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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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ---------- to ----------.
Commission file number 0-13163
ACXIOM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 71-0581897
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 2000, 301 INDUSTRIAL BOULEVARD, CONWAY, ARKANSAS 72033-2000
(Address of principal executive offices) (Zip Code)
(501) 336-1000
(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 June 17, 1998 as reported on the Nasdaq National
Market, was approximately $875,422,220. (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 June 17, 1998 was 52,479,289.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the fiscal
year ended March 31, 1998 ("Annual Report") are incorporated by reference into
Parts I and II.
Portions of the Proxy Statement for the Annual Meeting of Shareholders
("1998 Proxy Statement") are incorporated by reference into Part III.
Forward-Looking Statements or Information
Certain statements in this filing and elsewhere (such as in other filings
by the Company with the Securities and Exchange Commission ("SEC"), press
releases, presentations by the Company or its management and oral statements)
may constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors which may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors are
discussed below under the heading "Additional Information Regarding
Forward-Looking Statements" and include, among other things, the possible
adoption of legislation or industry regulation concerning certain aspects of the
Company's business; the removal of data sources and/or marketing lists from the
Company; the ability of the Company to retain customers who are not under
long-term contracts with the Company; technology challenges; Year 2000 software
issues; the risk of damage to the Company's data centers or interruptions in the
Company's telecommunications links; acquisition integration; the effects of
postal rate increases; and other market factors.
PART I
Item 1. Business
General
The Company is in the business of data delivery and information integration
and management for customers in the United States and the United Kingdom, and,
to a smaller extent, Canada, Europe and Malaysia. While in the past the
Company's traditional business was focused upon the provision of data processing
and related computer-based services mainly to direct marketing organizations,
the Company's business has expanded in recent years beyond the direct marketing
industry. For some of its major customers, the Company provides assistance in
the form of information/database management, data center management and/or the
provision of data, the primary purpose of which may be for activities other than
direct marketing. For example, the Company's largest customer, Allstate
Insurance Company, uses the Company's information management services and data
for the purpose of underwriting insurance. The Company's second largest
customer, Trans Union Corporation, one of the three major credit bureaus in the
U.S., has among other things outsourced the operation of its data center to the
Company.
In the traditional direct marketing area, the Company is one of the leading
providers of computer-based marketing information services and marketing data.
The Company offers a broad range of services and data to direct marketers and to
other businesses which utilize direct marketing techniques such as targeted
direct mail, database marketing and data warehousing. The Company assists its
customers with the marketing process, including project design, list brokering
and management, list cleaning, list enhancement and list production, database
creation and management, and fulfillment and consumer response analysis.
Corporate Information
The Company was originally incorporated in 1969 as Demographics, Inc., an
Arkansas corporation which later became known as Conway Communications Exchange,
Inc. In connection with its initial public offering in 1983, the Company was
reincorporated in Delaware as CCX Network, Inc. In 1988, the name Acxiom
Corporation was adopted. The Company is headquartered in Conway, Arkansas, and
has additional operations in twenty-four
states, the District of Columbia, Canada, France, the Netherlands, the U.K., and
Malaysia. The Company's Internet address is http://www.acxiom.com.
Several acquisitions were completed by the Company during the past fiscal
year. Effective October 1, 1997, the Company acquired the stock of MultiNational
Concepts, Ltd. ("MultiNational"), and Catalog Marketing Services, Inc., d/b/a
Shop the World by Mail ("Shop The World"). MultiNational is the largest leading
international mailing list and database maintenance provider for consumer
catalogers interested in developing foreign markets. Shop The World is the
global industry leader in cooperative customer acquisition programs and
represents the first cataloger to be added to Acxiom's portfolio of data
maximization businesses. See the detailed description of both MultiNational's
and Shop The World's businesses below under "The Company's Products and
Services, Acxiom Data Products Division."
Effective October 1, 1997, the Company purchased all of the general and
limited partnership interests in Buckley Dement, L.P. ("Buckley Dement"), as
well as the assets of its affiliated company, KM Lists, Incorporated ("KML").
Buckley Dement, the oldest direct marketing company in the U.S., provides list
brokerage, list management, promotional mailing and fulfillment, and merchandise
order processing to pharmaceutical, health care, and other commercial customers.
Buckley Dement is the leading manager of eleven companies licensed by the
American Medical Association ("AMA") to sell the AMA's proprietary list of
physicians. See the detailed description of Buckley Dement's business below
under "The Company's Products and Services, Acxiom Services Division and Acxiom
International Division."
The past year's acquisitions were preceded by two acquisitions in the
prior year, when the Company purchased substantially all of the assets and
assumed certain liabilities of Direct Media(TM)/DMI, Inc., and acquired all of
the outstanding capital stock of Pro CD(R), Inc. The former, the largest list
management/list brokerage operation in the world, provides list management, list
brokerage and other list consulting services to business-to-business and
consumer list owners and mailers. See "The Company's Products and Services,
Acxiom Data Products Division" below. The latter provides reference data derived
from telephone directories for the U.S. and Canada. See "The Company's Products
and Services, Acxiom Data Products Division" below.
In addition to the foregoing acquisitions, in July 1997, the Company
completed an initial investment of approximately $4 million in Bigfoot
International, Inc. ("Bigfoot"), an emerging company that provides services and
tools for Internet E-mail users. The Company completed a second investment of $4
million in Bigfoot in June 1998. See the detailed description of Bigfoot's
business below under "The Company's Products and Services, Acxiom Data Products
Division."
The Company's Board of Directors adopted a shareholder rights plan in
February 1998. The plan provides for a dividend distribution of one preferred
stock purchase right (a "Right") for each outstanding share of common stock,
distributed to stockholders of record on February 9, 1998. The Rights will be
exercisable only if a person or group acquires twenty percent (20%) or more of
the Company's common stock or announces a tender offer for twenty percent (20%)
or more of the common stock. Each Right will entitle stockholders to buy one
one-thousandth of a share of newly created Participating Preferred Stock, par
value $1.00 per share, of the Company at an initial exercise price of $100 per
Right. If a person acquires twenty percent (20%) or more of the Company's
outstanding common stock, each Right will entitle its holder to purchase common
stock (or, in certain circumstances, Participating Preferred Stock) of the
Company having a market value at that time of twice the Right's exercise price.
Under certain conditions, each Right will entitle its holder to purchase stock
of an acquiring company at a discount. Rights held by the twenty percent (20%)
holder will become void. The Rights will expire on February 9, 2008, unless
earlier redeemed by the Board at $0.01 per Right.
The plan is intended to protect the Company and its stockholders against
unfair or coercive takeover tactics and offers which may not provide adequate
value to the stockholders. The plan was not adopted in response to an effort to
acquire control of the Company and is similar to stockholder protective plans
adopted by many other companies. The rights agreement does not in any way weaken
the Company's financial strength or interfere with its business plans. The
issuance of the Rights has no dilutive effect, will not affect reported earnings
per share, is not taxable to the Company or its stockholders, and will not
change the way in which the Company's shares are traded.
On May 26, 1998, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement"), among the Company, ACX Acquisition Co., Inc., a
wholly-owned subsidiary of the Company, and May & Speh, Inc. ("May & Speh"), a
company based in Downers Grove, Illinois. Under the terms of the Merger
Agreement, the Company will exchange 0.80 shares of the Company's common stock
for each share of May & Speh common stock. It is expected that the merger will
give the Company additional strengths in predictive modeling, software, data
warehousing, and data center outsourcing. The combined entity will continue
under the Acxiom name. The Merger Agreement, which has been approved by both
companies' Boards of Directors, is subject to regulatory and shareholder
approval. The Company anticipates that the merger will be consummated in August
1998.
With the May & Speh merger, Chicago will become the Company's second
largest location by adding over 650 May & Speh associates. In connection with
this merger, on June 4, 1988, the Company filed a Current Report on Form 8-K,
Commission File No. 0-13163.
Technology Applications
In the past, the Company relied heavily in its traditional data processing
business upon the use of mainframe hardware (older and less expensive versions)
for batch processing, and utilized more current technology for on-line
processing. Due to increased customer demand for access to information, the
Company has begun using faster and more cost-effective ways to deliver its
services through client/server and networking solutions. The Company has
incorporated a number of new strategies into its processing environment: (1)
Several of the Company's core application systems products have been
re-engineered to run on open systems platforms or a parallel processing
architecture, thereby allowing the Company to significantly reduce its
processing cycle time and improve the scalability of its legacy list processing
applications; (2) Dedicated stand-alone mainframes have been utilized as
attached processors to the Company's computing enterprise, resulting in the
ability to off-load high volume list processing work onto cost efficient data
processing platforms; (3) The Company installed a Local Area Network ("LAN")
system and implemented extensive use of personal computers ("PCs") as front-end
client workstations, providing a graphical user interface ("GUI") front-end user
access capability to all internal and customer applications, as well as the
ability to institute a client/server architecture within the Company's existing
computing enterprise. The Company has also set up a LAN dedicated for Internet
E-Commerce purposes as well as a Wide Area Network ("WAN") for customer decision
support system ("DSS") client connections; and (4) Relationships with several
third party database and DSS software providers have been developed pursuant to
which the Company is authorized to sublicense the DSS products of such providers
as part of its overall customer solution. The third party database and DSS
providers with whom the Company currently has alliances are International
Business Machines, Inc.; Oracle Corporation; Red Brick Systems, Inc.;
Microstrategy, Inc.; Arbor Software Corporation; Trajecta, Inc.; Business
Objects, Inc.; Appsource Corporation; Exchange Applications, Inc.; and Informix
Software, Inc.
In addition, the Company has recently announced the development of new
application technology that will deliver data to its customers via a
revolutionary on-line data access and delivery system. This new technology,
introduced as the Acxiom Data Network(SM), will allow the Company's customer
data warehouses, independent software vendor applications, and solutions to be
easily "content enabled" no matter how much or how little information is
requested by the customer. A detailed description of the Acxiom Data Network can
be found below under "The Company's Products and Services, Acxiom Data Products
Division."
The Company has also begun to use new application design tools and enhanced
programming languages that allow applications to be developed using a
component/object based architecture. This architecture permits applications to
be highly customizable for specific customer requirements and reduces
duplication of development efforts by providing the ability to re-use components
across applications.
To accommodate a balanced distribution of processes among the client/server
technology, DSS and mainframes, the Company has incorporated an industry
standard network environment using the "TCP/IP" protocol (Transmission Control
Protocol/Internet Protocol), which is the standard currently used in most
private networks.
As the processes grow on the Company's server network, the requirement to
move data across the network grows as well. To meet this requirement, the
Company has adopted an infrastructure that will enable direct peer-to-peer
communications between mainframe and server-based applications, along with
increased bandwidth. This strategy is designed to provide much faster and more
reliable application access than was available in the past. While management
believes that this configuration will be adequate for the foreseeable future,
the Company will continue to assess other technologies that can be implemented
in a phased approach. Network stability, security and manageability are also
being addressed to support this distributed environment. Management believes
that this approach to networking enhances the Company's ability to deliver
improved functionality within its network as well as connectivity to customer
networks.
The Company's Products and Services
The Company has four operating divisions which were established to maximize
synergies between similar business units. The divisions are referred to as the
Acxiom Data Products Division, the Acxiom Services Division, the Acxiom
International Division, and the Acxiom Alliances Division. The products and
services of each division are discussed below:
Acxiom Data Products Division
The focus of the Company's recent acquisitions has been to strengthen the
Company's position as a leading provider of data. With the addition of real
property data, marketing lists, and telephone reference data, the Company has
made substantial progress towards this goal. When combined with the consumer
household and business data already offered by the Company and the developing
Acxiom Data Network, opportunities exist for a variety of applications for the
Company's existing customers. The acquisitions, coupled with the Acxiom Data
Network, have also created the potential for new markets, such as the middle
market and small companies market ("Middle Tier Market"), Internet and consumer
markets.
The Data Products Division is headquartered in Conway, Arkansas and has
additional locations in Arizona, California, Colorado, Connecticut, Florida,
Georgia, Illinois, Massachusetts, Nevada, New Jersey, New York, Ohio, Oregon,
South Carolina, Virginia, Washington, Canada, the United Kingdom, and the
Netherlands. Approximately 1,325 associates work in this division. The products
and services offered by the Data Products Division are as follows:
InfoBase(TM) Products and Services
InfoBase is a list enhancement service for companies engaged in direct
marketing to consumers and businesses. The household data which comprises the
IBConsumer(R) database includes data owned by the Company as well as data owned
by data contributors who permit the Company to access their data for purposes
such as list enhancement, list analysis, segmentation modeling, and merge/purge
screening. The type of data made available includes consumer names, addresses
and telephone numbers, as well as such demographic information as age, gender,
approximate income brackets, occupation, marital status, the presence of other
household members, and car and home ownership. The DataQuick(R) ListServices(TM)
real property data may be combined with InfoBase demographic data for use by
target marketers for such purposes as determining types and sizes of homes, the
year a home was built, and length of current ownership. Management believes that
the IBConsumer database is the most complete database of its kind in the United
States, covering over 95% of all U.S. households. A computerized listing
("Telephone White Pages," or the "EDGE File") of all U.S. telephone book white
page information is also available as part of the InfoBase services. In addition
to its IBConsumer database, the Company offers a business database,
IBBusiness(R), to companies engaged in direct marketing to businesses. Providing
information on over 13 million businesses, the type of data made available
includes business address information (including full mailing address), contact
information (including telephone number and executive name), Standard Industrial
Classification codes, and business characteristics (e.g., company size).
Acxiom/Direct Media(TM) Products and Services
The Acxiom/Direct Media services include list management, list brokerage,
package insert marketing, Internet marketing, Web site brokerage and management,
and analytical and modeling services to business-to-business and consumer list
owners and mailers. The Company's sales staff dedicated to selling the Direct
Media services is the largest in the industry and has substantial experience in
the market segments served by the Company in this arena. As a list manager, the
Company controls over 1200 lists in the U.S. and 175 lists in the U.K. As a list
broker, the Company offers a variety of services, including private prospecting
databases from which a mailer may choose the lists that best fit its specific
needs to build its own database. Cooperative databases are offered as a more
economical alternative to the private databases. Included among the cooperative
databases is SmartBase(TM), comprised of the mailing lists of hundreds of the
country's best consumer merchandise vendors. By specifying the demographic
characteristics of its targeted market (instead of requesting particular lists),
a user may generate a mailing list using SmartBase. Management estimates that
approximately 12% of all third class mail in the U.S. is processed through the
Company. For 20 years prior to the acquisition, Direct Media/DMI, Inc. had been
one of the Company's primary customers. The acquisition has enabled the Company
to offer its customers expanded capabilities and services which should result in
a significant competitive advantage in the marketplace. By combining Direct
Media/DMI, Inc.'s marketing expertise with the Company's software systems, more
efficient mailing programs are now possible for the Company's customers.
