are
being matched by up-front cash receivable from the customer. In addition, new outsourcing or facilities
management contracts frequently require substantial up-front capital expenditures in order to acquire or replace
existing assets. We believe that our existing available debt and cash flow from operations will be sufficient to
meet our 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 our operating results from our projections or from potential future
acquisitions, the Company would first use available borrowing capacity under its revolving credit agreement,
followed by the issuance of other debt or equity securities. However, no assurance can be given that the Company
would be able to obtain funding through the issuance of other debt or equity securities at terms favorable to the
Company, or that such funding would be available.
The Company has never paid cash dividends on its common stock. The Company presently intends to retain its
earnings to provide funds for its business and for the expansion of its business. Thus, it does not anticipate
paying cash dividends in the foreseeable future.
Seasonality and Inflation
Although the Company cannot accurately determine the amounts attributable thereto, the Company has been affected
by inflation during recent years through increased costs of compensation and other operating expenses. Generally,
the effects of inflation are offset by technological advances, economies of scale, certain cost cutting measures
put in place during the current year, and other
F-16
operational efficiencies. The Company has established a pricing policy for long-term contracts, which provides for the effects of expected increases resulting from inflation.
The Company's operations have not proven to be significantly seasonal, although the Company's traditional direct
marketing operations experience slightly higher revenues in the Company's second and third quarters. In order to
minimize the impact of these fluctuations, the Company continues to move toward long-term strategic partnerships
with more predictable revenues. Revenues under long-term contract (defined as two years or longer) were 80%, 70%
and 62% of consolidated revenues for 2002, 2001 and 2000, respectively.
Acquisitions
In fiscal 2000, the Company acquired Horizon Systems, Inc., Computer Graphics of Arizona, Inc. ("Computer
Graphics"), Access Communication Systems, Inc. and Litton Enterprise Solutions. Computer Graphics was accounted
for as a pooling-of-interests and the remaining acquisitions were accounted for as purchases. In fiscal 2001,
the Company acquired MCRB Service Bureau, Inc. and Data Dimension Information Services, Inc., both of which were
accounted for as purchases. In fiscal 2002, the Company acquired certain customer relationship management
operations of TransUnion, LLC ("TransUnion"), which was accounted for as a purchase. See note 3 to the
consolidated financial statements for more information regarding these acquisitions.
Dispositions
As discussed more fully in note 4 to the consolidated financial statements, during 2002, the Company completed
the sale of three of its business operations. Gross proceeds from the sale of these operations were $15.1
million, consisting of cash of $6.8 million and notes receivable of $8.3 million. The Company recorded a net
loss of $0.9 million, including an adjustment during the fourth quarter to reduce the previously recorded gain on
the dispositions by $2.0 million. This net loss is included in gains, losses and nonrecurring items, net in the
accompanying consolidated statements of operations. The net loss recorded by the Company reflects the write-off
of $1.9 million of goodwill (see note 5 to the consolidated financial statements) as required under the
provisions of SFAS No. 142.
Also, effective February 1, 2000, the Company sold certain assets and a 51% interest in a newly formed Limited
Liability Company ("LLC") to certain management of its Acxiom/Direct Media, Inc. business unit ("DMI"). During
fiscal 2001, the Company completed the sale of its remaining interest in DMI. As consideration, the Company
received a 6% note of approximately $22.5 million payable over 7 years for the initial portion of its ownership
interest and received an additional note in the amount of $1.0 million for its remaining ownership interest. The
Company also committed to complete the development of a computer system for the DMI business unit.
At March 31, 2002 notes receivable associated with these dispositions of $17.9 million are included in unbilled
and notes receivable in the accompanying consolidated financial statements.
Other Information
During the year ended March 31, 2002, the Company had one customer, Allstate Insurance Company, which accounted
for $87.8 million (10.1%) of revenue. No single customer accounted for more than 10% of revenue during the years
ended March 31, 2001 and 2000.
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
F-17
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 and 1999 annual stockholders meetings, and is a nominee for director at the 2002
annual meeting. Under a second letter agreement, executed in 1994 in connection with an amendment to the 1992
agreement, which continued the then-current term through 2002, Acxiom agreed to use its best efforts to cause two
people designated by TransUnion to be elected to Acxiom's board of directors. In addition to Mr. Gambill,
TransUnion designated Robert A. Pritzker, an executive officer of Marmon Industrial Corporation, who was
appointed to fill a newly created position on Acxiom's board of directors in October 1994. Mr. Pritzker was
elected to serve a three-year term at the 1995 annual meeting and was elected to serve a second three-year term
at the 1998 annual meeting. Mr. Pritzker resigned from the board in May 2000, to attend to other business
obligations. While these undertakings by Acxiom are in effect until the end of the current term of the agreement
(2005), Acxiom has been notified that TransUnion does not presently intend to designate another individual to
serve as director. During the years ended March 31, 2002, 2001 and 2000, Acxiom received approximately $50.6
million, $58.2 million and $84.5 million, respectively, in revenue from TransUnion. All revenues received from
TransUnion have been in accordance with the pricing terms established under the agreement.
Effective April 1, 2002, Acxiom and TransUnion entered into a marketing joint venture that will serve as a sales
agent for both parties for certain existing mutual clients. The purpose of the joint venture is to provide
these joint clients with leading-edge solutions that leverage the strengths of both parties. Expected to serve a
small number of financial service clients, the joint venture will market substantially all of the products and
services currently offered by Acxiom and TransUnion, as well as any new products and services that may be agreed
upon. The parties have agreed to share equally the aggregate incremental increase (or decrease) in revenue and
direct expenses generated from any client supported by the joint venture. If either party determines that its
participation in the joint venture is economically disadvantageous, it may terminate the arrangement after
certain negotiation procedures specified in the agreement have occurred. We do not expect any material
incremental impact to our operating results from this joint venture in fiscal 2003.
See Item 13 of the Company's annual report on Form 10-K for additional information on certain relationships and
related transactions.
Acxiom, Ltd., the Company's U.K. business, provides services primarily to the U.K. market, which are similar to
the traditional direct marketing industry services the Company provides in the United States ("U.S."). In
addition, Acxiom, Ltd. also provides promotional materials handling and response services to its U.K. customers.
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. The U.K. operation generally funds its own operations
and capital expenditures, although the Company occasionally advances funds from the U.S. to the U.K. 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 U.K. financial statements into U.S. dollars are
included in accumulated other comprehensive income (loss). There are no restrictions on transfers of funds from
the U.K.
Efforts are continuing to expand the services of Acxiom to customers in Europe and the Pacific region.
Management believes that the market for the Company's services in such locations is largely untapped. To date
the Company has had no significant revenues or operations outside of the U.S. and the U.K., although the Company
has offices in France and Japan, and is involved in a
F-18
joint venture in Australia. The Company's U.K. operations had a net loss of $2.1 million in fiscal 2002, compared to a loss of $0.5 million in fiscal 2001 and profits of
$5.1 million in fiscal 2000. The losses primarily reflect investments made in the U.K. to build their AbiliTec
and InfoBase infrastructure.
New Accounting Pronouncements
During June 2001, the FASB issued SFAS No. 141, "Business Combinations," which replaces Accounting Principles
Board ("APB") Opinion No. 16, and issued SFAS No. 142, which replaces APB Opinion No. 17 and amends SFAS No.
121. Under the provisions of SFAS No. 141, all business combinations initiated after June 30, 2001 must be
accounted for by the purchase method of accounting. The use of the pooling-of-interest method of accounting for
business combinations is prohibited.
Under the provisions of SFAS No. 142, amortization of goodwill and other intangible assets that have an
indeterminate life is discontinued. However, an impairment analysis must be performed for these intangible
assets, at least annually, with any impairment recorded as a charge to earnings during the period in which the
impairment test is completed. The Company has elected to early adopt the provisions of SFAS No. 142 and has
discontinued the amortization of its goodwill balances effective April 1, 2001, resulting in a decrease in the
net loss of $7 million ($0.08 per diluted share) for the year ended March 31, 2002. Other acquired intangible
assets, including the amortization thereof, was not material for any of the periods presented. As required by
SFAS No. 142, the Company has completed part one of a two-part impairment analysis of its goodwill and has
determined that no potential impairment of its goodwill exists as of April 1, 2001. Accordingly, step two of the
goodwill impairment test associated with the initial implementation of SFAS No. 142 is not applicable. However,
additional impairment testing of the Company's goodwill may be required during future periods should
circumstances indicate that the Company's goodwill balances might be impaired. Additionally, the Company will
have to complete annual testing of its goodwill balance in accordance with SFAS No. 142 to determine whether any
possible impairment exists. Such annual impairment testing is expected to be performed at the beginning of the
Company's fiscal year.
Also, during June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This
statement establishes the accounting and reporting requirements for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. Specifically, it requires that the fair
value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. Additionally, it requires certain disclosures including
descriptions of asset retirement obligations and reconciliations of changes in the components of those
obligations. SFAS No. 143 is effective for the Company's 2004 fiscal year. The Company expects the adoption of
this statement will not have a material impact on its financial position, results of operations or cash flows.
During August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." This statement addresses financial accounting and reporting for the impairment or disposal of long-lived
assets by superceding SFAS No. 121 and APB Opinion No. 30. SFAS No. 144 establishes a single accounting model
for measuring the impairment of long-lived assets to be disposed of by sale and expands the scope of asset
disposals that can be reported as discontinued operations. This Statement also resolves significant
implementation issues related to SFAS No. 121 regarding the measurement and the reporting of impairment losses
associated with long-lived assets. The provisions of SFAS No. 144 are effective for financial statements for the
Company's 2003 fiscal year. The Company does not expect the adoption of this statement to have a material impact
on its financial position, results of operations or cash flows.
F-19
The FASB currently has outstanding in exposure draft format, a proposed SFAS, "Accounting for Financial
Instruments with Characteristics of Liabilities, Equity or Both." This exposure draft, in its current form,
could have a significant impact on the Company's accounting for its convertible debt obligations by requiring
some amount of those convertible debt obligations to be classified as equity. The issuance of a final SFAS is
expected during fiscal 2003. The Company will continue to monitor the progress of this exposure draft and its
potential impact on the Company's financial position and/or results of operations.
In November 2001, the FASB issued a staff announcement regarding expense reimbursements that was codified as
Topic D-103, "Income Statement Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses
Incurred." The provisions of Topic D-103 require that reimbursements received for out-of-pocket expenses incurred
should be characterized as revenue in the income statement and should be applied in financial reporting periods
beginning after December 15, 2001, with reclassification of prior periods. Acxiom adopted the accounting
guidance of Topic D-103 during the fourth quarter of its fiscal year ended March 31, 2002. The impact of
adoption of Topic D-103 was not material to the Company's statement of operations for the current quarter or for
the current fiscal year. Accordingly, prior years have not been restated, as the impact on such prior periods
was not material.
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." Under the provisions of SFAS No. 145, gains and losses from the
early extinguishment of debt are no longer classified as an extraordinary item, net of income taxes, but are
included in the determination of pretax earnings. The effective date for SFAS No. 145 is for fiscal years
beginning after May 15, 2002, with early application encouraged. Upon adoption, all gains and losses from the
extinguishment of debt previously reported as an extraordinary item shall be reclassified to pretax earnings.