Two of the Company's recent acquisitions, MultiNational and Shop the World,
have been incorporated into the Data Products Division, and their services have
been united with the Direct Media services. As the largest leading international
mailing list and database maintenance provider for consumer catalogers
interested in developing foreign markets, the acquisition of MultiNational gave
the Company access to over 70 global catalog customers with approximately 2.7
million foreign names. The acquisition of Shop the World, the global industry
leader in cooperative customer acquisition programs, gave the Company further
access to international customers. In particular, Shop the World produces an
international "catalog of catalogs" whereby end-customers in over 60 countries
can order catalogs from around the world.
DataQuick(R) Products and Services
The DataQuick real property data products are offered in conjunction with
list targeting, list fulfillment, and file enhancement. Data is gathered from a
number of sources including county assessors, county recorders and the U.S.
Census Bureau. The Company currently has 17 on-line databases containing
information on over 70 million properties affecting over 140 million consumers
across the country. Through alliances with several regional real property data
providers in other parts of the U.S., the Company offers additional databases
containing real property information on other major Metropolitan Statistical
Areas ("MSAs") throughout the country. Several CD-ROM titles are offered,
including Countywide Property Data (currently available for seven western
states), Assessors Parcel Maps (actual plat maps for the seven states), and
CD-ShareData(TM) (a product for lenders which can be used to measure market
potential and analyze product performance). Specifically for the title insurance
industry, the Company offers TitleShare(R), a product designed to assist in
market share analysis and long-term planning; TOPS (Title Operations Property
System), a product which provides property profiles; and GOTOPS, an Internet
access product exclusively available to the title insurance industry which
provides property reports with custom comparable sales, nearby homeowners,
neighborhood information, U.S demographic census data, schools and maps, all for
a defined area. Other lists focus on new homeowners who have moved within the
last six months, and real estate investors. Another file provides market values,
the available and lendable equity, loan-to-value ratio, and purchase and loan
amounts. For the general public, the Company offers DQ Express where customized
reports drawn from all of the DataQuick information databases can be obtained.
In all, the Company has over 40 DataQuick real property databases, products and
services. The information is distributed on a variety of media: On-line,
Internet, CD-ROM, magnetic tape, floppy disk, Bulletin Board Service (electronic
transmission), microfiche, and hard copy reports or mailing labels. The
DataQuick data has a broad range of applications and a variety of markets,
including appraisal, real estate, banking, mortgage, investments,
credit/collection, marketing, insurance, home improvements, home products
marketing, and research. Management believes that the combination of the
DataQuick products and services with the Company's other data products and
marketing capabilities gives it a competitive advantage in the marketplace.
Data By Acxiom Products and Services
The Company's telephone reference products, "InfoBase Telephone
Directories," consist of over 110 million business and residential listings
throughout the U.S. and Canada. The Company's customers can license the data in
their choice of quantity, media and/or format, or combine it with the Company's
search, interface and network access technologies. Among the telephone reference
products are InfoBase Telephone Directories FS (a database containing every
published listing from every directory in the U.S. and designed to run on most
network configurations), InfoBase Telephone Directories QuickSearch (an advanced
client/server application that produces fast lookups using minimal network
resources), InfoBase Telephone Directories Intranet (a client/server solution
that enables customers to host the entire InfoBase directory database on an
Intranet site for access with the most popular Web browsers), and InfoBase
Telephone Directories Developer Tools (enables customers to create custom
applications for integrating InfoBase Telephone Directories with the customer's
existing programs). All products are available with either U.S. or Canadian
listings, as well as the combined listings of both countries.
Effective August 22, 1997, the Company sold the retail and direct marketing
operations of its telephone reference products, as well as the rights to the
"Pro CD" and "Select Phone" brand names, to CD-Rom Technologies, Inc., a
wholly-owned subsidiary of American Business Information, Inc. (collectively
known as "ABI"). The Company retained the corporate sales operations, now known
as "Data By Acxiom." The departmental and enterprise-wide data solutions of Data
By Acxiom have been re-branded as "InfoBase Telephone Directories" and will
continue to be enhanced, sold and supported by the Company. The Company provides
telephone data derived from telephone directories for the U.S. and Canada,
mapping data, and other related reference products and services. The products
contained in the InfoBase Telephone Directories are distributed as CD-ROM,
on-line and batch products. Through this family of products, Data By Acxiom
provides electronic telephone, name and address data for approximately 112
million residential and business listings as published in the U.S. and Canadian
telephone directories, searchable by name, street, city, county, state, ZIP
Code, telephone number, SIC code, geographic location, and Metropolitan
Statistical Area ("MSA").
Interactive Information Services Products and Services
Through its Interactive Information Services, the Company provides
customers with secure, on-line access to the demographic, real estate and
telephone data described above. This information is available 24 hours a day,
seven days a week, except for regularly scheduled weekly maintenance periods.
Many traditional services of the Company are offered as well, including
Addressability(R), an address standardization and geographic coding system that
corrects and standardizes the city, state and ZIP Code components of an address,
and which assigns the carrier route, ZIP+4, delivery point and other postal
codes. Also offered is Geo-Coding On-Line, which is used to enhance a mailer's
addresses with geo-demographic information. Other elements which may be
overlayed are latitude, longitude, Census Tract Code, Census Block Code, and MSA
Code.
During the past fiscal year, the Company purchased an equity interest in
Bigfoot as part of a strategic alliance. The Company had contracted to purchase
a promissory note from Bigfoot for an additional investment of $4,000,000,
convertible into Bigfoot common stock ("Purchase Note"). This purchase was
completed in June 1998. The additional commitment by the Company was subject to
performance by Bigfoot of certain financial and operating covenants. Due to the
conversion of the Purchase Note, the Company now has an option to acquire up to
fifty-one percent (51%) of the outstanding stock of Bigfoot. The first offering
from the Company and Bigfoot is a service called E-Mail Campaign Management(SM)
("ECM") (formerly known as Acxiom Preferred Mail). ECM enables marketers to
establish one-on-one, interactive relationships with their customers via e-mail
in a consumer controlled fashion. ECM provides Internet-based consumers with a
new standard of privacy, control and choice when participating in the electronic
marketplace. For the direct marketer, it provides one-to-one marketing,
"real-time" response to promotions, communications and transactions.
Most significantly, the Company recently announced the development of the
Acxiom Data Network, an innovative on-line data access and delivery system. The
Acxiom Data Network will provide authorized businesses, utilizing the same
database software subscribers use on a daily basis, secured network access to
selected data
products offered by the Company. The Acxiom Data Network will extend a
customer's data management capabilities by matching consumers and businesses
from a customer's databases to consumers and businesses in the Company's
databases. The Company will provide software that complies to the most widely
used open standards. This software will be installed on subscribers' computers
and will communicate to software on the Company's servers over the Internet or a
private network. Delivery of the data in such a manner, as opposed to delivery
through CD-ROMs, floppy discs and/or tapes, is expected to reduce the Company's
average turnaround time of seven to ten days down to minutes.
The Company also believes that the matching process and software will join
to give the Acxiom Data Network information linking capability that no other
company is currently providing. By allowing customers to link their lists to the
Company's InfoBase data, subscribers to the Acxiom Data Network will have access
to demographic information, geo-demographic information, and personal interest
information. It is anticipated that the Acxiom Data Network will provide an
unprecedented supply of accurate data in a real-time environment to allow
marketing professionals to make informed decisions quickly, thereby helping them
acquire new customers and enhance relationships with existing customers. As a
result, the Company will be able to offer new products to existing customers and
will also be able to deliver its traditional products, as well as new products,
to mid-sized and small businesses on an affordable basis. The Acxiom Data
Network is expected to be operational in fiscal 1999.
It is the Company's intention to initially introduce the Acxiom Data
Network exclusively to Fortune 1000 companies. Over time, the Acxiom Data
Network will be offered to qualifying mid-sized and small businesses. In
addition, there are other planned innovations for the Acxiom Data Network, such
as the ability to integrate data directly into call centers, interactive Web
pages, point-of-sale applications and sales force automation software.
Additionally, "push notification" may be made available. This technology will
automatically alert subscribers when customer data has changed, keeping their
data as current as possible.
Acxiom Services Division and Acxiom International Division
The services provided by the Acxiom Services Division and the Acxiom
International Division have historically formed the core of the Company's
business and continue to be key to its operations. The revenue units comprising
the Acxiom Services Division are Citicorp, IBM, Retail, Insurance,
Pharmaceuticals, Publishing, Telecommunications, Utilities, and High Tech
Information Services. Approximately 810 associates are employed within this
division, which is headquartered in Conway, Arkansas, with additional locations
in California, Colorado, Georgia, Illinois, Kansas, Minnesota, New York, Texas
and Washington, D.C.
The International Division, with headquarters in London, England, employs
approximately 600 associates. The International Division consists of five
revenue units, three of which are client industry focused and two having a
product specialization (i.e., Internet services and data sales). The
International Division operations are supported by the International Services
Group and the International Business Leadership Team. Business operations
outside of the U.K. include the Malaysian branch and a newly acquired French
information technology business located in Paris.
Through the Services Division and the International Division, the Company
offers data processing and related services to the direct marketing industry and
to a variety of other businesses. Management believes, based upon its knowledge
of the industry, that the Company is one of the leading suppliers of information
services to the direct marketing industries in the United States and the United
Kingdom, offering companies that use direct marketing access to extensive
customer lists and databases of information, as well as providing a wide range
of services and software that permit customers to precisely tailor their mailing
lists in accordance with specifically targeted marketing plans.
The International Division is continuing its expansion into continental
Europe, as well as Malaysia. Efforts are currently underway to expand the
International Division's services to customers in the Netherlands, France, and
Germany. Recent small acquisitions have established the Company's presence in
the Netherlands and in France, and the Company has an office in Malaysia.
Management believes that the market for the Company's services in these
locations is largely untapped. Some of the considerations which must be
considered are the existence of strict
data protection laws in some countries, which would require the Company to make
adjustments in the way in which it collects and disseminates data. Several
European countries require an "opt-in" process whereby prior consent by an
individual consumer is necessary in order for certain data about the consumer to
be sold. Additionally, the Company's proprietary software would have to be
adapted to fit the address requirements, languages and character sets of other
countries. The strength of any local competing businesses would have to be
evaluated, and cultural differences would have to be taken into account.
Currently, through the Services Division and the International Division,
the Company provides computer-based targeted marketing support for direct
marketers, which support consists of planning and project design, list cleaning,
list enhancement, list order fulfillment, database services and response
analysis. In addition to focusing upon direct marketing programs designed to
obtain new business prospects for its customers, the Company assists its
customers in creating marketing databases which enable the customers to focus
upon developing their existing clientele. Such databases allow a marketer to
analyze its customers' buying habits, and to narrowly target advertising
campaigns to those customers who are most likely to respond. In addition, the
Company offers integrated data processing software systems and enhancement
services which provide its customers with rapid access to marketing information
housed at the Company's Conway, Arkansas and Sunderland, England data centers.
The direct marketing industry is composed of businesses that use direct
mail order and other methods of direct consumer contact to promote their
products or services. Unlike traditional forms of advertising which are aimed at
a broad audience through print or broadcast media, direct marketing involves
targeted advertising sent directly to potential customers. Historically, direct
marketing programs have had a positive response rate of approximately 1 to 3%.
Direct marketers are heavily dependent upon specific market information and the
application of statistics and computer modeling to assist them in predicting
market behavior and thereby maximizing the response rate. The products and
services offered by the Company are designed to assist its customers to achieve
a higher rate of return on their marketing investments by selectively targeting
their marketing efforts to individuals who are most likely to respond.
An integral aspect of the Services and International Divisions' business is
offering the Company's customers access to extensive marketing lists and
databases of information. The Company either provides its proprietary data or
acts as a link between those who own or manage lists and those who buy or use
lists for direct marketing purposes. Based upon its knowledge of the operations
of its competitors and its customers, management believes that the Company has
been entrusted with the largest aggregation of names, addresses and related data
available to the U.S. and the U.K. direct marketing industry and to other
businesses.
Direct marketing programs require the analysis and segmentation of large
amounts of data on past customers and known marketplace prospects to identify
desired purchasing characteristics. Using advanced technology, the Company can
integrate the diversified databases of its customers into a single database.
Then external InfoBase data, consisting of demographic, behavioral and
comparative customer information, is overlayed to create a unified customer
database. The customer's information then becomes accessible and actionable
enterprise-wide through the Company's proprietary desktop tools and services
and/or through third party DSS tools.
Typically, decision support involves the ability to extract user-defined
segments from an aggregation of data ("data warehouse") via a query capability
and then to profile and/or report on a data segment, as well as the ability to
perform more detailed analysis. From the resulting information, specific
targeted marketing strategies and personalized communications can be generated.
Through its data communications network, the Company provides access to data
warehouse information to drive decision support strategies for its customers.
The Company also provides several decision support software tools and services
which are designed to provide customers with access to their data warehouse
resources and to further allow them to design and execute their strategic
marketing initiatives. As noted above (see "Technology Applications"), the
Company has expanded its architecture to include the DSS environment. In this
area, the Company offers custom systems integration services that may combine
the Company's software with third party DSS software products to provide a
customized decision support solution for a customer or an industry.
The Company's primary vehicle for rapid delivery of these services in the
U.S. is its data communications network through which direct marketing customers
receive authorized access to lists and databases housed at the Company's Conway
data center. Management believes that the Company has one of the largest
capacities for database management, mailing list processing, and networking in
the industry. Through its communication network, lists may be interrogated and
regrouped with marketing information selected by a customer, including
geographic, demographic, psychographic and previous consumer response data, so
as to create the desired universe of names. A customer can then create, select,
merge and enhance the lists available to it for even more precise market
segmentation, thus enabling each mailing program to be tailored for a carefully
targeted sales audience.
The Company also offers several front-end desktop DSS products, including
the third party DSS software described above (see "Technology Applications") and
the Company's proprietary Acxiom MarketGuide(TM) and Rapidus products, as well
as the new Acxiom Data Network. Such products are designed to permit users with
even minimal training to extract information from large databases via desktop
computers. The Company has also established a unified software development team
composed of both U.S. and U.K. associates. These associates will focus on the
development of key generic software products for use by the Company's customers.