Forward-looking Statements
This document and other written reports and oral statements made from time to time by us and our representatives
contain forward-looking statements. These statements, which are not statements of historical fact, may contain
estimates, assumptions, projections and/or expectations regarding our financial position, results of operations,
market position, product development, growth opportunities, economic conditions, and other similar forecasts and
statements of expectation. We generally indicate 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 our 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 complexity and uncertainty regarding the development of new high technologies;
o the possible loss of market share through competition or the acceptance of our technological offerings
on a less rapid basis than expected;
o the possibility that economic or other conditions might lead to a reduction in demand for our products
and services;
F-20
o the possibility that the current economic slowdown may worsen and/or persist for an unpredictable period
of time;
o the possibility that economic conditions will not improve as rapidly as expected;
o the possibility that significant customers may experience extreme, severe economic difficulty;
o the possibility that sales cycles may lengthen;
o the continued ability to attract and retain qualified technical and leadership associates and the
possible loss of associates to other organizations;
o the ability to properly motivate our sales force and other associates;
o the ability to achieve cost reductions and avoid unanticipated costs;
o the continued availability of credit upon satisfactory terms and conditions;
o the introduction of competent, competitive products, technologies or services by other companies;
o changes in consumer or business information industries and markets;
o our ability to protect proprietary information and technology or to obtain necessary licenses on
commercially reasonable terms;
o the difficulties encountered when entering new markets or industries;
o 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 effect of our short-term contracts on the predictability of our revenues or the possibility that
customers may cancel or modify their agreements with us;
o the possibility that the amount of ad hoc project work will not be as expected;
o the potential loss of data center capacity or interruption of telecommunication links or power sources;
o postal rate increases that could lead to reduced volumes of business;
o the potential disruption of the services of the United States Postal Service;
o the successful integration of acquired businesses and strategic alliances;
F-21
o with respect to the providing of products or services outside our primary base of operations in the
United States, all of the above factors and the difficulty of doing business in numerous sovereign
jurisdictions due to differences in culture, laws and regulations; and
o other competitive factors.
In light of these risks, uncertainties and assumptions, we caution readers not to place undue reliance on any
forward-looking statements. We undertake 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.
F-22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Acxiom Corporation:
We have audited the accompanying consolidated balance sheet of Acxiom Corporation and subsidiaries as of March 31, 2002 and 2001,
and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the two-year
period ended March 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
Acxiom Corporation and subsidiaries as of March 31, 2002 and 2001, and the results of their operations and their cash flows for
each of the years in the two-year period ended March 31, 2002, in conformity with accounting principles generally accepted in the
United States.
As stated in note 1 to the consolidated financial statements, effective April 1, 2001, the Company adopted Statement of Financial
Accounting Standard No. 142, "Goodwill and Other Intangible Assets" and ceased amortization of its goodwill.
As stated in note 1 to the consolidated financial statements, effective April 1, 2000, the Company changed certain of its
accounting principles for revenue recognition as a result of the adoption of Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements."
/s/ ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
May 6, 2002
F-23
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Acxiom Corporation:
We have audited the accompanying consolidated statements of operations, stockholders' equity and cash flows of Acxiom Corporation
and subsidiaries for the year ended March 31, 2000. These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
s well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of
operations and cash flows of the Acxiom Corporation and subsidiaries for the year ended March 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
Dallas, Texas
May 2, 2000, except as to note 20
which is as of June 7, 2001
F-24
SELECTED FINANCIAL DATA
Years ended March 31, 2002 2001 2000 1999 1998
Earnings Statement Data:
Revenue $ 866,110 1,009,887 964,460 754,057 592,329
Net earnings (loss) before extraordinary
item and cumulative
effect of change in accounting
principle $ 30,693) 43,867 90,363 (15,142) 47,155
Extraordinary item $ (1,271) - - - -
Cumulative effect of change in accounting
principle
$ - (37,488) - - -
Net earnings (loss) $ (31,964) 6,379 90,363 (15,142) 47,155
Basic earnings (loss) per share:
Before extraordinary item and cumulative effect of
change in accounting principle $ (0.35) 0.50 1.06 (0.19) 0.64
Extraordinary item $ (0.01) - - - -
Cumulative effect of change in accounting principle $ - (0.43) - - -
Net earnings (loss) $ (0.36) 0.07 1.06 (0.19) 0.64
Diluted earnings (loss) per share:
Before extraordinary item and cumulative effect of
change in accounting principle $ (0.35) 0.47 1.00 (0.19) 0.58
Extraordinary item $ (0.01) - - - -
Cumulative effect of change in accounting principle $ - (0.40) - - -
Net earnings (loss) $ (0.36) 0.07 1.00 (0.19) 0.58
Pro forma Earnings Statement Data, assuming
accounting change is applied retroactively:
Revenue $ 866,110 1,009,887 901,925 741,124 592,329
Net earnings (loss) before extraordinary item $ (30,693) 43,867 60,038 (22,305) 47,155
Basic earnings (loss) per share $ (0.36) 0.50 0.71 (0.29) 0.64
Diluted earnings (loss) per share $ (0.36) 0.47 0.67 (0.29) 0.58
March 31, 2002 2001 2000 1999 1998
Balance Sheet Data:
Current assets $ 360,225 352,447 340,046 301,999 294,704
Current liabilities $ 177,670 214,320 180,008 167,915 84,201
Total assets $ 1,156,834 1,232,725 1,105,296 889,800 681,634
Long-term debt, excluding
current installments $ 396,850 369,172 289,234 325,223 254,240
Stockholders' equity $ 510,931 616,448 587,730 357,773 308,225
(In thousands, except per share data.)
F-25
ACXIOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND 2001
(Dollars in thousands)
ASSETS 2002 2001
Current assets: ------- --------
Cash and cash equivalents $5,676 $14,176
Trade accounts receivable, net (note 9) 185,579 196,107
Deferred income taxes (note 12) 48,716 36,211
Refundable income taxes 41,652 -
Other current assets 78,602 105,953
------- --------
Total current assets 360,225 352,447
Property and equipment, net of accumulated depreciation and amortization (note 7)
181,775 245,340
Software, net of accumulated amortization of $35,793 in 2002 and $37,988 in 2001
(note 6) 61,437 63,906
Goodwill (note 5) 174,655 172,741
Purchased software licenses, net of accumulated amortization of $85,152 in 2002 and
$65,662 in 2001 (note 6) 169,854 168,673
Unbilled and notes receivable, excluding current portions 40,358 71,735
Deferred costs 125,843 108,928
Other assets, net 42,687 48,955
------- --------
$1,156,834 $1,232,725
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 8) $23,274 $31,031
Trade accounts payable 29,472 68,882
Accrued expenses:
Merger, integration and impairment costs (note 2) 3,022 3,215
Payroll 17,612 18,467
Other 43,176 49,767
Deferred revenue 61,114 31,273
Income taxes - 11,685
------- ------
Total current liabilities 177,670 214,320
Long-term debt, excluding current installments (note 8) 396,850 369,172
Deferred income taxes (note 12) 71,383 32,785
Commitments and contingencies (notes 2, 8, 10, 13 and 17)
Stockholders' equity (note 11)
Common stock 8,734 9,055
Additional paid-in capital 281,355 351,921
Retained earnings 231,791 263,755
Accumulated other comprehensive loss (8,609) (5,996)
Treasury stock, at cost (2,340) (2,287)
------- ------
Total stockholders' equity 510,931 616,448
------- ------
$1,156,834 $1,232,725
========== ==========
See accompanying notes to consolidated financial statements.
F-26
ACXIOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
MARCH 31, 2002, 2001 AND 2000
(Dollars in thousands except per share amounts)
2002 2001 2000
------- -------- -------
Revenue (notes 13 and 14) $866,110 $1,009,887 $964,460
-------- --------- --------
Operating costs and expenses (notes 6, 13 and 15):
Salaries and benefits 325,135 363,463 361,768
Computer, communications and other equipment 245,114 185,950 151,816
Data costs 115,426 112,019 113,083
Other operating costs and expenses 153,620 211,500 173,909
Gains, losses and nonrecurring items, net (note 2)
45,534 35,330 -
-------- --------- --------
Total operating costs and expenses 884,829 908,262 800,576
-------- --------- --------
Income (loss) from operations (18,719) 101,625 163,884
-------- --------- --------
Other income (expense):
Interest expense (28,532) (26,513) (23,532)
Other, net (note 4) (3,275) (3,780) 4,225
-------- --------- --------
(31,807) (30,293) (19,307)
-------- --------- --------
Earnings (loss) before income taxes, extraordinary item and
cumulative effect of change in accounting principle (50,526) 71,332 144,577
Income taxes (note 12) (19,833) 27,465 54,214
-------- --------- --------
-------- --------- --------
Earnings (loss) before extraordinary item and cumulative
effect of change in accounting principle (30,693) 43,867 90,363
Extraordinary item, net of income tax benefit of $821 (note 8) (1,271) - -
Cumulative effect of change in accounting principle, net of
income tax benefit of $21,548 - (37,488) -
-------- --------- --------
Net earnings (loss) $(31,964) 6,379 90,363
======== ========= =========
Basic earnings (loss) per share:
Earnings (loss) before extraordinary item and cumulative
effect of change in accounting principle $(0.35) $0.50 $1.06
Extraordinary item (0.01) - -
Cumulative effect of change in accounting principle - (0.43) -
-------- --------- --------
Net earnings (loss) $(0.36) $0.07 $1.06
======== ========= =========
Diluted earnings (loss) per share:
Earnings (loss) before extraordinary item and cumulative
effect of change in accounting principle $(0.35) $0.47 $1.00
Extraordinary item (0.01) - -
Cumulative effect of change in accounting principle - (0.40) -
-------- --------- --------
Net earnings (loss) $(0.36) 0.07 $1.00
======== ========= ========
See accompanying notes to consolidated financial statements.
F-27
ACXIOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
MARCH 31, 2002, 2001 AND 2000
(Dollars in thousands)
Common Stock
------ -----
Accumulated
Number other Treasury Stock Total
of Additional Comprehensive comprehensive -------- ----- stockholders'
shares Amount paid-in income (loss) Retained income (loss) Number Amount equity
capital (note 19) earnings (note 19) of shares (note 11)
------ ------ ---------- ------------- -------- ------------- ---------- ------ -------------
Balances at March 31, 1999 81,064,416 $8,106 $186,011 $167,013 $(324) (732,271) $(3,033) $357,773
Sale of common stock 4,684,714 468 78,072 - - - - - 78,540
Tax benefit of stock options
and warrants exercised
(note 12) - - 15,921 - - - - - 15,921
Issuance of warrants - - 1,100 - - - 257,883 275 1,100
Employee stock awards and
shares issued to employee 42,962 5 6,150 - - - - - 6,430
benefit plans
Conversion of debt and 2,000,000 200 26,881 - - - - - 27,081
accrued interest to stock
Purchase of subsidiaries for
stock (note 3) 465,546 47 10,299 - - - - - 10,346
Purchase of land for stock 54,450 5 1,295 - - - - - 1,300
Comprehensive income:
Foreign currency translation - - - (971) - (971) - - (971)
Unrealized depreciation on
marketable securities - - - (153) - (153) - - (153)
Net earnings - - - 90,363 90,363 - - - 90,363
---------- ---------- ---------- ---------- ---------- -------------- ---------- ---------- ------
Total comprehensive $ 89,239
income ========
Balances of March 31, 2000 $88,312,088 $ 8,831 $ 325,729 $ 257,376 $ (1,448) (474,388) $(2,758) $587,730
Tax benefit of stock options
and warrants exercised (note
12) - - 8,001 - - - - - 8,001
Issuance of warrants - - 220 - - - - - 220
Employee stock awards and
shares issued to employee
benefit plans 2,245,126 225 25,229 - - - 305,890 471 25,925
Purchase of subsidiaries
for stock
(note 3) 275,862 28 6,869 - - - - - 6,897
Payments on equity forward
contracts (note 11) - - (6,678) - - - - - (6,678)
Purchase of treasury stock - - - - - - (287,500) (7,478) (7,478)
Retirement of treasury stock (287,500) (29) (7,449) - - - 287,500 7,478 -
Comprehensive income:
Foreign currency
translation - - - (4,701) - (4,701) - - (4,701)
Unrealized depreciation
on marketable securities,
net of reclassification
adjustment - - - 153 - 153 - - 153
Net earnings - - - 6,379 6,379 - - - 6,379
---------- ---------- ---------- ---------- ---------- -------------- ---------- ---------- ------
Total comprehensive $ 1,831
income =======
Balances of March 31, 2001 90,545,576 $ 9,055 $351,921 $ 263,755 $ (5,996) (168,498) $(2,287) 616,448
Tax benefit of stock options
and warrants exercised
(note 12) - - 4,516 - - - - - 4,516
Issuance of warrants - - 817 - - - - - 817
Employee stock awards and
shares issued to employee
benefit plans 531,846 53 11,441 - - - 50,243 (53) 11,441
Payments on equity forward
contracts (note 11) - - (23,547) - - - - - (23,547)
Settlement of equity forward
contracts (note 11) (3,739,900) (374) (63,795) - - - - - (64,169)
Conversion of debt to stock 100 - 2 - - - - - 2
Comprehensive loss:
Foreign currency
translation - - - (1,478) - (1,478) - - (1,478)
Unrealized depreciation
on marketable securities - - - (1,135) - (1,135) - - (1,135)
Net loss - - - (31,964) (31,964) - - - (31,964)
---------- ---------- ---------- ---------- ---------- -------------- ---------- ------- --------
Total comprehensive loss $(34,577)
Balances of March 31, 2002 87,337,622 $8,734 $281,355 $231,791 $(8,609) (118,255) $(2,340) $510,931
========== ====== ======== ======== ======= ========= ======== ========
See accompanying notes to consolidated financial statements.
F-28
ACXIOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
(Dollars in thousands)
2002 2001 2000
---- ---- ----
Cash flows from operating activities: $ (31,964) $ 6,379 $ 90,363
Net earnings (loss)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Depreciation and amortization 123,394 120,793 86,529
Gains and losses on disposal or impairment of assets, net 46,934 33,437 354
Deferred income taxes 26,832 (11,770) 21,646
Tax benefit of stock options and warrants exercised and
equity forward transactions 4,516 8,001 15,921
Cumulative effect of change in accounting principle - 37,488 -
Changes in operating assets and liabilities:
Accounts receivable 9,120 (11,141) (22,768)
Other assets (62) (126,745) (78,434)
Accounts payable and other liabilities (15,836) 7,521 8,742
Merger, integration and impairment costs (12,329) (15,862) (17,795)
-------- -------- --------
Net cash provided by operating activities 150,605 48,101 104,558
-------- -------- --------
Cash flows from investing activities:
Proceeds from the disposition of assets 9,384 60,025 4,148
Proceeds from sale of marketable securities - 8,918 -
Capitalized software (24,121) (36,558) (37,317)
Capital expenditures (14,875) (61,901) (99,160)
Deferral of costs (48,131) (49,585) (21,456)
Proceeds from sale and leaseback transaction (note 2) 5,999 - 34,763
Investment in joint ventures and other companies (7,912) (20,456) (5,774)
Net cash paid in acquisitions (note 3) (5,331) (16,030) (32,960)
------- -------- --------
Net cash used in investing activities (84,987) (115,587) (157,756)
------- -------- --------
Cash flows from financing activities:
Proceeds from debt 319,931 153,359 194,657
Payments of debt (381,876) (107,388) (215,012)
Payments on equity forward contracts (note 11) (23,547) (6,678) -
Sale of common stock 11,441 26,145 84,970
Acquisition of treasury stock - (7,478) -
------- -------- --------
Net cash (used) provided by financing activities (74,051) 57,960 64,615
------- -------- --------
Effect of exchange rate changes on cash (67) (222) (97)
------- -------- --------
Net (decrease) increase in cash and cash equivalents (8,500) (9,748) 11,320
Cash and cash equivalents at beginning of year 14,176 23,924 12,604
------- -------- --------
Cash and cash equivalents at end of year $ 5,676 $ 14,176 $ 23,924
======== ========= ========
F-29
ACXIOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
(Dollars in thousands)
2002 2001 2000
Supplemental cash flow information:
Cash paid (received) during the year for:
Interest $25,746 $25,754 $25,902
Income taxes 9,364 29,022 (5,459)
Noncash investing and financing activities:
Equity forward contracts settled through term note (note 11) 64,169 - -
Issuance of warrants 817 220 1,100
Enterprise software licenses acquired under software obligations 3,491 35,185 9,164
Land acquired for common stock - - 1,300
Purchase of subsidiaries for stock (note 3) - 6,897 10,346
Convertible debt and accrued interest converted into common stock 2 - 27,081
See accompanying notes to consolidated financial statements. ======= ====== ======
F-30
ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002, 2001 AND 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business-
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, most respected companies in the world. The core component of Acxiom's
innovative solutions are Customer Data Integration ("CDI") technology, data content, 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 and in the United Kingdom ("U.K."), France and Australia.
Basis of Presentation and Principles of Consolidation-
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. Investments in 20% to 50% owned entities are accounted for using
the equity method with equity in earnings recorded in other, net in the accompanying consolidated statements of operations.
Interest and investment income and charges related to investments are recorded in other, net. Investments in less than 20% owned
entities are accounted for at cost.
Use of Estimates-
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with
accounting principles generally accepted in the United States. Actual results could differ from those estimates and such
differences could be material.
Cash and Cash Equivalents-
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Other Current Assets-
Other current assets include the current portion of the unbilled and notes receivable of $38.4 million and $49.1 million as of
March 31, 2002 and 2001, respectively. Other current assets also include prepaid expenses, non-trade receivables and other
miscellaneous assets of $40.2 million and $56.8 million as of March 31, 2002 and 2001, respectively.
Property and Equipment-
Property and equipment are stated at cost. Depreciation and amortization are calculated on the straight-line method over
the estimated useful lives of the assets as follows: buildings and improvements, 2 - 30 years; office furniture and
equipment, 3 - 7 years and data processing equipment, 2 - 5 years.
F-31
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Property held under capitalized lease arrangements is included in property and equipment, and the associated liabilities are
included in long-term debt. Property and equipment taken out of service and held for sale is recorded at net realizable value and
depreciation is ceased.
Software and Research and Development Costs-
Costs of internally developed software are amortized on a straight-line basis over the remaining estimated economic life of the
product, generally two to five years, or the amortization that would be recorded by using the ratio of gross revenues for a product
to total current and anticipated future gross revenues for that product, whichever is greater. Research and development costs
incurred prior to establishing technological feasibility of software products are charged to operations as a component of computer,
communications and other equipment expense, as incurred. Once technological feasibility is established, costs are capitalized until
the software is available for general release.
Purchased Software Licenses-
Purchased software licenses include both prepaid software and capitalized future software obligations for which the liability is
included in long-term debt (see note 8). Costs of purchased software licenses are amortized using a units-of-production basis over
the estimated economic life of the license, generally not to exceed ten years.
Goodwill-
Goodwill represents the excess of acquisition costs over the fair values of net assets acquired in business combinations treated as
purchase transactions (see notes 3 and 5). Under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and other Intangible Assets," goodwill is no longer 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 the excess of cost over fair value of net
assets acquired, 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 impairment test is completed.
Impairment of Long-lived Assets and Long-lived Assets to Be Disposed Of-
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 future net operating cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell (see notes 2 and 4).
F-32
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Unbilled and Notes Receivable-
Unbilled and notes receivable are from the sales of software, data licenses, equipment sales and from the sale of divested
operations (see note 4), net of the current portions of such receivables. Certain of the unbilled and notes receivable from
software and data licenses and equipment sales have no stated interest rate and have been discounted using an imputed interest
rate, generally 8%, based on the customer, type of agreement, collateral and payment terms. The term of these notes is generally
three years or less. This discount is being recognized into income using the interest method and is included as a component of
other, net in the consolidated statements of operations.
Deferred Costs-
Deferred costs consist of up-front costs and generally include salary and related costs and certain other costs, all of which are
both direct and incremental to the associated contract. These deferred costs are amortized over the service period of the contract.
Other Assets-
Other assets primarily include the Company's investment in marketable and nonmarketable securities of $28.4 million and $30.6
million as of March 31, 2002 and 2001, respectively. The Company has classified its marketable securities as available for sale.
Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and
are reported as a separate component of other comprehensive income (loss) until realized (see note 19). Realized gains and losses
from the sale of available-for-sale securities are determined on a specific identification basis.
During the years ended March 31, 2002 and 2001, the Company determined that certain of its investments in marketable securities and
certain other nonmarketable securities were other than temporarily impaired. As a result, the Company recorded a charge to earnings
of $1.1 million during the year ended March 31, 2002, and $12.7 million, net of realized gains, during the year ended March 31,
2001, to write down these impaired investments to their approximate fair market values, resulting in a new carrying value for these
investments. These revised carrying values will be used as the basis for recognizing realized and unrealized gains and losses
during future reporting periods.
Also included in other assets are certain noncurrent prepaid expenses, deposits and other miscellaneous noncurrent assets of $14.3
million and $18.4 million as of March 31, 2002 and 2001, respectively.
Deferred Revenue-
Deferred revenue consists of amounts billed in excess of revenue recognized on sales of software, data licenses, services and
equipment. Deferred revenues are recorded as revenue in accordance with the Company's revenue recognition policies.
F-33
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Revenue Recognition-
Revenues from services, including consulting, list processing and data warehousing, and from information technology outsourcing
services, including facilities management contracts and hardware and certain other equipment, are recognized ratably over the term
of the contract. In certain multiple element arrangements, revenue is recognized on each element based on the objective evidence of
the fair values of each element. If evidence of fair value does not exist for all elements of the arrangement, then all revenue
for the multiple element arrangement is recognized ratably over the term of the agreement. In the case of certain long-term
contracts, capital expenditures and start-up costs that are direct and incremental to obtaining the contract are capitalized and
amortized on a straight-line basis over the service term of the contract, in accordance with SEC Staff Accounting Bulletin ("SAB")
101, "Revenue Recognition in Financial Statements." In certain outsourcing contracts, additional revenue is recognized based upon
attaining certain annual margin improvements or cost savings over performance benchmarks as specified in the contracts. Such
additional revenue is recognized when such benchmarks have been met. Additionally, if third party software, hardware and certain
other equipment are sold along with services, the Company records such sales over the service period unless fair value of the
undelivered service element can be determined. The Company evaluates revenue from the sale of software, hardware and equipment in
accordance with the provisions of Emerging Issues Task Force ("EITF") Abstract 99-19, "Reporting Revenue Gross as a Principal
versus net as an Agent," to determine whether such revenues should be recognized on a gross or a net basis over the term of the
related service agreement.