Part of this initiative is aimed at linking Company tools and/or data with third
party tools and/or data to provide a full function system to database marketers
for data analysis, promotion design, database build, campaign fulfillment,
management, and tracking. This team is also involved in developing a PC-based
software tool designed to provide support to marketers for campaign
administration, response profiling and database scoring.
In addition to the traditional marketing services provided by the Services
Division, the Company, through its subsidiary, Acxiom RM-Tools, Inc. ("Acxiom
RM-T"), is managing the outside purchasing and internal processing of the
consumer data Allstate Insurance Company ("Allstate") uses for the underwriting
of its lines of automobile insurance. The information management agreement
initially entered into in 1992 is currently being renegotiated for an extended
term. The functions now being performed for Allstate were previously handled
through Allstate's various regional offices. The savings which result from
Acxiom RM-T's management of this data are shared equally by the two parties.
Under the agreement, Acxiom RM-T provides software systems and database
management for Allstate to use in connection with new automobile insurance
policies across the United States. Included among the data which Acxiom RM-T
furnishes to Allstate is motor vehicle registration information, automatic
claims history, driver information, financial stability information, vehicle
verifications, property telephone inspections, property replacement costs and
property claims history. The agreement with Allstate reflects the Company's
strategy to obtain long-term, large-volume contracts which generate predictable
revenue. During the past fiscal year, Allstate accounted for approximately $74.7
million of total revenues.
The Company is pursuing contracts with other insurance companies whereby
the Company would provide information management services to assist with the
insurers' risk management, underwriting, claims and marketing functions. During
the past fiscal year, the Application Verification Service ("AVS") was
introduced as the vehicle for delivering these services. AVS can also be used to
assist other industries to verify information required on an employment, credit,
and/or membership application. Together with Fair, Isaac and Company,
Incorporated ("Fair Isaac"), a leading developer of scoring technology for the
insurance and credit industries, the Company also offers risk management
information services to the insurance industry. The Company and Fair Isaac have
completed development of InfoScore(TM), a demographic marketing scorecard for
the personal lines insurance industry segment that is used to rank applicants by
risk level.
In addition to the data processing services offered by the Company in the
U.K., the Company also provides comprehensive promotional materials handling and
response services to its U.K. customers. Based upon its knowledge of the
industry, management believes that it is one of the largest firms of its kind in
the U.K. Among the services provided are promotional fulfillment, competition
handling, in-bound telemarketing and response handling, lead monitoring,
contract packing and mailing, coupon redemption, and optical character
recognition support. Through the use of computerized tracking and monitoring
systems, the Company is able to provide customers with current reports on the
progress of their marketing campaigns and can furnish customers with information
useful for promotion analysis and subsequent database campaigns. In response to
the growing demand for telephone-based response services in the U.K., the
Company has invested significantly in the latest Computer Telephony Integration
("CTI") systems in the last twelve months and plans provide for this investment
to continue. The Company is
currently one of the top 10 companies in the U.K. providing large scale
telephone services. CTI systems-related services will continue to be an area of
business development for the Company as it bridges the two primary areas of
expertise that the Company provides in the U.K. -- large scale, complex
information technology database systems and response services capability. The
Company's proprietary software product Tracx(TM) also provides support for
points redemption processing for loyalty programs.
The Company recently added a Pharmaceuticals business unit based upon the
acquisition of Buckley Dement, which provides list brokerage, list management,
promotional mailing and fulfillment, and merchandise order processing to
pharmaceutical, health care, and other commercial customers. The Company regards
the pharmaceutical industry as an emerging growth opportunity and has formed the
Pharmaceuticals business unit to focus on providing database marketing services
to major pharmaceutical companies in the U.S.
Acxiom Alliances Division
The Alliances Division encompasses strategic relationships which the
Company has with its outsourcing and finance industry customers (all finance
industry customers are served by this division, with the exception of Citibank,
N.A., which is served by the Acxiom Services Division). The Company provides
outsourcing services whereby it manages a customer's data center and/or provides
information systems functions, both on-site at the customer's location and from
the Company's Conway, Arkansas data center. The services currently provided by
the Company to such customers include data center management; information
management; hardware installation and support; account management systems;
installation, support and enhancement of software; customized software
programming; and licensing of the Company's proprietary and/or third party
software. For its finance industry customers, the Company provides more
traditional direct marketing services as described above under the "Acxiom
Services Division and Acxiom International Division" discussion.
The revenue units within the Alliances Division are Trans Union, Polk, ADP,
Strategic Alliances (Guideposts, Sears and M/A/R/C), and five business units
within the Financial Services Group. Headquartered in Conway, Arkansas, the
Alliances Division has additional operations in Colorado, Illinois, Kansas,
Michigan, New York, and Ohio. Approximately 725 associates are in this division.
A description of the Company's key relationships within the Alliances Division
follows.
Under a thirteen-year data center management agreement effective since 1992
with Trans Union Corporation ("Trans Union"), one of the three largest credit
bureaus in the U.S., the Company, through its subsidiary Acxiom CDC, Inc.,
manages Trans Union's data processing center in Chicago, Illinois. In 1994 a
long-term agreement was executed between the Company and Trans Union's Marketing
Services Division. Under the Marketing Services Agreement, the Company provides
all of the data processing services, as well as application enhancements, for
Trans Union's Marketing Services Division. The term of that agreement expires in
2005. Management anticipates aggregate revenues in excess of $350 million over
the remaining life of both contracts.
In 1995, the Company entered into data center management agreements with
Automatic Data Processing ("ADP"), and The Polk Company ("Polk"), one of the
largest data compilation companies in the United States. Pursuant to the
agreements, both companies outsourced certain of their data center functions to
the Company. These functions have been transferred to the Company's Conway,
Arkansas data center. The terms of the agreements are five (5) years and ten
(10) years, respectively. Annual revenues from the ADP agreement are expected to
be approximately $3.7 million, while annual revenues from the Polk agreement are
expected to be approximately $24 million.
Pursuant to an agreement with Guideposts, Inc., a church corporation
("Guideposts"), one of the largest magazine publishers in the U.S., the Company
manages Guideposts' data processing personnel, computer technology and
operations. The agreement, which originally began in 1989, was extended in July
1997 for an additional ten year term. Under related agreements, the Company has
agreed to provide software development services to Guideposts, and has sold all
of the rights to the GS/2000 R97 subscription fulfillment software to
Guideposts. Under the original 1989 agreement, the Company acquired an exclusive
license to develop, and to ultimately purchase, Guideposts' proprietary
subscription fulfillment software ("GS/2000(R)"). GS/2000 R97 is a
Guideposts-specific version of the GS/2000 software. The Company stopped
marketing other customized versions of GS/2000 in 1995, after having installed
the customized software at three publishing companies and at one membership and
continuity organization.
The Alliances Division also has agreements with several major financial
institutions. The Division's Financial Services Group provides various services,
including traditional data processing and direct marketing services, database
build and management services, and list enhancement services. (See the
discussion above under "Acxiom Services Division and Acxiom International
Division" for a compete description of these traditional direct marketing
services.) The Division continues to expand its coverage of the largest
financial institutions within the U.S. through extensive sales and marketing
efforts.
It is the Company's intention to continue seeking outsourcing and
information management agreements in the future. Because of the Company's skills
and technology in the area of data processing, and because of the long-term
contracts generally associated with such arrangements, management believes that
these types of agreements will provide substantial benefits to the Company and
will result in cost-effective data processing solutions for its customers.
Intellectual Property
The Company generally relies upon its trade secret protection and
non-disclosure safeguards to protect its proprietary information and
technologies. In the case of the Acxiom Data Network, the Company has taken the
additional precaution of filing for patent protection for certain of the
processes contained therein. The Company enters into license or other agreements
with its customers in the ordinary course of business which contain terms and
conditions prohibiting unauthorized reproduction or use of the Company's and,
where applicable, its vendor's products and/or services. As a general rule, the
Company also enters into confidentiality agreements with its associates,
contractors, customers, potential customers, suppliers and vendors who have
access to sensitive information. In addition, the Company limits access to, and
distribution of, its proprietary information. While there can be no assurance
that the steps taken by the Company will be adequate to deter misappropriation
of its proprietary rights or independent third party development of
substantially similar products and technology, the Company believes that legal
protection of its proprietary information is less significant than the knowledge
and experience of the Company's management and personnel, and their ability to
develop, enhance and market existing and new products and services.
Competition
Acxiom Data Products Division - Competition
There are at least five other companies that offer products which compete
with the Company's InfoBase product, including some of the companies who
contribute their data to InfoBase. Management believes that the Company can
effectively compete due to the leadership position which it has established in
the industry thus far and due to its technical capabilities.
The Company has approximately 50 smaller competitors in the
business-to-business and consumer list brokerage/list management industry which
compete with the Company's Direct Media services. Since the Company's operations
in this area are the largest of their type in the U.S., with over 15% of the
market share, management is of the opinion that the Company can effectively
compete in the U.S. marketplace. With regard to international operations in this
area, the Company has approximately 25 competitors. Management believes that
such competitors' operations are not as extensive as its own and that,
therefore, the Company is well-positioned to compete in the U.K. and abroad.
Management believes that by combining its marketing expertise with its software
systems, more efficient mailing programs are possible for the Company's
customers than are available from competitors.
The Company has two major competitors in connection with the distribution
of its DataQuick property data to the real estate, finance and insurance
industries. However, management believes that the expansion of data
coverage from regional to national, combined with timeliness and reliability of
its data, will place it in a competitive position within this industry.
Management also believes that the combination of the DataQuick information and
services with the Company's other data products and marketing capabilities gives
it a competitive advantage in the marketplace.
The Company previously had two primary competitors in the business of
providing CD-ROM telephone listings and mapping data to consumers and small
office/home office businesses. During the prior fiscal year, one of the two
competitors acquired the other, thus creating only one major competitor, ABI, to
the Company. During the past year, the Company sold the retail and direct
marketing operations of the Company's subsidiary, Pro CD, Inc., to ABI. For
additional discussion, see Note 14 of the Notes to Consolidated Financial
Statements in the Company's Annual Report on p. 37, which information is
incorporated herein by reference. The Company will, however, continue its
efforts to sell its telephone reference products directly to large corporations,
which represents a fast-growing and highly profitable market.
With regard to competitive forces affecting the services provided by the
Data Products Division's Interactive Information Services, the Company believes
that its competitors in the traditional direct marketing industry are pursuing
similar initiatives to offer services via the Internet. Management intends to
focus on creating the technological infrastructure required to offer highly
differentiated services to its customers. See, also, the discussion below under
"Acxiom Services Division and Acxiom International Division - Competition."
Acxiom Services Division and Acxiom International Division - Competition
The Company experiences competition from at least six other service bureaus
(which list currently includes May & Speh) in the U.S. direct marketing industry
and ten in the U.K. direct marketing industry with respect to certain targeted
marketing services, including merge/purge, list enhancement, and database and
data warehouse services. While some direct competitors are divisions of larger
corporations having greater financial, research and development, and/or
marketing resources than the Company, management believes that the Company's
unique application software, its ability to build open solutions, its experience
building and managing some of the largest databases within the industry, its
knowledge of the various industries it serves, its business partner
relationships, and the skills and experience of its associates enable it to
effectively compete. Technological developments are expected to continue at a
rapid pace in the field of direct marketing database management and market data
collection, analysis and distribution, and management intends to utilize the
best tools available to it to build fully integrated solutions that meet each
customer's unique requirements. It is management's belief that most of its
competitors do not provide their customers with such solution flexibility.
There are many diverse businesses which offer DSS software and/or services.
However, based upon the broad spectrum of software and services in the
marketplace, the Company's recent alliances with various DSS software providers
(see "Technology Applications" above), and the Company's unique data management
services, management believes that the effects of competition are minimal. In
addition, management believes that by using the TCP/IP protocol (discussed above
under "Technology Applications"), the Company's products will be significantly
less difficult to implement at customer sites. Management further believes that
through continued investment in research and development (e.g., the Acxiom Data
Network), the Company will be able to maintain or improve its present position
in the marketplace. See "Research and Development," below.
Acxiom Alliances Division - Competition
The Company is aware of numerous other major businesses which offer
outsourcing services and/or information management services. Due to the recent
emergence of this industry, and due to the fact that the market for such
services remains largely untapped, the Company anticipates that the effects of
competition will be minimal.
With regard to competitive forces affecting the services provided by the
Alliances Division to its finance industry customers, see the discussion above
under "Acxiom Services Division and Acxiom International Division -
Competition."
Customers
The Company's customers include financial institutions, insurance
companies, consumer credit organizations, utility companies, seminar companies,
communications companies, pharmaceutical companies, catalogers, retailers,
television shopping networks, publishers, consumer goods manufacturers,
membership and continuity associations, real estate and appraisal firms, title
companies, advertising agencies, charities, and governmental entities. Other
customers include list users (direct mailers and telemarketers), list owners
(customers who generate and own their lists), and list managers and brokers
(agents who manage lists and provide direct marketing consulting services). The
Company's customers also include corporate purchasers of the telephone reference
products. Although most of the Company's customers are in the U.S. and the U.K.,
the Company has a small number of customers in Canada, the Netherlands, France
and Malaysia. Many are companies which specialize in the direct marketing
industry, as well as the marketing departments of large corporations who have
turned to targeted marketing techniques to sell their goods and services. The
Company also provides data, data processing and information management services
to companies that are not in the direct marketing business. The Company's
practice has been to extend payment terms to its customers for periods of up to
60 days and, accordingly, the Company uses operating capital to finance its
accounts receivable. In fiscal 1998, the following customers accounted for 10%
or more of the Company's total revenue: Allstate Insurance Company (16.1%) and
Trans Union Corporation (11.8%).
Additional Information Regarding Forward-Looking Statements
This Report on Form 10-K and the Company's Annual Report to Shareholders
include, and future SEC filings by the Company and future oral and written
statements by the Company and its management may include, certain
forward-looking statements. Such statements may include, among other things,
statements regarding the Company's financial position, results of operations,
market position, product development, software replacement and/or remediation
efforts, regulatory matters, growth opportunities and growth rates, acquisition
and divestiture opportunities, and other similar forecasts and statements of
expectation. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates" and "should," and variations of these words and
similar expressions, are intended to identify these forward-looking statements.