Revenues from the licensing of data are recognized upon delivery of the data to the customer in circumstances where no update or
other obligations exist. Revenue from the licensing of data in which the Company is obligated to provide future updates on a
monthly, quarterly or annual basis is recognized on a straight-line basis over the license term.
Revenues from the licensing of software are recognized in accordance with the American Institute of Certified Public Accountants
Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as amended by SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions." SOP 97-2, as amended, generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements. The
fair value of an element must be based on evidence that is specific to the vendor. If evidence of fair value does not exist for all
elements of a license arrangement, then all revenue for the license arrangement is recognized ratably over the term of the
agreement. If evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered
elements, then revenue is recognized using the residual method. Generally, prior to April 1, 2001, revenue from the sale of
software was recognized up front in accordance with SOP 97-2, as amended. Effective April 1, 2001, the Company made certain
modifications to its standard software license agreements such that vendor-specific objective evidence is not attainable on many of
its software license transactions entered into subsequent to that date. Accordingly, the Company now recognizes revenue from the
licensing of its software ratably over the term of the agreement.
F-34
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Additionally, the Company earns revenue for the maintenance of its software, which provides for the Company to provide technical
support and software updates to customers. Revenue on technical support and software update rights is recognized ratably over the
term of the support agreement.
Effective January 1, 2001, the Company changed its method of accounting for certain transactions, retroactive to April 1, 2000, in
accordance with SAB 101. Previously, the Company had recognized revenue from the licensing of data when the data was delivered
using a percentage of completion method of accounting, based on the percentage of unique records delivered to the customer.
Additionally, revenue from services and from information technology outsourcing services was recognized as such services were
performed. The Company is now recognizing revenue in accordance with the policies stated above. The cumulative effect of the change
on prior years resulted in a charge to earnings of $37.5 million, which is included in the Company's consolidated earnings for the
year ended March 31, 2001. The effect of the change on the year ended March 31, 2001, was to decrease earnings before the
cumulative effect of the change in accounting principle by $18.2 million ($.20 per diluted share). For the years ended March 31,
2002 and 2001, the Company recognized approximately $19 million and $29 million, respectively, in revenue that was included in the
cumulative effect adjustment. The remaining amount of such revenue, which will be recognized through 2008, will be approximately
$23 million. Included in accounts receivable are unbilled amounts that have been recognized in accordance with the above stated
policy of $47.8 million and $46.7 million, respectively, at March 31, 2002 and 2001.
Concentration of Credit Risk-
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of trade accounts,
unbilled and notes receivable. The Company's receivables are from a large number of customers. Accordingly, the Company's credit
risk is affected by general economic conditions. Although the Company has several large individual customers, concentrations of
credit risk are limited because of the diversity of the Company's customers.
Income Taxes-
The Company and its domestic subsidiaries file a consolidated Federal income tax return. The Company's foreign subsidiaries file
separate income tax returns in the countries in which their operations are based.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
F-35
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Foreign Currency Translation-
The balance sheets of the Company's foreign subsidiaries are translated at year-end rates of exchange, and the statements of
earnings are translated at the weighted average exchange rate for the period. Gains or losses resulting from translating foreign
currency financial statements are included in accumulated other comprehensive income (loss) in the consolidated statements of
stockholders' equity.
Earnings Per Share-
A reconciliation of the numerator and denominator of basic and diluted earnings (loss) per share is shown below (in thousands,
except per share amounts):
2002 2001 2000
Basic earnings per share:
Numerator-net earnings (loss) $(31,964) $6,379 $90,363
Denominator-weighted
average shares outstanding 88,478 88,579 85,085
Earnings (loss) per share $(0.36) $0.07 $1.06
======== ====== =======
Diluted earnings per share:
Numerator:
Net earnings (loss) $(31,964) $6,379 $90,363
Interest expense on convertible debt
(net of tax effect) - - 3,773
------- ------ --------
$(31,964) $6,379 $94,136
------- ------ --------
Denominator:
Weighted average shares outstanding 88,478 88,579 85,085
Effect of common stock options - 3,721 3,600
Effect of common stock warrants - 104 72
Effect of equity forward contracts - 90 -
Convertible debt - - 5,783
------- ------ --------
88,478 92,494 94,540
------- ------ --------
Earnings (loss) per share $(0.36) $0.07 $1.00
======== ====== =======
The convertible debt was excluded from the above calculations for the year ended March 31, 2001, and all stock options, stock
warrants, equity forward contracts and the convertible debt were excluded from the above calculations for the year ended March 31,
2002, because such items were antidilutive. The equivalent share effects of convertible debt, which were excluded for the years
ended March 31, 2002 and 2001, were 6,984 and 5,783, respectively. The equivalent share effect of the common stock options and
warrants excluded for the year ended March 31, 2002 was 1,852. Interest expense on the convertible debt (net of income tax effect)
excluded in computing diluted earnings (loss) per share for the years ended March 31, 2002 and 2001, was $4.2 million and $3.7
million, respectively.
F-36
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Options and warrants to purchase shares of common stock that were outstanding during 2002, 2001 and 2000, but were not included in
the computation of diluted earnings (loss) 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):
2002 2001 2000
---- ---- ----
Number of shares outstanding under
options and warrants 11,248 1,650 3,213
Range of exercise prices $11.50 - $62.06 $17.93 - $62.06 $17.93 - $54.00
Advertising Expense-
The Company expenses advertising costs as incurred. Advertising expense was approximately $10.2 million, $19.5 million and $11.8
million for the years ended March 31, 2002, 2001 and 2000, respectively.
Recent Accounting Pronouncements-
During June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," which replaces
Accounting Principles Board ("APB") Opinion No. 16, and issued SFAS No. 142, which replaces APB Opinion No. 17 and amends SFAS No.
121. Under the provisions of SFAS No. 141, all business combinations initiated after June 30, 2001 must be accounted for by the
purchase method of accounting. The use of the pooling-of-interest method of accounting for business combinations is prohibited.
Under the provisions of SFAS No. 142, amortization of goodwill and other intangible assets that have an indeterminate life is
discontinued; however, an impairment analysis must be performed for these intangible assets. The Company has elected to early adopt
the provisions of SFAS No. 142 and has discontinued the amortization of its goodwill balances effective April 1, 2001, resulting in
discontinued amortization of goodwill of approximately $9 million pretax and a decrease in net loss of approximately $7 million
($0.08 per diluted share) during the year ended March 31, 2002. Other acquired intangible assets, including the amortization
thereof, was not material for any of the periods presented. As required by SFAS No. 142, the Company has completed part one of a
two-part impairment analysis of its goodwill and has determined that no impairment of its goodwill exists as of April 1, 2001.
Accordingly, step two of the goodwill impairment test associated with the initial implementation of SFAS No. 142 is not required.
However, additional impairment testing of the Company's goodwill may be required during future periods should circumstances
indicate that the Company's goodwill balances might be impaired. Additionally, the Company will have to complete annual testing of
its goodwill balances in accordance with SFAS No. 142 to determine whether any possible impairment exists. Such annual impairment
testing is expected to be performed at the beginning of each fiscal year. Any future impairment charge as a result of these tests
will be reflected as a charge to operations during the period in which the impairment test is completed.
F-37
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Also, during June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement establishes the
accounting and reporting requirements for obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. Specifically, it requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. Additionally, it requires
certain disclosures including descriptions of asset retirement obligations and reconciliations of changes in the components of
those obligations. SFAS No. 143 is effective for the Company's 2004 fiscal year. The Company does not expect the adoption of this
statement to have a material impact on its financial position, results of operations or cash flows.
During August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement
addresses financial accounting and reporting for the impairment or disposal of long-lived assets by superceding SFAS No. 121 and
APB Opinion No. 30. SFAS No. 144 establishes a single accounting model for measuring the impairment of long-lived assets to be
disposed of by sale and expands the scope of asset disposals that are reported as discontinued operations. This statement also
resolves significant implementation issues related to SFAS No. 121 regarding the measurement and the reporting of impairment losses
associated with long-lived assets. The provisions of SFAS No. 144 are effective for financial statements for the Company's 2003
fiscal year. The Company does not expect the adoption of this statement to have a material impact on its financial position,
results of operations or cash flows.
The FASB currently has outstanding in exposure draft format, a proposed SFAS, "Accounting for Financial Instruments with
Characteristics of Liabilities, Equity or Both." This exposure draft, in its current form, could have a significant impact on the
Company's accounting for its convertible debt obligations by requiring some amount of those convertible debt obligations to be
classified as equity. The issuance of a final SFAS is expected during fiscal 2003. The Company will continue to monitor the
progress of this exposure draft and its potential impact on the Company's financial position and/or results of operations.
In November 2001, the FASB issued a staff announcement regarding expense reimbursements that was codified as Topic D-103, "Income
Statement Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses Incurred." The provisions of Topic D-103 require
that reimbursements received for out-of-pocket expenses incurred should be characterized as revenue in the income statement and
should be applied in financial reporting periods beginning after December 15, 2001, with reclassification of prior periods. Acxiom
adopted the accounting guidance of Topic D-103 during the fourth quarter of its fiscal year ended March 31, 2002. The impact of
adoption of Topic D-103 was not material to the Company's statement of operations for the current quarter or for the current fiscal
year. Accordingly, prior periods have not been restated, as the impact on such prior periods was not material.
F-38
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." Under the provisions of SFAS No. 145, gains and losses from the early extinguishment of debt are no longer
classified as an extraordinary item, net of income taxes, but are included in the determination of pretax earnings. The effective
date for SFAS No. 145 is for fiscal years beginning after May 15, 2002, with early application encouraged. Upon adoption, all gains
and losses from the extinguishment of debt previously reported as an extraordinary item shall be reclassified to pretax earnings.
Prior Year Reclassifications-
Certain prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications had no effect
on the prior years' net earnings as previously reported.
2. IMPAIRMENT CHARGES:
Restructuring and Impairment Charges
On June 25, 2001, the Company announced a restructuring plan ("Restructuring Plan") for significant cost-reduction efforts,
including a seven percent workforce reduction (412 individual associates). Additionally, certain other associates who are part of
the Information Technology ("IT") Management segment were terminated earlier in the first quarter. In addition to these workforce
reductions, the Company entered into an agreement whereby a significant amount of its computer equipment was sold and leased back,
resulting in a loss of $31.2 million. Accordingly, the Company recorded charges related to these workforce reductions, the loss on
the sale and leaseback of computer equipment and certain other restructuring activities, asset impairments and other adjustments
and accruals as part of the Restructuring Plan. The aggregate amount of these charges recorded by the Company, including the loss
on the sale-leaseback transaction, totaled $45.3 million and were recorded as gains, losses and nonrecurring items, net in the
March 31, 2002 consolidated financial statements. The charges recorded by the Company, in addition to the loss on the
sale-leaseback transaction, consisted of $8.3 million in associate-related reserves, principally employment contract termination
and severance costs; $3.6 million for lease and contract termination costs and $2.2 million for abandoned or otherwise impaired
assets and transaction costs to be paid to accountants and attorneys.
The associate-related charges include payments to be made under existing employment agreements with four terminated associates and
involuntary termination benefits to 450 associates whose positions have been eliminated. The contract termination costs consist
primarily of lease terminations that occurred during the quarter ended June 30, 2001, in an effort to consolidate portions of the
Company's operations and the termination of certain other contracts on or prior to June 30, 2001, for services no longer utilized by
the Company. The transaction costs are fees that were incurred as a direct result of the workforce reductions, the sale-leaseback
transaction, and certain other restructuring and cost-cutting measures put in place during the quarter ended June 30, 2001.
Additionally, as discussed below, certain other assets were abandoned or were deemed impaired as a result of the Restructuring
Plan.
F-39
2. IMPAIRMENT CHARGES (Continued):
The following table shows the amounts related to the Restructuring Plan that were included in impairment accruals as of June 30,
2001, and the changes in those balances through the period ended March 31, 2002 (dollars in thousands):
June 30, 2001 Less payments Adjustments March 31, 2002
------------- ------------- ----------- --------------
Associate-related reserves $ 6,809 $(4,987) $(1,222) $600
Contract termination costs 3,449 (3,391) 527 585
Transaction costs 400 (396) (4) -
and other accruals
------------- ------------- ----------- --------------
$10,658 $(8,774) $(699) $1,185
============= ============= =========== ==============
Payments of $1.5 million were made during the quarter ended June 30, 2001 on associate-related items included above. In addition,
the Company revised its estimate of remaining amounts to be paid out during future periods associated with these restructuring
accruals. Accordingly, the Company reduced the remaining accrual by $0.7 million during the fourth quarter of 2002. The remaining
accruals, as adjusted, will be paid out over periods ranging up to two years.
In addition to the above charges, the Company recorded accelerated depreciation and amortization and certain other charges of
approximately $25.8 million during the first quarter of the current year on certain software and long-lived assets that are no
longer in service or have otherwise been deemed impaired under the appropriate accounting literature, primarily SFAS No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed," or SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Sale Leaseback Transaction
On June 29, 2001, in connection with the Restructuring Plan, the Company entered into an agreement whereby it sold equipment with a
net book value of $50.7 million to Technology Investment Partners, LLC ("TIP") and recorded a loss on this sale of $31.2 million.
Simultaneous with the sale of this equipment, the Company also agreed to lease the equipment back from TIP for a period of
thirty-six months. The Company received $2.0 million of the sale proceeds from TIP during July 2001 and received an additional $4.0
million of the sales proceeds during December 2001. The remaining sales proceeds have been applied as a prepayment of the lease.
Included in property and equipment at March 31, 2002 is equipment of $14.7 million, net of accumulated depreciation and
amortization, related to the assets under this leaseback arrangement. Additionally, a capital lease obligation in the amount of
$5.6 million has been recorded in long-term debt by the Company representing the sales proceeds that must be repaid to TIP under
the leaseback provision of this agreement.
F-40
2. IMPAIRMENT CHARGES (Continued):
Montgomery Wards Bankruptcy
On December 28, 2000, Montgomery Ward ("Wards"), a significant customer of the Information Technology ("IT") Management segment,
filed a petition for bankruptcy under Chapter 11 of the United States Bankruptcy Code. The Bankruptcy Court has approved the
petition, and Wards is proceeding with a liquidation of its assets. As a result of Wards filing for bankruptcy, the Company
identified certain assets that were impaired and certain ongoing obligations that have no future benefit to the Company.
Accordingly, during the year ended March 31, 2001, the Company recorded in gains, losses and nonrecurring items, net charges
totaling $34.6 million related to these obligations and impaired assets. The charges consisted of approximately $8.1 million for
the write-down of property and equipment; $13.7 million of deferred contract costs; $5.3 million of pre-petition receivables; $3.5
million for the write-down of software; $2.3 million in ongoing contract costs and $1.7 million of other accruals.
The deferred contract costs represent migration and other costs that had been deferred and were being amortized over the term of
the Wards contract. The pre-petition receivables represent amounts billed by Acxiom for work performed prior to Wards' bankruptcy
filing. The software write-down represents software licenses that specifically supported the information technology needs of Wards
and have no alternative use. The write-down of the property and equipment was performed in accordance with SFAS No. 121, as
previously discussed.
The following table shows the balances that were initially recorded in the impairment accrual as of March 31, 2001, for the Wards'
nonrecurring charges and the changes in those balances during the years ended March 31, 2002 and 2001 (dollars in thousands):
Amount Less payments March 31, Less payments March 31,
accrued 2001 2002
------- ------------- --------- ------------- ---------
Ongoing contract costs $2,299 (315) $1,984 (544) $1,440
Other accruals 1,672 (626) 1,046 (767) 279
------- ------------- --------- ------------- ---------
$3,971 (941) $3,030 (1,311) $1,719
======= ============= ========= ============= =========
The remaining accruals will be paid out over remaining periods ranging up to three years.
F-41
3. ACQUISITIONS:
Purchase Accounting Acquisitions
As stated in note 1, the Company elected to early adopt the provisions of SFAS No. 142. Accordingly, effective April 1, 2001, the
Company discontinued amortization of all previously recorded goodwill.
During the year ended March 31, 2002, the Company acquired certain customer relationship management operations of TransUnion LLC
("TransUnion") for $5.3 million, which resulted in an excess of purchase price over the fair value of net assets acquired of $5.3
million as determined in accordance with the provisions of SFAS No. 142. The results of operations of this acquisition are included
in the Company's consolidated results from the date of acquisition. The pro forma effect of the acquisition is not material to the
Company's consolidated results for the periods reported.
During the year ended March 31, 2001, the Company acquired certain assets and assumed certain liabilities of Data Dimension
Information Services, Inc. ("DDIS") and MCRB Service Bureau, Inc. ("MCRB") for cash of $11.2 million plus the assumption of
liabilities, resulting in an excess of purchase price over the fair value of net assets acquired of $21.5 million. The results of
operations of DDIS and MCRB are included in the Company's consolidated results from the dates of acquisition. The pro forma effect
of these acquisitions is not material to the Company's consolidated results for the periods reported.
During the year ended March 31, 2000, the Company acquired the net assets of Litton Enterprise Solutions ("LES"), all of the issued
and outstanding common stock of Access Communication Systems, Inc. ("Access"), and the assets of Horizon Systems, Inc. ("Horizon").
The purchase price consisted of $40.1 million of cash and the Company's common stock and the assumption of certain liabilities of
Horizon, resulting in an excess of purchase price over the fair value of net assets acquired of $48.5 million. Additionally, in
connection with the Access acquisition, the Company issued approximately 276,000 additional shares of common stock in the fourth
quarter of 2001 to the former owners of Access based on the performance of Access. The value of the stock, which was approximately
$6.9 million, was charged to the excess of cost over fair value of net assets acquired. The results of operations of LES, Access
and Horizon are included in the Company's consolidated results from the dates of acquisition. The pro forma effect of these
acquisitions is not material to the Company's consolidated results for the periods reported.
During the fourth quarter of 2002, the Company made certain adjustments to the amount of goodwill recorded in connection with its
acquisitions of LES, MCRB and DDIS. These adjustments were the result of revising estimates made at the dates of acquisition and
resulted in a $1.3 million reduction of goodwill.
At March 31, 2002, there were no significant remaining contingent obligations associated with these purchase acquisitions.
F-42
3. ACQUISITIONS (Continued):
Pooling Accounting Acquisition
On May 28, 1999, the Company completed the acquisition of Computer Graphics of Arizona, Inc. ("Computer Graphics") and all of its
affiliated companies in a stock-for-stock merger. The Company issued 1,871,334 shares of its common stock in exchange for all
outstanding common stock of Computer Graphics. The Company's consolidated financial statements for periods prior to the combination
have been restated to include the accounts and results of operations of Computer Graphics. Included in the statement of operations
for the year ended March 31, 2000 are revenues of $5.3 million and net earnings of $1.1 million for Computer Graphics for the
period from April 1, 1999 to May 28, 1999.
4. DISPOSITIONS:
During the year ended March 31, 2002, the Company completed the sale of three of its business operations, including SIGMA, a
database marketing operation headquartered in Rochester, New York; Buckley Dement, a list brokerage and fulfillment operation
located in Skokie, Illinois; and a minor portion of its U.K. operations located in Spain and Portugal. Gross proceeds from the sale
of these operations were $15.1 million, consisting of cash of $6.8 million and notes receivable of $8.3 million. At March 31, 2002
notes receivable associated with these dispositions of $3.2 million is included in unbilled and notes receivable in the
accompanying consolidated financial statements. The Company recorded a net loss of $0.9 million, including an adjustment during the
fourth quarter to reduce the previously recorded gain on these dispositions by $2.0 million. This net loss is included in gains,
losses and nonrecurring items, net in the accompanying consolidated statements of operations. The net loss recorded by the Company
reflects the write-off of $1.9 million of goodwill (see note 5) as required under the provisions of SFAS No. 142.
Effective February 1, 2000, the Company sold certain assets and a 51% interest in a newly formed Limited Liability Company ("LLC")
to certain management of its Acxiom/Direct Media, Inc. business unit ("DMI"). During fiscal 2001, the Company completed the sale of
its remaining interest in DMI. As consideration, the Company received a 6% note of approximately $22.5 million payable over 7
years for the initial portion of its ownership interest and received an additional note in the amount of $1.0 million for its
remaining ownership interest. The Company also committed to complete the development of a computer system for the DMI business
unit. Thebalance outstanding under these notes amounted to $14.7 million and $17.6 million at March 31, 2002 and March 31, 2001,
respectively, and is included in unbilled and notes receivable in the accompanying consolidated financial statements.
Effective April 25, 2000, the Company sold a part of its DataQuick business group, which is based in San Diego, California, for
$55.5 million. The Company retained the real property data sourcing and compiling portion of DataQuick. The gain on the sale of
these assets was approximately $39.7 million and is included in gains, losses and nonrecurring items in the accompanying
consolidated statements of operations.
F-43
4. DISPOSITIONS (Continued):
Effective April 10, 2000, the Company sold its investment in Ceres, Inc. to NCR Corporation. The Company received cash, a note and
NCR stock totaling $14.8 million and recorded investment income of $6.2 million on the disposal, which is included in other, net in
the accompanying consolidated statements of operations. During 2001, the Company sold the shares of the NCR stock and realized an
additional gain of $2.1 million, which is included in other, net in the accompanying consolidated statements of operations.
Effective April 1, 2000, the Company sold its CIMS business unit for preferred stock and options in Sedona Corp., a publicly traded
company. The preferred stock and options received had an aggregate fair value of $3.1 million. The Company recorded a loss on the
disposal of $3.2 million, which is included in gains, losses and nonrecurring items in the accompanying consolidated statements of
operations.
In addition to the DataQuick gain, DMI write-down and CIMS loss noted above, gains, losses and nonrecurring items, net for the year
ended March 31, 2001 also includes the write-off of $7.6 million of certain campaign management software which management decided
to discontinue support of as a result of the Company's strategy to utilize external application software tools rather than building
such tools internally. The Company performed an analysis to determine whether and to what extent these assets had been impaired.