Such statements are not statements of historical fact. Rather, they are based on
the Company's estimates, assumptions, projections and current expectations, and
are not guarantees of future performance. The Company disclaims any obligation
to update or revise any forward-looking statement based upon the occurrence of
future events, the receipt of new information, or otherwise. Some of the more
significant factors that could cause the Company's actual results and other
matters to differ materially from the results, projections and expectations
expressed in the forward-looking statements are set forth below. There may be
additional factors which could also affect actual results.
Consumer Privacy, Legislative and Regulatory Concerns
There could be a material adverse impact on the Company's direct marketing
and data sales business due to the enactment of legislation or industry
regulations arising from, among other things, the increase in public concern
over consumer privacy issues. Restrictions upon the collection and use of
information which is currently legally available could be adopted, in which case
the cost to the Company of collecting certain kinds of data might be materially
increased. It is also possible that the Company could be prohibited from
collecting or disseminating certain types of data, which could in turn
materially adversely affect the Company's business.
Recently, the Collections of Information Antipiracy Act ("CIAA") was passed
by the U.S. House of Representatives and is now pending before the U.S. Senate.
The intent of this proposed legislation is to protect collections of information
from unauthorized copying and use in the marketplace. However, as passed by the
U.S. House of Representatives, a portion of this bill may have a material
adverse effect upon the Company as it will prevent the Company, as well as some
of the Company's competitors, from compiling marketing databases from various
sources (e.g., telephone directories). Consistent with the U.S. Supreme Court's
decision in Feist Publications v. Rural Telephone Service Co., Inc., 499 U.S.
340 (1991), publishers of telephone directories have traditionally been deemed
not to be entitled to copyright protection. In its current form, the CIAA would
confer a new intellectual property right upon such publishers and, as a result,
prohibit the Company from its traditional
compilation endeavors. Management will continue to actively monitor this
proposed legislation and intends to participate in efforts to contest passage of
the CIAA in its current form.
Senior management of the Company has taken a proactive role in the privacy
arena. Internally, the Company has formulated and distributed to each of its
associates a written privacy policy which supports consumers' rights to control
the dissemination of information about themselves. Privacy is included as a
topic in the Company's corporate culture education program in which all
associates participate. Associates of the Company are required to sign a privacy
acknowledgment form as a condition of continued employment. The privacy policy
reflects the Company's continuing commitment to strict data security systems, as
well as the Company's support of the Direct Marketing Association's ("DMA") Mail
and Telephone Preference Service programs, which permit consumers to "opt-out"
of unrequested marketing solicitations. The Company has adopted a practice of
purging its customers' prospecting databases of all names appearing on such DMA
opt-out lists free of charge.
In addition, the Company includes in its customer contracts a commitment
that any data sent to the Company has been legally obtained and that the
customer's subsequent use of any data received from the Company will be in
compliance with all data protection laws, as well as with applicable industry
policies. The Company also includes in its information provider contracts a
commitment that the data the Company receives has been legally obtained for the
uses to which it will be put, and the Company further agrees to comply with any
restrictions that the providers place upon the data.
The Company also participates in other industry-specific associations
focused on privacy issues such as the Magazine Publishers Association and the
Advertising and Mail Marketing Association. In addition, the Company became a
member of the Individual Reference Services Group ("IRSG") in December 1997. The
IRSG is composed of approximately 15 leading companies in the information
business that have agreed to impose upon themselves meaningful, self-regulatory
standards with respect to non-public information, which standards were developed
in consultation with the Federal Trade Commission. These guidelines, which the
Company has pledged to follow, commit the Company to acquire data used for its
reference products and services only from reputable sources, to restrict
distribution of non-public information in its reference products and services
through safeguards appropriately calibrated to the type of use made of the
information and to educate the public concerning these guidelines. The Company
will be subject to an annual audit to monitor its compliance with these
guidelines.
Loss of Data and/or Customer Lists
The Company could suffer a material adverse effect if owners of the data
used by the Company were to withdraw the data from the Company. In order to
reduce this risk, management has undertaken a strategy to obtain ownership of as
much data as possible, and, in the alternative, to enter into long-term data
supply agreements with the data owners that remain essential to its business.
The owners of the marketing lists maintained by the Company could decide to
remove their lists from the Company's possession, and if a substantial number of
lists were removed, a material adverse impact upon the Company's operations
could result. However, management believes that any such actions are unlikely in
that the value of the lists is enhanced through manipulation by the Company's
software and through combination with other lists. Further, management believes
that the Company's acquisition of Direct Media/DMI, Inc. further solidified the
Company's relationship with many list owners. Historically, only a few list
owners utilizing the Company's services have removed their lists.
Effects of Short-Term Contracts
While approximately 54% of the Company's total revenue is currently derived
from long-term (over three years) customer contracts, the remainder is not. With
respect to that portion of the business which is not under long-term contract,
revenues are less predictable, and the Company must consequently engage in
continual sales efforts to maintain its revenue stability and future growth.
Management has emphasized the importance of securing as much revenue as possible
under long-term contracts, having increased the percentage from 9% to 54% over
the past six years.
Technology Challenges
Maintaining technological competitiveness in its data products, processing
functionality, software systems and services is key to the Company's continued
success. The Company's ability to continually improve its current processes and
to develop and introduce new products and services is essential in order to meet
its competitors' technological developments and the increasingly sophisticated
requirements of its customers. If the Company failed to do so, its business
could be materially adversely affected.
Year 2000 Issue
The "Year 2000 Issue" is the result of computer programs being written
using two digits, rather than four, to define an applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900, rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process or transmit
data, or engage in normal business activities. The Company, like most owners of
computer software, has assessed and is in the process of modifying, where
needed, its computer applications to ensure they will function properly in the
year 2000 and beyond. The Company has been replacing or renovating the systems
and applications where necessary, using both internal staff and external
consultants. In addition, the Company has initiated formal communications with
all of its significant suppliers and large customers to determine the extent to
which the Company is vulnerable to a failure by such a third party to adequately
address its own Year 2000 Issue.
The Company is currently operating under an internal deadline to ensure all
of its computer applications are "year 2000 ready" by December 31, 1998. The
Company currently believes that with modifications to existing software and
conversions to new software, the Year 2000 Issue can be mitigated. But the
systems of vendors on which the Company's systems rely may not be converted in a
timely fashion, or a vendor may fail to convert its software or may implement a
conversion that is incompatible with the Company's systems, which would have a
material adverse impact on the Company.
The cost of the project is estimated to be between $3 million and $5.5
million. These costs are based on management's best estimates, which are derived
utilizing numerous assumptions of future events. Still, there can be no
guarantee that these estimates will be achieved and the actual results could
differ materially from those plans. However, the financial impact to the Company
has not been, and is not expected to be, material to its financial position or
results of operations in any given fiscal year.
Loss of Data Center Capacity or Interruption of Telecommunications Links
The Company's success is dependent upon its ability to protect its various
data centers against damage from fire, power loss, telecommunications failure or
other disasters. The on-line services provided by the Company are dependent on
links to telecommunications servers. Management has taken reasonable precautions
to protect its data centers and telecommunications links from events that could
interrupt the Company's operations. Any damage to the Company's data centers or
any failure of the Company's telecommunication links that causes interruptions
in the Company's operations could have a material adverse effect on the
Company's business.
Acquisitions
The Company's growth strategy currently includes growth through
acquisitions. While management believes that the Company has been reasonably
successful implementing this strategy during the past three years, there is no
certainty that future acquisitions will be consummated on acceptable terms or
that any acquired assets, data or businesses will be successfully integrated
into the Company's operations.
Postal Rate Increases
The direct marketing industry has been negatively impacted from time to
time during past years by postal rate increases. The most recent postal rate
increase, which became effective in January 1995, and any future increases will,
in the Company's opinion, force direct mailers to mail fewer pieces and to
target their prospects more carefully. Through its software products and data
processing services, the Company has the capability to assist its direct
marketing customers to target their mailings to consumers who are most likely to
favorably respond, thereby meeting its customers' increasing need to market more
effectively. The Company experienced no significant negative financial impact as
a result of the most recent postal rate increase, but there is no assurance that
future postal increases will have no impact upon the Company.
Litigation
Revenues could be materially adversely affected if the Company became
involved in litigation in which the Company was unsuccessful in its cause of
action or defense of a cause of action, or if the Company's insurance carrier
were to deny coverage with respect to a legal proceeding. In addition, adverse
publicity surrounding litigation could materially affect the Company.
Other Factors
Revenues could be materially adversely affected if the Company failed to be
competitive within its industry. In addition, the expenses associated with
acquiring data, and the timing of acquisitions and the costs and expenses
associated therewith, might also affect operating results. A downturn in the
general economic conditions in the primary marketplaces served by the Company
could also have a material adverse effect upon the Company's business.
Employees
The Company employs approximately 3,600 employees ("associates") worldwide.
With the exception of approximately 45 associates who are engaged in lettershop
and fulfillment activities at the Company's Skokie, Illinois facility, none of
the Company's associates are represented by a labor union or are the subject of
a collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its employee relations are good.
Item 2. Properties
The following table sets forth the location, ownership and general use of
the principal properties of the Company.
Location Held Use
Acxiom Corporation:
Conway, Arkansas Five facilities held Principal executive
in fee; one facility offices; customer
secures a $3,719,000 service facilities and
encumbrance computer equipment space
Little Rock, Arkansas Lease Customer service
facilities; office space
Acxiom CDC, Inc.:
Chicago, Illinois Lease Office and computer
equipment space
Acxiom/Direct Media, Inc.:
Greenwich, Connecticut Lease Office space; customer
service facility
Acxiom Great Lakes Data
Center, Inc.:
Southfield, Michigan Lease Office and computer
equipment space
Acxiom SDC, Inc.
(d/b/a Buckley Dement,
an Acxiom Company):
Skokie, Illinois Lease Office and computer
equipment space;
warehouse and letter shop
space
Acxiom Limited (formerly
known as Acxiom U.K., Ltd.):
(a) London, England Lease Office space; customer
service facility
(b) Sunderland, England Held in fee Office space; computer
equipment and warehouse
space
DataQuick Information
Systems (d/b/a Acxiom/Data
Products Group):
San Diego, California Lease Office space; customer
service facility
The Company's headquarters are presently located in Conway, Arkansas. The
Conway facilities also consist of office buildings and a data processing center.
During fiscal year 1999, construction is expected to be completed on the
Company's new headquarters in Little Rock, Arkansas. The Company also expects to
complete the construction of a new customer service facility in Little Rock,
Arkansas prior to the end of fiscal year 1999.
Pursuant to its data center management agreement with Trans Union discussed
above under Item 1, the Company leases office and computer equipment space at
Trans Union's corporate headquarters in Chicago, Illinois.
Pursuant to its data center management agreement with Polk discussed above
under Item 1, the Company leases office and computer equipment space in
Southfield, Michigan. In addition, the Company leases office space in
Cincinnati, Ohio and Denver, Colorado in connection with the services the
Company provides to Polk.
As a result of the Company's acquisition of DataQuick Information Systems,
the Company leases two facilities in San Diego, California. It also leases sales
office space in Arizona, California, Nevada, Oregon, Utah and Washington.
Due to the acquisition of Direct Media/DMI, Inc., the Company leases
primary office and customer service space in Greenwich, Connecticut. In
addition, the Company leases sales office space in California, Florida,
Illinois, New Jersey, New York, Ohio, South Carolina, Canada, England, and the
Netherlands.
With the acquisition of Buckley Dement, the Company leases primary office
and warehouse space in Skokie, Illinois. In addition, with respect to Buckley
Dement and its affiliated company, KML, the Company leases sales office space in
California, Georgia and New Jersey.
In addition to the foregoing, pursuant to the Guideposts data processing
agreement, Guideposts provides office and computer equipment space for the
Company's use at Guideposts' corporate headquarters in Carmel, New York.
The Company also leases sales offices in California, Illinois, Kansas,
Massachusetts, New Jersey, New York, North Carolina, Texas, Virginia,
Washington, D.C. and Wisconsin.
The Company's International Division's corporate and customer service
operations in London, England are presently housed in two principal buildings,
both of which are leased. The Company also leases a facility in Sunderland,
England where data processing and fulfillment services operations are housed.
The International Division also leases office space in Malaysia and France.
During the most recent fiscal year, the Company sold a warehouse facility
in Warminster, Pennsylvania, which it had previously used in connection with the
operation of its mailing services division. The Company also completed the sale
of a warehouse facility in Philadelphia.
In general, the offices, customer service and data processing facilities of
the Company are in good condition. Management believes that its facilities are
suitable and adequate to meet the current needs of the Company. As such,
management believes that, except for the Little Rock, Arkansas expansion noted
above, no substantial additional properties will be required during fiscal 1999.
A portion of the real property owned by the Company is pledged to secure notes
payable.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
Each of the Company'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: Year Name Position Held Age Elected
Charles D. Morgan (a) Chairman of the Board 55 1972
and President (Company Leader)
Rodger S. Kline (b) Chief Operating Officer, 55 1975
Treasurer and Director
James T. Womble (c) Division Leader and Director 55 1975
C. Alex Dietz (d) Division Leader 55 1979
Paul L. Zaffaroni (e) Division Leader 51 1990
Jerry C.D. Ellis (f) Division Leader 48 1991
Robert S. Bloom (g) Chief Financial Officer 42 1992
- ------------------------------------
(a) Mr. Morgan joined the Company in 1972. He has been Chairman of the Board of
Board of Directors since 1975, and serves as the Company's president
(Company Leader). He was employed by IBM Corporation ("IBM") prior to
joining the Company. Mr. Morgan holds a mechanical engineering degree from
the University of Arkansas.
(b) Mr. Kline joined the Company in 1973. He has been a director since 1975,
and serves as the Company's chief operating officer and treasurer. Prior to
joining the Company, Mr. Kline was employed by IBM. Mr. Kline holds a
degree in electrical engineering from the University of Arkansas.
(c) Mr. Womble joined the Company in 1974. He has been a director since 1975,
1975, and serves as one of the Company's four division leaders. Prior to
joining the Company, Mr. Womble was employed by IBM. Mr. Womble holds a
degree in civil engineering from the University of Arkansas.
(d) Mr. Dietz joined the Company in 1970 and served as a vice president until
1975. Between 1975 and 1979 he was an officer of a commercial bank
responsible for data processing matters. Following his return to the
Company in 1979, Mr. Dietz served as senior level officer of the Company
and is presently one of the Company's four division leaders. Mr. Dietz
holds a degree in electrical engineering from Tulane University.