As a result, these assets were completely written off as their fair value was estimated to be zero.
5. GOODWILL:
The changes in the carrying amount of goodwill for the year ended March 31, 2002, are as follows (dollars in thousands):
Data and
Software IT
Services Products Management Total
-------- -------- ---------- ---------
Balance at April 1, 2001 $94,592 $1,533 $76,616 $172,741
Acquisition (see note 3) 5,269 - - 5,269
Disposals (see note 4) (1,913) - - (1,913)
Adjustment of previously
recorded Goodwill (see note 3) - - (1,327) (1,327)
Change in foreign currency
translation adjustment (115) - - (115)
-------- -------- ---------- --------
Balance at March 31, 2002 $97,833 $1,533 $75,289 $174,655
======== ======== ========== ========
The amount of goodwill reported by segment at April 1, 2001 has been adjusted for the allocation of goodwill across reporting units
as required by SFAS No. 142.
F-44
5. GOODWILL (Continued):
The following table shows what net earnings and basic and diluted earnings per share would have been for the years ended March 31, 2001
and 2000, exclusive of amortization expense recognized in those periods related to goodwill (dollars in thousands, except per share
amounts):
2001 2000
---- ----
Reported net earnings $6,379 $90,363
Goodwill amortization, net of tax 6,369 5,701
------ ------
Adjusted net earnings $12,748 $96,064
======= ======
Basic earnings per share:
Reported net earnings $0.07 $1.06
Goodwill amortization, net of tax 0.07 0.07
------ ------
Adjusted net earnings $0.14 $1.13
======= ======
Diluted earnings per share:
Reported net earnings $0.07 $1.00
Goodwill amortization, net of tax 0.07 0.06
------ ------
Adjusted net earnings $0.14 $1.06
======= ======
6. SOFTWARE AND RESEARCH AND DEVELOPMENT COSTS:
The Company recorded amortization expense related to internally developed computer software of $23.6 million, $19.9 million and
$10.3 million in 2002, 2001 and 2000, respectively, and amortization of purchased software licenses of $19.5 million, $17.4
million and $9.6 million in 2002, 2001 and 2000, respectively. Additionally, research and development costs of $17.8 million,
$22.3 million and $26.4 million were charged to operations during 2002, 2001 and 2000, respectively.
7. PROPERTY AND EQUIPMENT:
Property and equipment, substantially all of which has been pledged as collateral for long-term debt (see note 8), is summarized as
follows (dollars in thousands):
2002 2001
---- ----
Land $ 8,724 $ 8,643
Buildings and improvements 127,299 122,012
Office furniture and equipment 44,641 39,944
Data processing equipment 150,513 257,645
------- -------
331,177 428,244
Less accumulated depreciation 149,402 182,904
and amortization ------- -------
$181,775 $245,340
======== ========
F-45
8. LONG-TERM DEBT:
Long-term debt consists of the following (dollars in thousands):
2002 2001
---- ----
Convertible subordinated notes due 2009; interest at 3.75% $175,000 $ -
Software license liabilities payable over terms up to seven years;
effective interest rates at approximately 6% 88,444 91,019
Term note, due 2005 64,169 -
Convertible subordinated notes due 2003; interest at 5.25% 62,589 115,000
Capital leases on land, buildings and equipment payable in monthly
payments of principal plus interest at approximately 8%; remaining
terms up to fifteen years 18,878 19,612
Revolving credit agreement - 129,042
Senior notes due March 30, 2007; interest payable semiannually at 6.92%;
repaid in February 2002 - 25,714
Unsecured term loan repaid July 2001 - 7,400
Other capital leases, debt and long-term liabilities 11,044 12,416
-------- -------
Total long-term debt 420,124 400,203
Less current installments 23,274 31,031
-------- -------
Long-term debt, excluding current installments $396,850 $369,172
======== ========
On February 6, 2002, the Company completed an offering of $160 million of 3.75% convertible subordinated notes due 2009. The
initial purchasers had an option to purchase a maximum of $15 million additional principal amount of notes to cover
over-allotments. This over-allotment was subsequently exercised such that the Company had $175 million of notes outstanding at
March 31, 2002 in connection with this debt issuance. The notes are convertible at the option of the holder into shares of the
Company's common stock at a conversion price of $18.25 per share. The notes are also redeemable, in whole or in part, at the option
of the Company at any time on or after February 17, 2005 at a redemption premium. The holders of the notes also have the option to
require the Company to repurchase the notes, at 100% of the principal amount, on February 15, 2007. The net proceeds to the
Company of approximately $169.2 million (after deducting underwriting discounts and commissions and estimated offering expenses)
were used to repay $25.7 million of the 6.92% senior notes payable ("6.92% Notes") and to redeem the $115 million of the 5.25%
convertible subordinated notes due in 2003 ("5.25% Notes").
F-46
8. LONG-TERM DEBT (Continued):
During February and March 2002, the Company repurchased $52.4 million of the 5.25% Notes in the open market. The remaining $62.6
million were retired on April 1, 2002. Previously deferred debt issuance costs of $1.1 million associated with the 5.25% Notes and
the 6.92% Notes and certain prepayment premiums of $1.0 million incurred in connection with the redemption of the 5.25% Notes were
charged to the 2002 statement of operations as an extraordinary item, net of the income tax benefit of $0.8 million.
Simultaneous with the offering of the convertible subordinated notes discussed above, the Company entered into an agreement to
amend and restate its revolving credit facility whereby the committed amount available under the revolver was reduced from $265
million to $175 million. Borrowings under the revolving credit facility bear interest at LIBOR plus 2.25%, or at an alternative
base rate plus 0.75% or at the Federal funds rate plus 1.75%, depending upon the type of borrowing. At March 31, 2002, there were
no borrowings outstanding under this revolving credit facility. All subsequent borrowings under this credit facility are secured
by substantially all of the Company's assets and are due January 2005.
On September 21, 2001, the Company executed an agreement for the settlement of certain equity forward contracts (see note 11)
through borrowings of $64.2 million from a bank under a term loan facility. The borrowings under this term loan bear interest,
payable semiannually, at LIBOR plus 3.75% or an alternative base rate depending upon the type of borrowing. At March 31, 2002, the
interest rate under this facility was 5.61%. The borrowings under this facility are secured by substantially all of the Company's
assets. The entire principal amount outstanding under this term loan is due November 30, 2005.
Software license liabilities payable represent the present value of software license obligations payable over terms of up to seven
years with several vendors. Under these agreements, the Company has negotiated substantial price discounts, annual increases in
capacity, right of use by its current and future subsidiaries, and the rights to provide the licensed software to certain of the
Company's customers. These liabilities will be satisfied with scheduled payments that generally increase each year as the Company
uses additional capacity. The related software assets are included in purchased software licenses on the accompanying consolidated
balance sheets.
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 March 31, 2002, the Company was in compliance with
these covenants and restrictions. The aggregate maturities of long-term debt for the five years ending March 31, 2007 are as
follows: 2003, $23.3 million; 2004, $82.9 million; 2005, $18.6 million; 2006, $75.3 million and 2007 $13.3 million.
F-47
9. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
A summary of the activity of the allowance for doubtful accounts, returns and credits is as follows (dollars in thousands):
Bad debts
Additions written off,
Balance at charged to net of Balance at
beginning costs and Other amounts end of
of period expenses additions recovered period
---------- ---------- --------- ------------ -----------
2002:
Allowance for doubtful accounts,
returns and credits $5,366 $8,270 $ - $7,367 $6,269
========== ========== ========== =========== ===========
2001:
Allowance for doubtful accounts,
returns and credits $5,352 $3,563 $500 $4,049 $5,366
========== ========== ========== =========== ===========
2000:
Allowance for doubtful accounts,
returns and credits $5,619 $2,313 $1,010 $3,590 $5,352
========== ========== ========== =========== ===========
Included in other additions are valuation accounts acquired in connection with business combinations.
10. LEASES:
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 certain synthetic operating lease facilities for computer equipment,
furniture and an aircraft. 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. Lease terms under the computer
equipment and furniture facility range from three to seven years, with the Company having the option at expiration of the initial
term to return, or purchase at a fixed price which approximates fair value, or extend or renew the term of the leased equipment.
Monthly payments under these synthetic lease facilities are approximately $4 million. The Company's potential future purchase
commitments, should it elect to purchase the equipment upon expiration of the initial term, are as follows: 2003, $10.2 million;
2004, $22.2 million; 2005, $5.5 million; 2006, $1.5 million and 2007, $1.6 million.
F-48
10. LEASES (Continued):
The lease term under the aircraft facility expires in January 2010, with the Company having the option at expiration to either
purchase the aircraft at a fixed price which approximates fair value, renew the lease for an additional twelve month period (with a
nominal purchase price being paid at the expiration of the renewal period) or return the aircraft in the condition and manner
required by the lease. At March 31, 2002, the total amount drawn under these synthetic operating lease facilities was $177.5
million and the remaining capacity for additional funding (for computer equipment and furniture only) was $76.0 million. The
Company has made aggregate payments of $74.1 million through March 31, 2002, and has a remaining commitment under these synthetic
operating lease facilities of $88.1 million payable over the next nine years. Total rental expense on operating leases and software
licenses, including the synthetic lease facilities, was $88.6 million, $55.3 million and $17.0 million for the years ended March
31, 2002, 2001 and 2000, respectively.
The Company has also entered into a real estate synthetic lease arrangement with respect to a facility under construction in Little
Rock, Arkansas and land in Phoenix, Arizona. Under the arrangement, the Company has agreed to lease each property for an initial
term of five years with an option to renew for an additional two years, subject to certain conditions. The lessors have committed
to fund up to a maximum of $45.8 million for the construction of the Little Rock building and acquisition of the land at both
sites. At March 31, 2002, the remaining amount of the commitment available from the lessors was approximately $13.1 million. At any
time during the term of the lease, Acxiom may, at its option, purchase the land and building for a price approximately equal to the
amount expended by the lessors. If the Company does not purchase the land and building, the Company has guaranteed a residual value
of 87% of the land and construction costs or approximately $40 million at the end of the lease term. No rent on this lease is
payable during the construction period. Future lease payments once construction is complete are estimated to be $1.5 million in
2003, $3.0 million in 2004, $3.0 million in 2005 and $1.5 million in 2006.
Future minimum lease payments under all noncancellable operating leases and software licenses, including these synthetic lease
facilities, for the five years ending March 31, 2007 are as follows: 2003, $84.1 million; 2004, $60.8 million; 2005, $31.5 million;
2006, $20.2 million and 2007, $12.8 million.
11. STOCKHOLDERS' EQUITY:
The Company has authorized 200 million shares of $.10 par value common stock and 1.0 million shares of $1.00 par value preferred
stock. The Board of Directors of the Company may designate the relative rights and preferences of the preferred stock when and if
issued. Such rights and preferences could include liquidation preferences, redemption rights, voting rights and dividends, and the
shares could be issued in multiple series with different rights and preferences. The Company currently has no plans for the
issuance of any shares of preferred stock.
F-49
11. STOCKHOLDERS' EQUITY (Continued):
The Company has issued warrants over the last three years to Allstate Insurance Company ("Allstate"), a significant customer of the
Company, for the purchase of 204,910 shares of the Company's common stock at exercise prices ranging from $16.39 to $32.13 per
share. These warrants represent discounts to Allstate in return for meeting certain revenue targets under Allstate's contract with
the Company. Allstate can qualify for additional warrants annually under the contract. The value of the warrants issued in 2002,
2001 and 2000 was $0.8 million, $0.2 million and $1.1 million, respectively. All of these warrants expire on September 30, 2005.
The Company also has warrants outstanding to purchase 206,773 shares of its common stock at an exercise price of $17.50 per share.
These warrants were issued in conjunction with a purchase acquisition in a prior year and expire on September 30, 2003.
On July 28, 1999, the Company completed a secondary offering of 1.5 million shares of its common stock. In addition, four
shareholders of the Company sold 4.0 million shares of common stock. In connection with the offering, the Company granted an
over-allotment option to the underwriters to purchase up to an additional 800,000 shares. The underwriters exercised the option on
August 17, 1999 for 500,000 shares, bringing the total shares sold by the Company to 2.0 million. The net proceeds to the Company,
after deducting underwriting discounts and offering expenses, were approximately $51.3 million.
The Company has a Key Employee Stock Option Plan ("Plan") for which 24.6 million shares of the Company's common stock have been
reserved for issuance to its U.S. employees. The Company has, for its U.K. employees, a U.K. Share Option Scheme ("Scheme") for
which 1.6 million shares of the Company's common stock have been reserved. These plans provide that the option price, as determined
by the Board of Directors, will be at least the fair market value at the time of the grant. The term of nonqualified options is
also determined by the Board of Directors. At March 31, 2002, there were 0.6 million shares available for future grants under the
Plan and none available under the Scheme.
Activity in stock options was as follows:
Weighted
average
exercise Number of
Number of price per shares
share share exercisable
---------- --------- -----------
Outstanding at March 31, 1999 11,415,998 12.19 7,913,294
Granted 3,981,376 25.45
Exercised (2,510,323) 9.74
Forfeited or cancelled (474,422) 26.52
----------
Outstanding at March 31, 2000 12,412,629 16.36 6,726,860
Granted 3,046,828 16.58
Exercised (1,306,378) 11.94
Forfeited or cancelled (198,748) 27.20
----------
Outstanding at March 31, 2001 13,954,331 18.82 7,722,488
F-50
11. STOCKHOLDERS' EQUITY (Continued):
Weighted
average
exercise Number of
Number of price per shares
shares share exercisable
--------------- -------------- ---------------
Granted 7,413,429 12.45
Exercised (735,108) 4.91
Forfeited or cancelled (724,955) 19.22
---------------
Outstanding at March 31, 2002 19,907,697 16.83 8,679,502
=============== ============== ===============
The per share weighted-average fair value of stock options granted during fiscal 2002, 2001 and 2000 was $8.98, $11.95 and $10.96,
respectively, on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
dividend yield of 0% for 2002, 2001 and 2000; risk-free interest rate of 4.92% in 2002, 6.19% in 2001 and 5.60% in 2000; expected
option life of 10 years for 2002, 5 years for 2001 and 6 years for 2000 and expected volatility of 66% in 2002, 57% in 2001 and 45%
in 2000.
Following is a summary of stock options outstanding as of March 31, 2002:
Options outstanding Options exercisable
------------------------------------------------- ------------------------------
Weighted- Weighted- Weighted-
average average average
Range of Options remaining exercise price Options exercise price
exercise price outstanding contractual life per share exercisable per share
- -------------- ----------- ---------------- -------------- ----------- --------------
$1.49-$ 3.44 1,289,796 4.35 years $ 2.68 1,289,796 $ 2.68
$4.21-$ 6.25 1,568,236 2.24 years $ 5.54 1,560,120 $ 5.54
$7.43-$11.15 2,979,186 13.31 years $10.99 554,540 $10.51
$11.50-$14.00 4,112,603 12.64 years $12.68 482,077 $12.42
$14.86-$19.00 3,193,449 9.94 years $17.15 2,310,075 $17.24
$19.84-$24.81 3,374,375 9.41 years $23.37 1,277,573 $23.22
$25.34-$32.60 2,240,684 12.10 years $27.65 962,188 $27.09
$33.78-$42.47 1,034,594 12.11 years $38.28 208,025 $37.71
$47.25-$62.06 114,774 11.50 years $50.50 35,108 $49.72
----------- ---------------- -------------- ----------- --------------
19,907,697 10.28 years $16.83 8,679,502 $14.77
=========== ================ ============== =========== ==============
F-51
11. STOCKHOLDERS' EQUITY (Continued):
The Company applies the provisions of Accounting Principles Board Opinion No. 25 and related interpretations in accounting for the
stock-based compensation plans. Accordingly, no compensation cost has been recognized by the Company in the accompanying
consolidated statements of operations for any of the fixed stock options granted. Had compensation cost for 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 SFAS No.
123, the Company's net earnings (loss) would have been reduced to the following unaudited pro forma amounts for the years ended
March 31 (dollars in thousands, except per share amounts):
2002 2001 2000
------------ ------------- ------------
Net earnings (loss) As reported $ (31,964) $ 6,379 $ 90,363
============ ============= ============
Pro forma $ (61,100) $ 10 $ 81,673
============ ============= ============
Basic earnings (loss) per share As reported $ (0.36) $ 0.07 $ 1.06
============ ============= ============
Pro forma $ (0.69) $ - $ .96
============ ============= ============
Diluted earnings (loss) per share As reported $ (0.36) $ 0.07 $ 1.00
============ ============= ============
Pro forma $ (0.69) $ - $ .90
============ ============= ============
Pro forma net earnings (loss) reflect only options granted after fiscal 1995. Therefore, the full impact of calculating compensation
cost for stock options under SFAS No. 123 is not reflected in the pro forma net earnings amounts presented above because
compensation cost is reflected over the options' vesting period of up to nine years and compensation cost for options granted prior
to April 1, 1995 is not considered.
The Company maintains an employee stock purchase plan which provides for the purchase of shares of common stock at 85% of the market
price. There were 231,830, 210,197 and 218,139 shares purchased under the plan during the years ended March 31, 2002, 2001 and 2000,
respectively.
Prior to their settlement as discussed below, the Company had entered into three equity forward contracts with a commercial bank to
purchase 3.7 million shares of its common stock. The Company was obligated to purchase the shares of its common stock at a total
notional amount of $83.8 million. The cost of the equity forwards of $1.0 million, $6.7 million and $0.3 million during 2002, 2001
and 2000, respectively, has been accounted for as a component of stockholders' equity. If the market value of the stock exceeded the
price under the equity forward, the Company had the option of settling the contract by receiving cash or stock in an amount equal to
the excess of the market value over the price under the equity forward. If the market value of the stock was less than the price
under the equity forward, the Company had the option of settling the contract by paying cash or delivering shares in the amount of
the excess of the contract amount over the fair market value of the stock. The Company could also settle the contracts by paying the
full notional amount and taking delivery of the stock.
F-52
11. STOCKHOLDERS' EQUITY (Continued):
During April 2001, the Company paid, and recorded as a component of stockholders' equity, $22.5 million to amend the agreements
whereby the strike price of the equity forward agreement for purchase of the 3.1 million shares was reduced from $21.81 to $15.48 per
share. As a result, the total notional amount under the equity forward agreements was reduced to $64.2 million. In September 2001,
as discussed in note 8, the Company obtained an agreement for the settlement of the equity forward contracts through borrowings of
$64.2 million from a bank under a term loan facility. The funds from the term loan were used to pay the notional amount under the
equity forward contracts and have been recorded as a reduction of stockholders' equity in the accompanying consolidated financial
statements. The Company has taken delivery of and retired the shares of common stock subject to the contracts and is no longer
obligated under any equity forward contracts at March 31, 2002. Prior to the settlement of the contracts, all shares of the
Company's common stock under these agreements were considered issued and outstanding and have been included in the Company's basic and
diluted earnings (loss) per share calculations.
12. INCOME TAXES:
Total income tax expense (benefit) was allocated as follows (dollars in thousands):
2002 2001 2000
---------- -------- --------
Income (loss) from operations $ (19,833) $ 27,465 $ 54,214
Extraordinary item (note 8) (821) -- --
Cumulative effect of change in accounting principle -- (21,548) --
Stockholders' equity:
Interest on equity forward contracts (3,352) -- --
Unrealized loss on available-for-sale investments
(note 19) (706) -- --
Compensation (1,164) (8,001) (15,921)
---------- -------- --------
$ (25,876) $ (2,084) $ 38,293
========== ======== ========
Income tax expense (benefit) attributable to earnings (loss) from operations consists of (dollars in thousands):
2002 2001 2000
---------- -------- --------
Current:
Federal $ (44,083) $ 34,277 $ 29,392
Foreign -- 928 1,875
State (2,582) 4,030 1,301
---------- -------- --------
(46,665) 39,235 32,568
---------- -------- --------
Deferred:
Federal 27,979 (9,955) 15,154
Foreign (848) (338) (248)
State (299) (1,477) 6,740
---------- -------- --------
26,832 (11,770) 21,646
---------- -------- --------
Total $ (19,833) $ 27,465 $ 54,214
========== ======== ========
F-53
12. INCOME TAXES (Continued):
A reconciliation of income tax expense (benefit) computed using the U.S. Federal statutory income tax rate of 35% of earnings (loss)
from operations before income taxes to the actual provision for income taxes follows (dollars in thousands):
2002 2001 2000
---------- -------- --------
Computed expected tax expense (benefit) $ (17,684) $ 24,966 $ 50,602
Increase (reduction) in income taxes resulting from:
State income taxes, net of Federal (1,872) 1,659 5,227
Research, experimentation and other tax credits (800) (1,460) (757)
Other 523 2,300 (858)
---------- -------- --------
$ (19,833) $ 27,465 $ 54,214
========== ======== ========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at March
31, 2002 and 2001 are presented below (dollars in thousands).
2002 2001
---------- ---------
Deferred tax assets:
Accrued expenses not currently deductible for tax purposes $ 638 $ 2,206
Revenue deferred for financial reporting purposes 21,548 33,718
Investments, principally due to differences in basis for
tax and financial reporting purposes 4,083 3,886
Intangible assets, principally due to differences in
amortization -- 5,243
Net operating loss and tax credit carryforwards 21,545 --
Other 1,608 287
---------- ---------
Total deferred tax assets 49,422 45,340
---------- ---------
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation $ (18,380) $ (17,560)
Intangible assets, principally due to differences in
amortization (23,279) --
Capitalized software and other costs expensed as incurred
for tax purposes (29,748) (23,045)
Installment sale gains for tax purposes (682) (1,309)
---------- ---------
Total deferred tax liabilities (72,089) (41,914)
---------- ---------
Net deferred tax (liability) asset $ (22,667) $ 3,426
========== =========
F-54
12. INCOME TAXES (Continued):
At March 31, 2002, the Company has net operating loss carryforwards of approximately $29 million for Federal income tax purposes
and approximately $73 million for state income tax purposes. The Company also has Federal and state income tax credit carryforwards
of approximately $6 million. These net operating loss and income tax credit carryforwards expire in various amounts beginning in
2006 through 2022. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
based upon the Company's history of profitability and taxable income and the reversal of taxable temporary differences, management
believes it is more likely than not the Company will realize the benefits of these deductible differences.