(e) Mr. Zaffaroni joined the Company in 1990. He serves as one of the Company's
four division leaders. Prior to joining the Company, he was employed by IBM
for 21 years, most recently serving as regional sales manager. Mr.
Zaffaroni holds a degree in marketing from Youngstown State University.
(f) Mr. Ellis joined the Company in 1991 as managing director of the Company's
Company's U.K. operations. He serves as one of the Company's four division
leaders. Prior to 1991, Mr. Ellis was employed for 22 years with IBM,
serving most recently as assistant to the CEO of IBM's U.K. operations.
Prior to that, Mr. Ellis served as branch manager of the IBM U.K. Public
Sector division.
(g) Mr. Bloom joined the Company in 1992 as chief financial officer. Prior to
joining the Company, 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.
There are no family relationships among any of the Company's executive
officers and/or directors.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information required by this Item appears in the Company's Annual
Report at p. 40, which information is incorporated herein by reference.
Item 6. Selected Financial Data
The information required by this Item appears in the Company's Annual
Report at p. 16, which information 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 Company's Annual
Report at pp. 18-23, which information is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Financial Statements required by this Item appear in the Company's
Annual Report at pp. 24-37, which information is incorporated herein by
reference. The Financial Statement Schedule which constitutes the Supplementary
Data required by this Item is attached hereto.
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 the Company's executive officers is included under the
caption "Executive Officers of the Company" at the end of Part I of this Report.
The remaining information required by this Item appears under the caption
"Election of Acxiom Directors" in the Company's 1998 Proxy Statement and under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's 1998 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 the Company's 1998 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 "Security
Ownership of Certain Beneficial Owners and Management of Acxiom" in the
Company's 1998 Proxy Statement, which information is incorporated herein by
reference.
Item 13. Certain Relationships and Transactions
The information required by this Item appears under the heading "Certain
Transactions" in the Company's 1998 Proxy Statement, which information is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
The following documents are filed as a part of this Report:
1. Financial Statements.
The following consolidated financial statements of the
registrant and its subsidiaries included on pages 24 through 37 of the Company's
Annual Report and the Independent Auditors' Report on page 38 thereof are
incorporated herein by reference. Page references are to page numbers in the
Annual Report.
Page
Consolidated Balance Sheets as of March 31, 1998 and 1997 24
Consolidated Statements of Earnings for the years ended
March 31, 1998, 1997 and 1996 25
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1998, 1997 and 1996 26-27
Consolidated Statements of Cash Flows for the years ended
March 31, 1998, 1997 and 1996 28
Notes to the Consolidated Financial Statements 29-37
Independent Auditors' Report 38
2. Financial Statement Schedule.
The following additional information for the years 1998, 1997 and
1996 is submitted herewith and appears on the two pages immediately preceding
the signature page of this Report on Form 10-K.
Independent Auditors' Report
Schedule II - Valuation and Qualifying Accounts for the years ended March 31,
1998, 1997 and 1996
All other 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.
3. 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 the Company'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 the
Company'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 Rights Agreement dated January 28, 1998 between the Company 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 the Company, included in
Exhibit B to the Rights Agreement (previously filed as Exhibit 4.1 to
the Company's Current Report on Form 8-K dated February 10, 1998,
Commission File No.
0-13163, and incorporated herein by reference)
10(a) Data Center Management Agreement dated July 27, 1992 between the
Company 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) Agreement for Professional Services dated November 23, 1992 between the
Company and Allstate Insurance Company (previously filed as Exhibit 28
to Amendment No. 1 to the Company's Current Report on Form 8-K dated
December 9, 1992, Commission File No. 0-13613, and incorporated herein
by reference)
10(d) Acxiom Corporation Deferred Compensation Plan (previously filed as
Exhibit 10(b) to the Company'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 the Company'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(f) Acxiom Corporation U.K. Share Option Scheme (previously filed as
Exhibit 10(f) to the Company'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(g) Leadership Compensation Plan
10(h) Acxiom Corporation Non-Qualified Deferred Compensation Plan (previously
filed as Exhibit 10(i) to the Company'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(i) Asset Purchase Agreement dated April 1, 1996 between the Company and
Direct Media/DMI, Inc. (previously filed as Exhibit 2 to the Company's
Current Report on Form 8-K dated April 30, 1996, Commission File No.
0-13613, and incorporated herein by reference)
13 Portions of the Company's Annual Report
21 Subsidiaries of the Company
23 Consent of KPMG Peat Marwick LLP
24 Powers of Attorney for Robert S. Bloom, Dr. Ann H. Die, William T.
Dillard II, Harry L. Gambill, Rodger S. Kline, Charles D. Morgan,
Robert A. Pritzker, Walter V. Smiley and James T. Womble
27 Financial Data Schedule
Listed below are the executive compensation plans and arrangements
currently in effect and which are required to be filed as exhibits to this
Report:
- Amended and Restated Key Associate Stock Option Plan of Acxiom
Corporation
- Acxiom Corporation U.K. Share Option Scheme
- Leadership Compensation Plan
- Acxiom Corporation Deferred Compensation Plan*
- Acxiom Non-Qualified Deferred Compensation Plan
- -------------------------------
* To date, only one grant has been made, in 1990.
4. Reports on Form 8-K.
A report was filed on February 10, 1998, which reported the Company's
adoption of a shareholder rights plan.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Acxiom Corporation
Under date of May 8, 1998, we reported on the consolidated balance sheets of
Acxiom Corporation and subsidiaries as of March 31, 1998 and 1997, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the years in the three-year period ended March 31, 1998, which are
included in the 1998 annual report to shareholders. These consolidated financial
statements and our report thereon are incorporated by reference in the annual
report on Form 10-K for the year ended March 31, 1998. In connection with our
audits of the aforementioned consolidated financial statements, we also audited
the related financial statement schedule of valuation and qualifying accounts.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
Little Rock, Arkansas
May 8, 1998
Schedule II
ACXIOM CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended March 31, 1998, 1997 and 1996
(In thousands)
Additions
Balance at charged to Other Bad debts Bad Balance
beginning costs and additions written debts at end
of period expenses (note) off recovered of period
1998:
Allowance
for
doubtful
accounts,
returns
and
credits $ 4,333 3,090 224 4,744 397 3,300
===== ===== === ===== === =====
1997:
Allowance
for
doubtful
accounts,
returns
and
credits $ 1,880 4,399 4,800 7,044 298 4,333
===== ===== ===== ===== === =====
1996:
Allowance
for
doubtful
accounts,
returns
and
credits $ 2,143 150 131 726 182 1,880
===== === === === === =====
Note - Other additions in 1998 represent the valuation accounts acquired in the
Multinational and STW acquisitions. Other additions in 1997 represent the
valuation accounts acquired in the Pro CD and DMI acquisitions. Other
additions in 1996 represent the valuation accounts acquired in the
Generator and DataQuick acquisitions.
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: June 23, 1998 By: /s/ Catherine L. Hughes
------------------------------------
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
Robert S. Bloom* Chief Financial Officer June 23, 1998
- --------------------------- (Principal accounting officer)
Robert S. Bloom
Dr. Ann H. Die* Director June 23, 1998
- ---------------------------
Dr. Ann H. Die
William T. Dillard II* Director June 23, 1998
- ---------------------------
William T. Dillard II
Harry C. Gambill* Director June 23, 1998
Harry C. Gambill
Rodger S. Kline* Chief Operating Officer, June 23, 1998
- --------------------------- Treasurer and Director
Rodger S. Kline (Principal financial officer)
Charles D. Morgan* Chairman of the Board and June 23, 1998
- -------------------- President (Company Leader)
Charles D. Morgan (Principal executive officer)
Robert A. Pritzker* Director June 23, 1998
Robert A. Pritzker
Walter V. Smiley* Director June 23, 1998
Walter V. Smiley
James T. Womble* Division Leader and Director June 23, 1998
- --------------------
James T. Womble
*By: /s/ Catherine L. Hughes
-----------------------------------
Catherine L. Hughes
Attorney-in-Fact
EXHIBIT INDEX
Exhibits to Form 10-K
Exhibit
No. Exhibit
3(a) Amended and Restated Certificate of Incorporation (previously filed as
Exhibit 3(i) to the Company'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 the
Company'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 Rights Agreement dated January 28, 1998 between the Company 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 the Company, included in
Exhibit B to the Rights Agreement (previously filed as Exhibit 4.1 to
the Company's Current Report on Form 8-K dated February 10, 1998,
Commission File No.
0-13163, and incorporated herein by reference)
10(a) Data Center Management Agreement dated July 27, 1992 between the
Company 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) Agreement for Professional Services dated November 23, 1992 between the
Company and Allstate Insurance Company (previously filed as Exhibit 28
to Amendment No. 1 to the Company's Current Report on Form 8-K dated
December 9, 1992, Commission File No. 0-13613, and incorporated herein
by reference)
10(d) Acxiom Corporation Deferred Compensation Plan (previously filed as
Exhibit 10(b) to the Company'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 the Company'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(f) Acxiom Corporation U.K. Share Option Scheme (previously filed as
Exhibit 10(f) to the Company'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(g) Leadership Compensation Plan
10(h) Acxiom Corporation Non-Qualified Deferred Compensation Plan (previously
filed as Exhibit 10(i) to the Company'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(i) Asset Purchase Agreement dated April 1, 1996 between the Company and
Direct Media/DMI, Inc. (previously filed as Exhibit 2 to the Company's
Current Report on Form 8-K dated April 30, 1996, Commission File No.
0-13613, and incorporated herein by reference)
13 Portions of the Company's Annual Report
21 Subsidiaries of the Company
23 Consent of KPMG Peat Marwick LLP
24 Powers of Attorney for Robert S. Bloom, Dr. Ann H. Die, William T.
Dillard II, Harry L. Gambill, Rodger S. Kline, Charles D. Morgan,
Robert A. Pritzker, Walter V. Smiley and James T. Womble
27 Financial Data Schedule
EXHIBIT 10(g)
GENERAL DESCRIPTION OF THE LEADERSHIP TEAM
COMPENSATION PLAN
OBJECTIVE
- - The objective of the Leadership Team compensation plan is to implement a
pay plan which will reflect the leader's responsibility, provide
compensation that is both equitable and competitive, and which will:
- Align the leader's interests with shareholder/investor's interest.
- Motivate leaders to achieve the highest level of performance.
- Retain key leaders by linking leadership team compensation to company
performance.
- Attract the best leaders through competitive, growth-oriented plans.
- Enable sharing of growth & success between associates, leaders and
shareholders.
PLAN PROVISIONS
Eligibility of Participants
- - For purposes of the Leadership Team Compensation plan, eligible associates
will include Division leaders, Group leaders, Business Unit leaders, Sales
leaders, Business Development leaders, Industry Application Development
leaders, Finance and Accounting leaders Organizational Development leaders,
and Corporate Office leaders.
COMPONENTS AND PLAN STRUCTURE
- - The components of the Leadership Team Compensation Plan are as follows:
- Base salary (not at risk)
- Base salary (at risk)
- Long-term incentive (stock options)
- Retention/Recruiting Bonus (Special Situations Only)
- - Exhibit 1 of this document reflects the above components for the 5 levels
of the Leadership Team Compensation Plan. In addition, it reflects the
Business Development / Sales Leadership plan.
- - Each level of the plan has the following:
- Base salary ranges (lower and upper)
- Plan structure (reflecting percentage guideline ranges for each plan
component to total compensation as well as number of years for which
options are granted under the long-term incentive component of the
plan)
- - Each leader is slotted into one of the five levels based on their
experience, scope of responsibility and past performance. The individual to
whom the leader reports is responsible for managing their respective
slotting. Division leaders must approve all level 3 slottings.
Additionally, Division leaders must approve all slottings of individuals on
the Business Development / Sales Leadership compensation plan. The Company
leader must approve all slottings of levels 4 and 5.
- - Leaders slotted in the Business Development / Sales Leadership plan must be
a senior level business development / sales leader responsible for:
- developing new business and relationships at senior executive levels
of customers and prospects, or
- providing leadership to two or more sales associates for a Group or
Division. Providing leadership means assigning quotas and territories,
conducting regular reviews of salesperson's call activity, hiring,
terminations, preparing skill development plans, performance reviews,
coaching, mentoring and overseeing the overall sales process for the
area.
BASE SALARY (NOT AT RISK)
- - Guidelines have been established to award Base salary increases for
salaries that are "within range," "in excess of range" and "below range."
- - The percentage increase guidelines are revised/validated annually.
- - Base salaries for Business Development/Sales leaders will be established
and managed using the Level 2 salary ranges.
BASE SALARY (AT RISK)
General
- - The base salary at risk (referred to as at risk throughout the remainder of
this document) amount for the full fiscal year is determined by the company
leadership as shown below and is based on the eligible associate's base
salary as of May. No adjustment is made to at risk amounts during the plan
year unless the leader moves from one plan level to another or is assigned
a different job which warrants a change. In the event there is a change in
the at-risk, it will be prorated based on the date of the change.
Leader Approval of At Risk
CLT and Group Leaders Company Leader
All Other Leaders Division Leaders
- - Eligible associates must be employed on the date of the actual payment to
receive payment for the quarterly and/or year-end at risk. The at risk for
eligible associates who joined the Leadership Team after the beginning of
the quarter will be pro-rated based on hire date. Additionally, the
year-end at risk amount will be prorated in the same manner.
At risk targets
- - At risk will be based on the change in EVA attained with an EPS gate. (With
the exception of the commission/specific objective component of the
Business Development/Sales Leadership plans. See page 5 - Commission/
specific objective at risk targets.)
EVA Incentive Principles
- - Target Incentive
Competitive total compensation opportunity
- - Expected EVA Improvement
Performance standard to achieve the company "target EVA" (and to meet
the market's expectation of EVA improvement required to support the
price of the Company's stock.)
- - Sharing of EVA Improvement Above/Below Expected
Associates and shareholders share risks and rewards
- - Incentive Bank
Cumulative performance and incentive linked
Target Incentives and Expected EVA Improvement
- - Achievement of Expected EVA Improvement results in Target Incentive Pool
Sharing of Incremental EVA Results
- - Sharing of incremental EVA (above/below "Expected") is constant
- - 50% of every $1 of EVA above expected is added to incentive pool.
- - 50% of every $1 of EVA below expected is subtracted from incentive pool
(EVA improvement can be below zero.)