13. RELATED PARTY TRANSACTIONS:
In accordance with a data center management agreement dated July 27, 1992 between Acxiom and Trans Union LLC ("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. The current term of the agreement expires in 2005. 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. Under a second letter agreement, executed in 1994 in connection with an amendment to the 1992 agreement, which continued
the then-current term through 2002, Acxiom agreed to use its best efforts to cause two people designated by TransUnion to be
elected to Acxiom's board of directors. While these undertakings by Acxiom are in effect until the end of the current term of the
agreement (2005), Acxiom has been notified that TransUnion does not presently intend to designate a second individual to serve as a
director of the Company. During the years ended March 31, 2002, 2001 and 2000, Acxiom received approximately $50.6 million, $58.2
million and $84.5 million, respectively, in revenue from TransUnion. All revenues received from TransUnion have been in accordance
with the pricing terms established under the agreement.
The Company leases certain equipment from a business partially owned by an officer. Rent expense under this lease was approximately
$1.0 million, $1.0 million and $0.9 million during the years ended March 31, 2002, 2001 and 2000, respectively. Under the terms of
the lease in effect at March 31, 2002, the Company will make monthly lease payments of $75,000 through 2010. The Company has agreed
to pay the difference, if any, between the sales price of the equipment and 70 percent of the lessor's related loan balance
(approximately $6.4 million at March 31, 2002) 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 thereof.
14. MAJOR CUSTOMERS:
During the year ended March 31, 2002, the Company had one customer, Allstate Insurance Company, which accounted for $87.8 million
(10.1%) of revenue. No single customer accounted for more than 10% of revenue during the years ended March 31, 2001 and 2000.
F-55
15. RETIREMENT PLANS:
The Company has a retirement savings plan which covers substantially all domestic employees. The Company also offers a supplemental
nonqualified deferred compensation plan for certain management employees. The Company matches 50% of the employee's contributions
under both plans up to 6% annually and may contribute additional amounts to the plans from the Company's earnings at the discretion
of the Board of Directors. Company contributions for the above plans amounted to approximately $5.0 million, $3.4 million and $4.0
million in 2002, 2001 and 2000, respectively.
16. FOREIGN OPERATIONS:
Foreign operations are conducted primarily in the U.K. The Company attributes revenue to each geographic region based on the
location of the Company's operations. The following table shows financial information by geographic area for the years 2002, 2001
and 2000 (dollars in thousands):
United States Foreign Consolidated
------------- ------- ------------
2002:
Revenue $820,023 $46,087 $866,110
Long-lived assets, excluding financial
instruments 724,821 31,430 756,251
============= ======== ============
2001:
Revenue $960,806 $49,081 $1,009,887
Long-lived assets, excluding financial
instruments 783,264 25,279 808,543
============= ======== ============
2000:
Revenue $908,261 $56,199 $964,460
Long-lived assets, excluding financial
instruments 686,436 26,010 709,446
============= ======== ============
17. COMMITMENTS AND CONTINGENCIES:
In May 2000, the compensation committee of the Company committed to pay in cash $6.3 million of "over-attainment" incentive which
was related to results of operations in prior years. Under the normal policy of the Company's compensation plan, such
over-attainment would have been distributed in the form of stock options with an exercise price equal to the market price at date
of grant. Therefore, under applicable accounting rules, there would have been no compensation expense. The one-time decision to pay
this amount in cash is an accruable event and resulted in a charge that has been recorded in gains, losses and nonrecurring items.
In accordance with the Company's existing over-attainment plan, the amount accrued will be paid over the next three fiscal years
beginning in May 2001, assuming continued performance. During the year ended March 31, 2002, the Company paid $2.1 million of these
"over-attainment" incentives.
F-56
17. COMMITMENTS AND CONTINGENCIES (Continued):
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. The aggregate amount of the guarantees
at March 31, 2002, was $5.7 million. The Company has not recorded the guarantee obligation or the underlying assets in the
accompanying consolidated financial statements.
On September 20, 1999, the Company and certain of its directors and officers were sued by an individual shareholder in a purported
class action filed in the United States District Court for the Eastern District of Arkansas ("the Court"). The action alleges that
the defendants violated Section 11 of the Securities Act of 1933 ("the 1933 Act") in connection with the July 23, 1999 public
offering of 5,421,000 shares of the common stock of the Company. In addition, the action seeks to assert liability against the
Company Leader pursuant to Section 15 of the 1933 Act. The action seeks to have a class certified of all purchasers of the stock
sold in the public offering. Two additional suits were subsequently filed in the same venue against the same defendants and
asserting the same allegations. On March 29, 2001, the Court granted the defendants' motion to dismiss. The plaintiffs appealed the
decision to dismiss to the United States Court of Appeals for the Eighth Circuit. Oral arguments have been conducted and the case
is ripe for decision by the Eighth Circuit. The Company continues to believe the allegations are without merit and will continue to
vigorously contest the cases.
The Company is involved in various other claims and legal actions in the ordinary course of business. In the opinion of management,
the ultimate disposition of all of these matters will not have a material adverse effect on the Company's consolidated financial
position or its expected future consolidated results of operations.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is
practicable to estimate that value.
o Cash and cash equivalents, trade receivables, unbilled and notes receivable, short-term borrowings and trade payables - The
carrying amount approximates fair value because of the short maturity of these instruments.
o Marketable securities - The carrying value of marketable securities is equal to fair value as determined by reference to
quoted market prices.
o Long-term debt - The interest rate on the revolving credit agreement is adjusted for changes in market rates and therefore
the carrying value of the credit agreement approximates fair value. The estimated fair value of other long-term debt was
determined based upon the present value of the expected cash flows considering expected maturities and using interest
rates currently available to the Company for long-term borrowings with similar terms. At March 31, 2002, the estimated
fair value of long-term debt approximates its carrying value.
F-57
19. COMPREHENSIVE INCOME (LOSS):
The following table summarizes the unrealized holding gains (losses) on marketable securities included in other comprehensive
income (loss) (dollars in thousands):
2002 2001 2000
----- ----- -----
Net unrealized loss arising during the year,
net of income tax benefit $(1,135) $(943) $(153)
Reclassification adjustment for net losses
reported in net earnings for the period - 1,096 -
Net unrealized gain (loss) reported in other
comprehensive income (loss) $(1,135) $153 $(153)
========= ======= ======
The balance of accumulated other comprehensive loss as reported on the consolidated balance sheets consists of the following
components (dollars in thousands):
2002 2001
----- -----
Net unrealized loss on available-for-sale marketable
securities, net of income tax benefit of $706 in
2002 $(1,135) $ -
Cumulative loss on foreign currency translation (7,474) (5,996)
------ -----
Accumulated other comprehensive loss $(8,609) $(5,996)
======= ======
F-58
20. SEGMENT INFORMATION:
The Company reports segment information consistent with the way management internally disaggregates its operations to assess
performance and to allocate resources. The Company's business segments consist of Services, Data and Software Products and IT
Management. The Services segment substantially consists of consulting, database and data warehousing and list processing services.
The Data and Software Products segment includes all of the Company's data content and software products. IT Management 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 nonrecurring items. The Company accounts for sales of certain data and software
products as revenue in both the Data and Software Products segment and the Services segment, which bills the customer. The
duplicate revenues are eliminated in consolidation.
The following tables present information by business segment (dollars in thousands):
2002 2001 2000
-------- -------- --------
Revenue:
Services $633,445 $732,620 $675,094
Data and Software Products 162,500 228,738 168,504
IT Management 220,375 223,364 194,908
Intercompany eliminations (150,210) (174,835) (74,046)
--------- --------- --------
Total revenue $866,110 $1,009,887 $964,460
========= ========== =========
2002 2001 2000
-------- -------- ---------
Income (loss) from operations:
Services $109,430 $167,933 $131,513
Data and Software Products 30,786 70,639 25,135
IT Management 24,207 26,737 44,019
Intercompany eliminations (89,032) (134,455) (36,584)
Corporate and other (94,110) (29,229) (199)
--------- --------- --------
Income (loss) from operations $(18,719) $101,625 $163,884
========= ========== =========
2002 2001 2000
-------- -------- ---------
Depreciation and amortization:
Services $33,845 $51,295 $36,869
Data and Software Products 17,538 25,459 22,888
IT Management 69,442 43,140 26,563
Corporate and other 2,569 899 209
--------- --------- --------
Depreciation and amortization $123,394 $120,793 $86,529
========= ========== =========
F-59
20. SEGMENT INFORMATION (Continued):
2002 2001 2000
-------- -------- ---------
Total assets:
Services $534,952 $652,964 $494,110
Data and Software Products 110,750 145,005 202,243
IT Management 463,805 419,330 372,923
Corporate and other 47,327 15,426 36,020
--------- --------- ---------
Total assets $1,156,834 $1,232,725 $1,105,296
========= ========== =========
21. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA:
The table below sets forth selected financial information for each quarter of the last two years (dollars in thousands, except per
share amounts):
First quarter Second quarter Third quarter Fourth quarter
ended June 30, ended September 30, ended December 31, ended March 31, 2002
2001 2001 2001 2002
-------------- ------------------- ------------------ --------------------
Revenue $205,038 $215,204 $220,543 $225,325
Income (loss) from
operations (92,776) 19,961 26,698 27,398
Extraordinary item - - - (1,271)
Net earnings (loss) (63,639) 7,029 11,278 13,368
Basic earnings (loss)
per share:
Earning (loss)before (0.71) 0.08 0.13 0.17
extraordinary item
Extraordinary item - - - (0.02)
Net earnings (loss) (0.71) 0.08 0.13 0.15
Diluted earnings (loss)
per share:
Earning (loss)before (0.71) 0.08 0.13 0.16
extraordinary item
Extraordinary item - - - (0.01)
Net earnings (loss) (0.71) 0.08 0.13 0.15
=============== =================== =================== =====================
First quarter Second quarter Third quarter Fourth quarter
ended June 30, ended September 30, ended December 31, ended March 31, 2002
2001 2001 2001 2002
-------------- ------------------- ------------------ --------------------
Revenue $239,573 $263,862 $262,748 $243,704
Income (loss) from operations 34,190 45,329 44,335 (22,229)
Cumulative effect of
change in accounting principle (37,488) - - -
Net earnings (loss) (14,768) 23,600 23,697 (26,150)
F-60
21. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA (Continued):
First quarter Second quarter Third quarter Fourth quarter
ended June 30, ended September 30, ended December 31, ended March 31, 2002
2001 2001 2001 2002
-------------- ------------------- ------------------ --------------------
Basic earnings (loss)
per share:
Earning (loss)before
cumulative effect of
accounting change 0.26 0.27 0.27 (0.29)
Cumulative effect of
accounting change (0.43) - - -
Net earnings (loss) (0.17) 0.27 0.27 (0.29)
Diluted earnings (loss)
per share:
Earning (loss) before
cumulative effect of
accounting change 0.24 0.25 0.25 (0.29)
Cumulative effect of
accounting change (0.41) - - -
Net earnings (loss) (0.17) 0.25 0.25 (0.29)
=============== ==================== ==================== ====================
F-61