- - Associates/leaders share in all risks and rewards (no caps or floors)
Incentive Bank Principles
- - Incentive Pool for current year "deposited" into incentive bank
- - Bank balance distributed:
- - 100% up to "target" incentive - (Note - it is the intent of the plan to
distribute 33% of the bank balance above the achieved target incentive
under normal circumstances. However, the actual % distribution is
determined by the Compensation Committee of the Company based on analyzing
the achieved results for the year. The Committee may adjust this percentage
based on special circumstances and may elect to not distribute any of this
remaining bank balance and to carry all of it forward into the next year.)
- - Up to 33% above "target" incentive
- - Remaining bank balance reserved against future performance
- - "Negative" bank balance "repaid" before future incentives are paid
Incentive Funding (EPS Gates)
- - Incentive attainment determined based on EVA achievement
- - Incentive funding subject to pro rata reduction if EPS Gate is not achieved
- - Bank "deposits" equal to Incentive Attained Times Funding Factor. (Funding
factor equals Incentives funded divided by Incentives Attained.)
- - Existing bank balances also subject to forfeiture to satisfy EPS Gate.
Common fate at risk target breakdown
Group Leaders Revenue Shared
Corporate Division OD/FA Unit Services
Office Leaders Leaders** Leaders Unit Leaders
- --------------------------------------------------------------------------------
Common 100% 60% 50% 25% 75%
Fate Co. EVA Co. EVA Co. EVA Co. EVA Co. EVA
- --------------------------------------------------------------------------------
Unit 0% 40% 25% 75%* 25%
Performance Div EVA Div. EVA Bus. Plan
25% (25% Div
Group EVA EVA)*
(25% Group
EVA)*
(25% Unit
EVA)*
* These are the default percentages unless the corporate office approves a
different documented plan. Differences should be submitted to the corporate
office by the Division leader by July 11 and by October 31 for mid-year
revisions.
** Organizational Development and Finance/Accounting Leaders' at risk
percentages will be 50% Company EVA and 50% Division EVA.
Note: All at risk payments are subject to EPS gate (with the exception of
the commissions/specific objective portion of the Business
Development/Sales Leadership plan)
Commission/specific objective at risk targets
- - These targets apply only to Business Development/Sales Leadership plan.
- - The commission/specific objective portion of at risk under this plan is
based on revenue and/or EVA percentage of quota attainment for the
territories assigned to the business development/sales leader. It is the
responsibility of the individual's Division and/or Group Leader to
establish these targets.
- - The commission/specific objective portion will be funded by the Unit, Group
or Division and is not subject to the EPS gate as is the common fate
portion of at risk. Budgets and EVA targets will not be adjusted for
additional commission expense due to these plans.
- - All commissions are calculated on a YTD, cumulative basis.
- - The plan provisions and quota assigned may be changed at any time by the
Division Leader.
- - The Division Leader may choose not to accept additional business when
resources are not available to process the work. It is the sales leader's
responsibility to make certain that the work will be accepted before
customer commitments are made.
Divisions and Units (Except Data Products Division):
- - The Division, Group and unit EVA is the controllable EVA for a Division and
revenue Group/Unit which includes the direct revenue and expenses for the
unit(s) less appropriate charges for data center consumption, application
software and facilities as determined by the ABM system. Also included will
be a charge for the cost of capital including accounts receivable, data
center equipment, workstation/LAN and facilities. The target for your
Group/Unit EVA will be negotiated with your Division Leader.
Data Products Division - Groups/Units:
- - Product Line EVA targets and attainment must be certified by the corporate
office.
Shared Services Units:
- - The business plan target component for Shared Services is to maintain your
expenses at or below your current fiscal year budget.
EPS Gate Target
- - The EPS target for fiscal 1999 is $.75 per share.
- - All common fate at risk payments are subject to first achieving Acxiom's
EPS targets.
Over Achievement
- - Above the funding at targeted EVA, 50% of all Incremental EVA will be added
to Incentive Funding with no gate calculation. Above target funds will be
added to the respective incentive banks and up to 1/3 will be paid at the
end of the fiscal year and the remainder will be banked for future payment
(subject to the sustained business performance of Acxiom Corporation).
- - The over achievement EVA will be funded at the corporate level and
distributed to the Divisions, Groups and Units that over achieved their
respective EVA targets.
Method of payment:
- - It is Acxiom's intention to pay at risk in cash. However, from time to time
the Company Leadership Team (CLT), may elect to pay at risk in stock
options if conditions of the business justify it. In the event this
decision is made, the CLT will make every effort to notify the Leadership
Team members within 5 business days of the decision being finalized. If at
risk is paid in stock options in lieu of cash, the Black-Scholes model will
be used to calculate the option value and number of options.
- - Payments will be made quarterly based on attainment of financial objectives
up to your target incentive and subject to the EPS funding gate
calculation, as follows:
First Quarter - 1/8th of total opportunity
Second Quarter - 1/8th of total opportunity
Third Quarter - 1/8th of total opportunity
Fourth Quarter - 5/8th of total opportunity (1/8 for the 4th Quarter & 1/2
for the Annual Target)
- - All over achievement incentive calculations will be deferred until the year
end.
- - All payments will be made within 60 days of the end of the quarter.
- - All EVA and EPS gate calculations will be done on a year-to-date basis.
- - For the first, second and third quarters, the objectives are equal to the
Year-to-date financial targets as of the end of each respective quarter and
are subject to the EPS gate calculation. The total Company EVA and EPS
quarterly gate targets for FY '99 will be finalized after Business Planning
has been completed.
LONG-TERM INCENTIVE
- - For purposes of determination of the long-term incentive (LTI), eligible
associates must be employed and be a member of the Leadership Team on the
date the Board of Directors reviews the LTI grants for that year (May Board
of Directors meeting). There is no provision for prorating partial years.
These options fall under the Acxiom stock option plan and will be subject
to all standard provisions.
- - The long-term incentive will be in the form of stock options and other
performance vehicles as necessary. The current year vehicle will be stock
options.
- - Stock options will be awarded under three categories:
Category A - Fair market value at date of grant
Category B - 50% above fair market value
Category C - 100% above fair market value
- - Using the Black-Scholes stock options pricing model, the mix of options to
be awarded as an approximate percentage of the total long-term incentive
are:
Category A - 50% of total long-term incentive
Category B - 25% of total long-term incentive
Category C - 25% of total long-term incentive
- - Under the long-term incentive plan, participants will be awarded a grant of
stock options on a cycle corresponding to the level of compensation plan to
which the leader has been assigned. Multi-year grants are awarded for
levels 3 through 5.
- - In the event a leader is assigned a level with multi-year grants, they will
be awarded the number of years of options necessary to put them on the same
cycle as all other leaders on that level.
- - Stock options awarded will vest equally on each of the nine anniversary
dates following the date of grant. Stock options may not be exercisable
later than fifteen years after their date of grant.
- - Stock options may also be granted at the October Board Meeting. The October
options include new Leadership Team members as well as adjustments for
those moving from one level to another.
- - It is the current intent of the Board of Directors to continue this plan
(or a similar plan) in future years. The Board of Directors reserves the
right to modify or cancel this plan in future years for any reason at its
sole discretion.
RETENTION/RECRUITING BONUS
Retention Bonus:
A Retention Bonus for key Senior Leaders who we are at risk of losing is being
added to the plan this year. Each Retention Bonus Plan for a Senior Leader must
by approved by Charles Morgan and Rodger Kline.
Retention Bonus Plan Provisions:
In addition to standard At Risk plan
Up to 25% of base salary (determined by Division Leader, Rodger Kline and
Charles Morgan)
To be paid at same time as at risk payments
Not subject to Corporate gate
Based on achieving predetermined, documented, individual objectives
Distribution amounts to be determined by Division Leader
Recruiting Bonus:
In order to recruit key leaders, it may be necessary to pay a one-time
recruiting bonus.
In addition to standard At Risk plan
Up to 25% of base salary (determined by Division Leader, Rodger Kline and
Charles Morgan)
To be paid upon hiring
Not subject to Corporate gate
PLAN MODIFICATIONS
Any modification to the standard plan described in this document must be
approved in advance by Rodger Kline.
EVA EVA
(in 000's) EPS (in 000's) EPS
----------------- -----------------
First Quarter ($) $.11 Third Quarter $ $.24
Second Quarter $ $.18 Fourth Quarter $ $.22
- ----
TOTALS $ $.75
= ====
EXHIBIT 13
(This page and the following seven (7) pages correspond to pages 16-23 of the
Company's Annual Report.)
Selected Financial Data
Years Ended March 31, 1998 1997 1996 1995 1994
- ------------------------------ ------- ------- ------- ------- -------
Earnings Statement Data:
Revenue $ 465,065 402,016 269,902 202,448 151,669
Net Earnings $ 35,597 27,512 18,223 12,405 8,397
Basic earnings per share $ .68 .54 .39 .29 .20
Diluted earnings per share $ .60 .47 .35 .27 .19
============================== ======= ======= ======= ======= =======
March 31, 1998 1997 1996 1995 1994
- ------------------------------ ------- ------- ------- ------- -------
Balance Sheet Data:
Current assets $ 114,552 87,472 54,014 43,517 35,857
Current liabilities $ 68,300 39,127 31,159 24,964 12,895
Total assets $ 394,310 299,668 194,049 148,170 123,378
Long-term debt, excluding
current installments $ 99,917 87,120 26,885 18,219 34,992
Redeemable common stock $ - - - - 7,692
Stockholders' equity $ 200,128 156,097 122,741 97,177 61,896
============================== ======= ======= ======= ======= =======
(In thousands, except per share data. Per share data are restated to reflect
2-for-1 stock splits in fiscal 1997 and 1995.)
The following table is submitted in lieu of the required graphs:
YEAR 1994 1995 1996 1997 1998
- ------------------------ ----- ----- ----- ----- -----
Revenue (Dollars in Millions) $151.7 $202.4 $269.9 $402.0 $465.1
Diluted Earnings Per Share
(In Dollars) $0.19 $0.27 $0.35 $0.47 $0.60
Stock Price (In Dollars) at
March 31 $5.19 $8.38 $11.94 $14.38 $25.63
Pretax Margin (In Percent) 8.9% 9.9% 10.9% 11.0% 12.1%
Return on Equity (In Percent) 13.2% 15.3% 16.5% 20.3% 20.4%
Earnings Before Interest,
Taxes, Depreciation and
Amortization ("EBITDA")
(Dollars in Millions) $35.6 $42.0 $52.9 $81.2 $103.2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
In fiscal 1998, the Company recorded the highest annual revenues, earnings, and
earnings per share in its history.
The following table shows the Company's revenue by division for each of the
years in the three-year period ended March 31, 1998 (dollars in millions):
1997 to 1996 to
1998 1997 1996 1998 1997
----- ----- ----- ---- ----
Services Division $152.5 $129.5 $105.2 +18% +23%
Alliances Division 146.7 129.0 89.0 +14 +45
Data Products Division 132.3 115.3 58.0 +15 +99
International Division 33.6 28.2 17.7 +19 +59
----- ----- ----- ---- ----
$465.1 $402.0 $269.9 +16% +49%
Consolidated revenue was a record $465.1 million in 1998, up 16% from 1997.
Adjusting for Trans Union pass-through revenue recorded last year and the Pro CD
retail business which was sold in 1998, the increase for 1998 was 22%. For 1997,
revenue grew 49%, reflecting 29% due to internal growth and 20% resulting from
the Pro CD and DMI acquisitions which were completed at the beginning of 1997.
Services Division revenue increased 18% for 1998, after increasing 23% in
1997. Business units with double-digit revenue increases from 1997 to 1998
included Retail, High Tech, Publishing, and Utilities, along with the business
units serving Allstate, Citicorp, and IBM. The Services Division results also
include revenue from the Buckley Dement acquisition for the second half of the
year. These increases were partially offset by a decrease in the
Telecommunications business unit revenue from the prior year resulting from the
continued inability of the regional Bell operating companies to effectively
compete in the long distance phone market. The revenue increase for the Services
Division in fiscal 1997 is primarily due to growth in the Publishing, High Tech,
and Retail business units, along with the business unit serving Allstate.
Alliances Division revenue increased 14% from 1997 to 1998, following an
increase of 45% from 1996 to 1997. However, after adjusting for a reduction in
pass-through revenue recorded on the Trans Union marketing services agreement in
1997 of approximately $11 million, revenue actually increased by 24% in 1998.
Financial services revenue jumped by 58% in 1998 reflecting the Company's
success in delivering open data mart solutions to credit card marketers.
Included in this revenue is the revenue for equipment and software sold in
connection with these solutions. Trans Union revenue decreased when compared to
1997, but again adjusting for the pass-through revenue recorded last year, Trans
Union revenue actually increased 19%, reflecting growth in the data center
contract and revenue related to the marketing services agreement. Growth in
other Alliances Division business units was offset by lower revenue from the
Polk business unit due to a software sale in 1997. The revenue increase for the
Alliances Division in 1997 reflects growth in credit card processing revenues of
31% and incremental revenues from the outsourcing contract with Polk, which was
still ramping up in 1996.
Data Products Division revenue increased 15% in 1998 after almost doubling
in 1997. Pro CD revenue decreased by $6.6 million in 1998 reflecting the sale of
the retail and direct marketing side of the business to American Business
Information, Inc. ("ABI") in August 1997 which offset growth in the corporate
side of the business. Gains were also reported by other Data Products business
units including Acxiom Data Group (InfoBase), up 50%, DataQuick, up 21%, and
DMI, up 14%. The increase in revenue in 1997 is due primarily to the DMI and Pro
CD acquisitions which were completed at the beginning of fiscal 1997.
The International Division recorded revenue increases of 19% and 59% for
1998 and 1997, respectively. The increases in 1998 and 1997 were attributable to
an increase in the level of fulfillment activity and increases in database
services.
The following table shows the Company's revenue distribution by customer
industry for each of the years in the three-year period ended March 31, 1998
(dollars in millions):
1997 to 1996 to
1998 1997 1996 1998 1997
----- ----- ----- ---- ----
Direct Marketing $155.5 $136.9 $ 72.1 +14% +90%
Financial Services 113.8 80.4 72.0 +42 +12
Insurance 92.0 81.2 67.1 +13 +21
Information &
Communication Services 77.3 81.1 42.1 - 5 +93
Media/Publishing 26.5 22.4 16.6 +18 +35
----- ----- ----- ---- ----
$465.1 $402.0 $269.9 +16% +49%
The 1998 growth was led by the financial services sector as a result of strength
in credit card-related revenue. Direct marketing and information & communication
services growth was mitigated by the Trans Union pass-through revenue and the
sale of the Pro CD retail and direct marketing business noted earlier. The 1997
growth was impacted favorably by the acquisitions of DMI and Pro CD at the
beginning of the year.
The following table presents operating expenses for each of the years in
the three-year period ended March 31, 1998 (dollars in millions):
1997 to 1996 to
1998 1997 1996 1998 1997
----- ----- ----- ---- ----
Salaries and benefits $173.9 $145.0 $ 98.1 +20% +48%
Computer, communications
and other equipment 60.9 58.6 41.0 + 4 +43
Data costs 86.5 76.3 63.4 +13 +20
Other operating costs
and expenses 84.3 72.8 36.7 +16 +98
----- ----- ----- ---- ----
$405.6 $352.7 $239.2 +15% +47%
Salaries and benefits increased from 1997 to 1998 by 20% principally due to
increased headcount to support the growth of the business and merit increases,
combined with increases in incentive compensation and the impact of acquisitions
during the year. Salaries and benefits increased from 1996 to 1997 by 48% due
primarily to the acquisitions of DMI and Pro CD. After adjusting for the
acquisitions, the resulting 20% growth primarily reflects increased headcount to
support the growth of the business.
Computer, communications and other equipment costs rose 4% from 1997 to
1998. The increase reflects depreciation on capital expenditures made to
accommodate business growth, mostly offset by the effect of the Trans Union
pass-through expenses recorded in the prior year. Computer, communications and
other equipment costs increased 43% in 1997. After adjusting for the
acquisitions of Pro CD and DMI and the pass-through expenses, computer costs
increased 15% due primarily to additional depreciation and other equipment costs
related to increases in data center equipment to support the growth of the
business, including the Polk outsourcing contract.
Data costs grew 13% in 1998 and 20% in 1997. In both years, the primary
reason for the increase was the growth in revenues under the Allstate contract.
Other operating costs and expenses increased 16% in 1998. The increase is
primarily attributable to acquisitions, the server sales by the Alliances
Division noted above, an increase in bad debt expense, and volume-related
increases, reduced by the impact of the sale of the Pro CD retail and direct
marketing business. For 1997, other operating costs and expenses increased 98%.
After adjusting for the impact of the DMI and Pro CD acquisitions and the
ramp-up of the Polk contract, the increase was 24% reflecting increased costs
necessary to support increased revenues.
Software and research and development spending was $23.3 million in 1998
compared to $17.2 million in 1997 and 10.4 million in 1996.
Income from operations in 1998 was a record $59.4 million, an increase of
21% over 1997. Income from operations in 1997 reflected an increase of 61% over
1996. The operating margin in 1998 was 12.8%, compared to 12.3% in 1997 and
11.4% in 1996.
Interest expense increased by over $2 million in both 1998 and 1997 due
primarily to increased average debt levels each year.
Other, net for 1998 includes $1.0 million in gains on the disposals of the
Pro CD retail and direct marketing business compared with a $2.6 million charge
in 1997 due to a write-off related to the sale of an Acxiom Mailing Services
facility. Other, net in 1998 also includes interest income on noncurrent
receivables of $1.9 million compared with interest income of $0.5 million in
1997.
The Company's effective tax rate was 37.0%, 37.5%, and 38.0% for 1998,
1997, and 1996, respectively. In each year, the effective rate exceeded the U.S.
statutory rate primarily because of state income taxes, partially offset by
research and experimentation tax credits.
Net earnings were a record $35.6 million in 1998, an increase of 29% from
1997, after increasing 51% from 1996 to 1997. Basic earnings per share increased
26% to $0.68 in 1998 after increasing 38% in 1997. Diluted earnings per share
were $0.60, up 28% from 1997, after increasing 34% in 1997.
Capitol Resources and Liquidity
Working capital at March 31, 1998 totaled $46.3 million compared to $48.3
million a year previously. At March 31, 1998, the Company had available credit
lines of $119.9 million of which $36.4 million was outstanding. The Company has
renewed and expanded the revolving credit agreement which now allows for
revolving loans and letters of credit of up to $125 million. The Company has
been allowed by the holders of the $25 million convertible note payable to
reduce the amount of the letter of credit which collateralizes the convertible
note to $6.6 million, which increases the Company's available credit line under
the revolving credit agreement to $118.4 million. The Company also has a
short-term unsecured credit agreement in the amount of $1.5 million. The
Company's debt-to-capital ratio (capital defined as long-term debt plus
stockholders' equity) was 33% at March 31, 1998 compared to 36% at March 31,
1997. Total stockholders' equity increased 28% to $200.1 million at March 31,
1998.
Cash provided by operating activities was $64.2 million for 1998 compared
to $35.1 million in 1997 and $39.3 million in 1996. Earnings before interest,
taxes, depreciation, and amortization ("EBITDA") increased by 27% in 1998 after
increasing 54% in 1997. The resulting operating cash flow was reduced by $24.7
million in 1998 and $41.1 million in 1997 due to the net change in operating
assets and liabilities. The change primarily reflects higher current and
noncurrent receivables, offset in 1998 by higher accounts payable and accrued
liabilities resulting from the growth of the business and advances from
customers.
Investing activities used $78.7 million in 1998, $64.1 million in 1997, and
$46.9 million in 1996. Investing activities in 1998 included $55.8 million in
capital expenditures, compared to $59.8 million in 1997 and $39.0 million in
1996. Capital expenditures are principally due to purchases of data center
equipment to support the Company's outsourcing agreements with Polk and Trans
Union, as well as the purchase of additional data center equipment in the
Company's core data centers. Over the last few years, the Company has been
expanding its data centers to provide for incremental capacity and has been
re-engineering a number of key proprietary processes to run on client servers
using low-cost parallel processors. In 1996, the Company also completed an
expansion of its Conway data center and a new 100,000 square-foot customer
service building on its main campus in Conway, Arkansas, at a cost of
approximately $12 million, funded through current operations and existing credit
lines.
Investing activities during 1998 also include $13.3 million in software
development costs, compared to $6.7 million in 1997 and $3.9 million in 1996. In
general, the increase is due to software development undertaken to support large
customer contracts in the Alliances Division. Investing activities also reflect
the cash of $18.8 million paid for the purchases of STW and Buckley Dement,
partially offset by $15.3 million received from the sale of assets, including
$13.0 million from the sale of the retail and direct marketing assets of Pro CD.
Notes 13 and 14 to the consolidated financial statements discuss the
acquisitions and dispositions in more detail. Investing activities also reflect
the investment of $6.1 million by the Company in joint ventures, including an
investment of approximately $4 million in Bigfoot International, Inc., an
emerging company that provides services and tools for internet e-mail users.
Financing activities in 1998 provided $17.5 million, including sales of
common stock through the Company's stock option and employee stock purchase
plans, and additional borrowings under the revolving line of credit. Financing
activities in 1997 include the issuance of $30 million in senior notes, the
issuance of a $25 million convertible note in connection with the purchase
acquisition of DMI, and increases under the revolving credit facility. Financing
activities in 1997 also reflect the payment of short-term bank debt assumed when
the Company acquired DMI. Financing activities in 1996 include the effects of
cash dividends and common stock transactions made by DataQuick prior to its
acquisition in August, 1995.
During fiscal 1999, construction is expected to be completed on the
Company's new headquarters building and a new customer service facility in
Little Rock, Arkansas. These two buildings are being built pursuant to 50/50
joint ventures between the Company and local real estate investors. The total
cost of the headquarters and customer service projects is expected to be
approximately $6.4 million and $9.1 million, respectively. The Company expects
other capital expenditures of $55-$65 million in fiscal 1999.
While the Company does not have any other material contractual commitments
for capital expenditures, additional investments in facilities and computer
equipment continue to be necessary to support the growth of the business. In
addition, new outsourcing or facilities management contracts frequently require
substantial up-front capital expenditures in order to acquire or replace
existing assets. In some cases, the Company also sells software, hardware, and
data to customers under extended payment terms or notes receivable collectible
over one to eight years. These arrangements also require up-front expenditures
of cash, which are repaid over the life of the agreement. Management believes
that the combination of existing working capital, anticipated funds to be
generated from future operations, and the Company's available credit lines is
sufficient to meet the Company's current operating needs as well as to fund the
anticipated levels of expenditures. If additional funds are required, the
Company would use existing credit lines to generate cash, followed by either
additional borrowings to be secured by the Company's assets or the issuance of
additional equity securities in either public or private offerings. Management
believes that the Company has significant unused capacity to raise capital which
could be used to support future growth.
The Company, like many owners of computer software, has assessed and is in
the process of modifying, where needed, its computer applications to ensure they
will function properly in the year 2000 and beyond. The financial impact to the
Company has not been and is not expected to be material to its financial
position or results of operations in any given year. The Company is currently
operating under an internal goal to ensure all of its computer applications are
"year 2000 ready" by December 31, 1998.
Seasonality and Inflation
Although the Company cannot accurately determine the amounts attributable
thereto, the Company has been affected by inflation through increased costs of
compensation and other operating expenses. Generally, the effects of inflation
are offset by technological advances, economies of scale and other 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 proved 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 three years or longer) were 54%, 50%, and 52% of
consolidated revenues for 1998, 1997, and 1996, respectively.
Acquisitions
In fiscal 1997, the Company completed two acquisitions, which became effective
in April 1996. The acquisition of Pro CD, Inc. was accounted for as a
pooling-of-interests and the acquisition of Direct Media/DMI, Inc. was accounted
for as a purchase. In 1998, the Company completed two additional acquisitions,
which were effective October 1, 1997. The acquisitions of MultiNational
Concepts, Ltd. and Catalog Marketing Services, Inc., entities which were under
common control, and Buckley Dement, L.P. and its affiliated company, KM Lists,
Incorporated were both accounted for as purchases. See footnote 13 to the
consolidated financial statements for more information regarding these
acquisitions. The Company has also made several smaller acquisitions, which are
not material either individually or in the aggregate.
Other Information
In 1998, 1997, and 1996, the Company had two customers that accounted for more
than 10% of revenue. Allstate accounted for 16.1%, 16.8%, and 20.7% in 1998,
1997, and 1996, respectively, and Trans Union accounted for 11.8%, 14.1%, and
15.5% in 1998, 1997, and 1996, respectively. The Trans Union data center
management agreement and marketing services agreement have been extended and now
expire in 2005. A long-term extension of the Allstate agreement, which was
originally signed for a five-year term expiring in September, 1997 and has been
extended until September 1998 is currently being negotiated. The Company does
not have any reason to believe that either of these customers will not continue
to do business with the Company.
Acxiom U.K., the Company's United Kingdom business, provides services to
the United Kingdom market which are similar to the traditional direct marketing
industry services the Company provides in the United States. In addition, Acxiom
U.K. 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 which
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 financial statements into
U.S. dollars are accumulated in a separate component of stockholders' equity.
There are no restrictions on transfers of funds from the U.K.
Efforts are continuing to expand the services of Acxiom U.K. to customers
in Europe and the Asia 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 United
States and the United Kingdom.
As noted in footnote 11 to the consolidated financial statements, the
Company's United Kingdom operations earned profits of $1.5 million in fiscal
1998 and $1 million in fiscal 1997, and are expected to continue to show profits
in the future. The U.K. operations reflected in the footnote include the
International Division, with 1998 pretax earnings of $3 million, up 77% from
1997, offset by losses in the U.K. and Netherlands operations of DMI which are
included in the Data Products Division. The U.K. operations sustained losses of
$399,000 in 1996.
Effective March 31, 1994, the Company sold substantially all of the assets
of its former Acxiom Mailing Services operation to MorCom, Inc. In June 1996,
MorCom ceased operations. During 1997, the Company established valuation
reserves for the remaining receivables under the sale agreement. The Company
also obtained title to and sold a portion of the property related to the
mortgage note, receiving proceeds of $949,000. During 1998, the Company sold the
two remaining parcels of property which had been used by the Acxiom Mailing
Services unit. The aggregate proceeds were $2.3 million resulting in a gain on
disposal of $105,000 which is included in other income.
Effective August 22, 1997, the Company sold certain assets of its Pro CD
subsidiary to ABI. ABI acquired the retail and direct marketing operations of
Pro CD, along with compiled telephone book data for aggregate cash proceeds of
$18 million. In conjunction with the sale to ABI, the Company also recorded
certain valuation and contingency reserves. Included in other income is the gain
on disposal related to this transaction of $855,000.
The Financial Accounting Standards Board has issued Statements No. 130,
"Reporting Comprehensive Income," No. 131, "Disclosures about Segments of an
Enterprise and Related Information," and No. 132, "Employers' disclosures about
Pensions and Other Postretirement Benefits." Each of these statements is
required to be adopted by the Company in fiscal 1999. Statement No. 130 will
require the Company to report comprehensive income, as defined in the statement,
in a financial statement that is displayed with the same prominence as other
financial statements. Management does not expect any significant impact to the
financial statements from this additional disclosure requirement. Statement No.
131 will require the Company to report additional information about business
segments than what has historically been reported. The statement will require
the Company to report additional information about these business segments and
to reconcile the segment information to the consolidated financial statements.
Management intends to present this segment information using the operating
divisions into which it is currently organized. Other than these additional
disclosure requirements, the Company does not expect any significant impact to
the financial statements. Statement No. 132 revises employers' disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. Management does not expect any
material impact from the adoption of this statement.
The Accounting Standards Executive Committee (AcSEC) of the American
Institute of Certified Public Accountants has issued Statement of Position
("SOP") 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2,
Software Revenue Recognition." SOP 97-2 is effective for fiscal year 1999 and
provides guidance on recognizing revenue on software transactions. In software
transactions that include multiple elements, SOP 97-2 requires the fee to be
allocated to the various elements based on vendor-specific objective evidence of
the fair values of the elements, and provides guidance on how to arrive at
vendor-specific objective evidence. SOP 98-4 defers until fiscal 2000 the
effective date of the provisions of SOP 97-2 that limit what constitutes
vendor-specific objective evidence. All other provisions of SOP 97-2 are
effective for fiscal year 1999. The Company intends to follow the revenue
recognition requirements of SOP 97-2 that are currently effective and
anticipates that AcSEC will issue additional guidance on what constitutes
vendor-specific objective evidence within the next year. The Company does not
expect that the effect of implementing this SOP will be material.
AcSEC has also issued SOP 98-5, "Reporting on the Costs of Start-up
Activities." SOP 98-5 is effective for fiscal year 2000 and requires that the
cost of start-up activities be expensed when incurred. The Company does not
expect that the effect of implementing this SOP will be material.
Outlook
Certain statements in this Annual Report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements, which are not statements of historical fact, may
contain estimates, assumptions, projections and/or expectations regarding the
Company's financial position, results of operations, market position, product
development, regulatory matters, growth opportunities and growth rates,
acquisition and divestiture opportunities, and other similar forecasts and
statements of expectation. Words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates," and "should," and variations of these
words and similar expressions, are intended to identify these forward-looking
statements. Such forward-looking statements are not guarantees of future
performance. They involve known and unknown risks, uncertainties, and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
Representative examples of such factors are discussed in more detail in the
Company's Annual Report on Form 10K and include, among other things, the
possible adoption of legislation or industry regulation concerning certain
aspects of the Company's business; the removal of data sources and/or marketing
lists from the Company; the ability of the Company to retain customers who are
not under long-term contracts with the Company; technology challenges; year 2000
software issues; the risk of damage to the Company's data centers or
interruptions in the Company's telecommunications links; acquisition
integration; the effects of postal rate increases; and other market factors. See
"Additional Information Regarding Forward-looking Statements" in the Company's
Annual Report on Form 10-K.
The Company believes that existing customer industries (direct marketing,
financial services, insurance, information and communication services, and
media/publishing) all continue to offer good growth potential. In general, there
is an increased emphasis on one-to-one marketing in businesses which the Company
believes will increase demand for the Company's data content and services both
in the U.S. and worldwide. The Company continues to explore uses of its data and
services beyond marketing applications and has had some success in developing
applications in the insurance underwriting area. At the same time, the Company
is also focusing on industries such as retail, pharmaceuticals,
telecommunications, high tech, entertainment, packaged goods, and utilities as
strong growth opportunities. In addition, the Company also believes there is
strong growth potential beyond the Fortune 1000 companies that it has
traditionally served into medium-sized businesses and divisions of large
corporations, as well as the small office/home office marketplace. As a result
of improved delivery systems via the Acxiom Data Network(SM) ("ADN"), announced
in February 1998, these markets are expected to become cost efficient for the
Company to deliver portions of its products and services. The ADN will link the
customer's data to the Company's enhancement database via the internet from the
customer's desktop. It is anticipated that the ADN will expand the marketplace
for the Company's data products to customers smaller than the Fortune 1000. The
Company also believes that the ADN should dramatically cut costs in maintaining
and updating data warehouses for current customers. In addition, the Company has
developed relationships with third party database and decision support system
providers to promote alternate channels of distribution for the Company's
products and services.
The Company believes that operating margins will continue to improve
primarily as a result of implementing the ADN, leveraging the Company's data
content resources, improving internal processes, and increasing the
profitability of the Company's international operations.
The Company currently expects its effective tax rate to be 37-39% for 1999.
This estimate is based on current tax law and current estimates of earnings, and
is subject to change.
(This page and the following thirteen (13) pages correspond to pages 24-37 of
the Company's Annual Report.)
Consolidated Balance Sheets
March 31, 1998 and 1997
(Dollars in thousands) 1998 1997
---- ----
Assets
Current assets:
Cash and cash equivalents $ 5,675 $ 2,721
Trade accounts receivable, net 86,360 70,636
Refundable income taxes - 1,809
Other current assets (note 7) 22,517 12,306
------- -------
Total current assets 114,552 87,472
Property and equipment, net of accumulated
depreciation and amortization (notes 3 and 4) 130,554 116,171
Software, net of accumulated amortization of
$11,472 in 1998 and $11,330 in 1997 (note 2) 24,143 18,627
Excess of cost over fair value of net assets
acquired, net of accumulated amortization of
$7,753 in 1998 and $4,924 in 1997 (note 13) 54,002 38,297
Other assets 71,059 39,101
------- -------
$394,310 $299,668
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt (note 4) 3,979 4,081
Trade accounts payable 18,448 15,323
Accrued expenses:
Payroll 14,950 7,519
Other 17,492 8,667
Deferred revenue 11,197 3,537
Income taxes 2,234 -
------- -------
Total current liabilities 68,300 39,127
Long-term debt, excluding current installments
(note 4) 99,917 87,120
Deferred income taxes (note 7) 25,965 17,324
Stockholders' equity (notes 4, 6, 7 and 13):
Common stock 5,321 5,274
Additional paid-in capital 68,977 61,322
Retained earnings 127,335 91,738
Foreign currency translation adjustment 676 278
Treasury stock, at cost (2,181) (2,515)
------- -------
Total stockholders' equity 200,128 156,097
Commitments and contingencies (notes 4, 5, 8, 9
and 12)
------- -------
$394,310 $299,668
======= =======
See accompanying notes to consolidated financial statements.
Consolidated Statements of Earnings
Years ended March 31, 1998, 1997 and 1996
(Dollars in thousands, except per share
amounts) 1998 1997 1996
------- ------- -------
Revenue (note 10) $465,065 $402,016 $269,902
Operating costs and expenses (notes 2, 5, 8
and 9):
Salaries and benefits 173,925 145,038 98,075
Computer, communications and other equipment 60,858 58,552 40,972
Data costs 86,483 76,282 63,442
Other operating costs and expenses 84,354 72,817 36,696
------- ------- -------
Total operating costs and expenses 405,620 352,689 239,185
------- ------- -------
Income from operations 59,445 49,327 30,717
------- ------- -------
Other income (expense):
Interest expense (5,956) (3,903) (1,863)
Other, net (note 14) 3,014 (1,386) 542
------- ------- -------
(2,942) (5,289) (1,321)
------- ------- -------
Earnings before income taxes 56,503 44,038 29,396
Income taxes (note 7) 20,906 16,526 11,173
------- ------- -------
Net earnings $ 35,597 $ 27,512 $ 18,223
======= ======= =======
Earnings per share:
Basic $.68 $.54 $.39
======= ======= =======
Diluted $.60 $.47 $.35
======= ======= =======
See accompanying notes to consolidated financial statements.
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1998, 1997 and 1996
Common stock
----------------------------
Number of
(Dollars in thousands) shares Amount
---------- ------
Balances at March 31, 1995 46,152,582 $4,615
DataQuick merger (note 13) 1,969,678 197
Retirement of DataQuick common stock prior to
merger - -
Sale of DataQuick common stock prior to merger - -
DataQuick dividends prior to merger - -
Sale of common stock 562,794 56
Tax benefit of stock options exercised (note 7) - -
Employee stock awards and shares issued to
employee benefit plans, net of treasury shares
repurchased 13,356 2
Translation adjustment - -
Net earnings - -
---------- ------
Balances at March 31, 1996 48,698,410 4,870
Pro CD merger (note 13) 3,313,324 331
Sale of common stock 724,164 73
Tax benefit of stock options exercised (note 7) - -
Employee stock awards and shares issued to
employee benefit plans, net of treasury shares
repurchased - -
Translation adjustment - -
Net earnings - -
---------- ------
Balances at March 31, 1997 52,735,898 5,274
Sale of common stock 411,411 41
Tax benefit of stock options exercised (note 7) - -
Employee stock awards and shares issued to
employee benefit plans, net of treasury shares
repurchased 57,529 6
Translation adjustment - -
Net earnings - -
---------- ------
Balances at March 31, 1998 53,204,838 $5,321
---------- ------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Stockholders' Equity (Continued)
Years ended March 31, 1998, 1997 and 1996
Foreign Treasury stock
Additional currency ----------------------- Total
paid-in Retained translation Number of stockholders'
capital earnings adjustment shares Amount equity (note 6)
------ ------- ----- --------- ----- -------
$44,186 $ 50,776 $ 7 (1,311,570) $(2,407) $ 97,177
5,113 447 - - - 5,757
(1,010) - - - - (1,010)
190 - - - - 190
- (468) - - - (468)
2,063 - - - - 2,119
656 - - - - 656
881 - - 69,328 84 967
- - (870) - - (870)
- 18,223 - - - 18,223
------ ------- ----- --------- ----- -------
52,079 68,978 (863) (1,242,242) (2,323) 122,741
2,647 (4,752) - - - (1,774)
3,553 - - - - 3,626
1,684 - - - - 1,684
1,359 - - 145,912 (192) 1,167
- - 1,141 - - 1,141
- 27,512 - - - 27,512
------ ------- ----- --------- ----- -------
61,322 91,738 278 (1,096,330) (2,515) 156,097
3,640 - - - - 3,681
1,467 - - - - 1,467
2,548 - - 259,410 334 2,888
- - 398 - - 398
- 35,597 - - - 35,597
------ ------- ----- --------- ----- -------
$68,977 $127,335 $676 (836,920) $(2,181) $200,128
====== ======= ===== ========= ===== =======
Consolidated Statements of Cash Flows
Years ended March 31, 1998, 1997 and 1996
(Dollars in thousands) 1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net earnings $35,597 $27,512 $18,223
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 40,746 33,244 21,602
Loss (gain) on disposal or impairment of
assets (960) 2,412 49
Provision for returns and doubtful accounts 3,090 5,530 149
Deferred income taxes 8,917 5,776 3,434
Tax benefit of stock options exercised 1,467 1,684 656
Changes in operating assets and liabilities:
Accounts receivable (17,090) (21,972) (4,092)
Other assets (29,029) (14,669) (5,173)
Accounts payable and other liabilities 21,455 (4,432) 4,459
------ ------ ------
Net cash provided by operating activities 64,193 35,085 39,307
------ ------ ------
Cash flows from investing activities:
Disposition of assets 15,310 2,385 402
Cash received in merger - 21 1,624
Development of software (13,319) (6,725) (3,944)
Capital expenditures (55,834) (59,784) (39,021)
Investments in joint ventures (6,072) - -
Net cash paid in acquisitions (note 13) (18,791) - (5,914)
------ ------ ------
Net cash used in investing activities (78,706) (64,103) (46,853)
------ ------ ------
Cash flows from financing activities:
Proceeds from debt 14,991 39,459 11,995
Payments of debt (4,095) (15,982) (4,897)
Sale of common stock 6,569 4,793 2,309
DataQuick pre-merger retirement of common
stock - - (1,010)
DataQuick pre-merger dividends - - (468)
------ ------ ------
Net cash provided by financing activities 17,465 28,270 7,929
------ ------ ------
Effect of exchange rate changes on cash 2 - (63)
------ ------ ------
Net increase (decrease) in cash and cash
equivalents 2,954 (748) 320
Cash and cash equivalents at beginning of year 2,721 3,469 3,149
------ ------ ------
Cash and cash equivalents at end of year $ 5,675 $ 2,721 $ 3,469
====== ====== ======
Supplemental cash flow information:
Convertible debt issued in acquisition
(note 13) $ - $25,000 $ -
Cash paid during the year for:
Interest 5,232 3,210 2,214
Income taxes 6,477 9,360 8,660
====== ====== ======
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
The Company provides information management technology and other related
services, primarily for marketing applications. Operating units of the Company
provide list services, data warehouse services, data and information products,
fulfillment services, computerized list, postal and database services, and
outsourcing and facilities management services primarily in the United States
(U.S.) and United Kingdom (U.K.), along with limited activities in Canada,
Netherlands and Asia.
(b) Consolidation Policy
The consolidated financial statements include the accounts of Acxiom Corporation
and its subsidiaries ("Company"). 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.
(c) 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 generally accepted accounting principles. Actual
results could differ from those estimates.
(d) Accounts Receivable
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of trade receivables. All of 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.
Trade accounts receivable are presented net of allowances for doubtful
accounts and credits of $3.3 million and $4.3 million in 1998 and 1997,
respectively.
(e) 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, 5-30 years; office furniture and
equipment, 3-10 years; and data processing equipment, 2-10 years.
Property held under capitalized lease arrangements is included in property
and equipment, and the associated liabilities are included with long-term debt.
Property and equipment taken out of service and held for sale is recorded at net
realizable value and depreciation is ceased.
(f) Software and Research and Development Costs
Capitalized and purchased software costs are amortized on a straight-line basis
over the remaining estimated economic life of the product, 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
incurred.
(g) Excess of Cost Over Fair Value of Net Assets Acquired
The excess of acquisition costs over the fair values of net assets acquired in
business combinations treated as purchase transactions ("goodwill") is being
amortized on a straight-line basis over 15 to 25 years from acquisition dates.
The Company periodically evaluates the existence of goodwill impairment on the
basis of whether the goodwill is fully recoverable from the projected,
undiscounted net cash flows of the related business unit. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
(h) Revenue Recognition
Revenues from the production and delivery of direct marketing lists and
enhancement data are recognized when shipped. Revenues from data warehouses and
outsourcing and facilities management services are recognized when the services
are performed. Costs incurred in connection with the conversion phase of
outsourcing and facilities management contracts are deferred and amortized over
the life of the contract. Revenues from software licenses are recognized
primarily when the software is installed or when the Company fulfills its
obligations under the sales contract.
The Company recognizes revenue from long-term contracts using the
percentage-of-completion method, based on performance milestones specified in
the contract where such milestones fairly reflect progress toward contract
completion. In other instances, progress toward completion is based on
individual contract costs incurred to date compared with total estimated
contract costs. Billed but unearned portions of revenues are reported as
deferred revenues.
Included in other assets are unamortized conversion costs in the amount of
$25.0 million and $18.1 million as of March 31, 1998 and 1997, respectively.
Noncurrent receivables from software license, data, and equipment sales are also
included in other assets in the amount of $20.3 million and $9.6 million as of
March 31, 1998 and 1997, respectively. The current portion of such receivables
is included in other current assets in the amount of $9.5 million and $2.9
million as of March 31, 1998 and 1997, respectively.
(i) 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.
(j) 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 accumulated in a separate
component of stockholders' equity.
(k) Earnings Per Share
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share" during the year ended March 31, 1998. Below is the
calculation and reconciliation of the numerator and denominator of basic and
diluted earnings per share (in thousands, except per share amounts):
1998 1997 1996
---- ---- ----
Basic earnings per share:
Numerator (net earnings) $35,597 $27,512 $18,223
====== ====== ======
Denominator (weighted average
shares outstanding) 52,044 51,172 47,057
====== ====== ======
Earnings per share $.68 $.54 $.39
====== ====== ======
Diluted earnings per share:
Numerator:
Net earnings $35,597 $27,512 $18,223
Interest expense on convertible
debt (net of tax effect) 445 445 -
------ ------ ------
$36,042 $27,957 $18,223
====== ====== ======
Denominator:
Weighted average shares outstanding 52,044 51,172 47,057
Effect of common stock options 2,628 2,967 2,726
Effect of common stock warrant 3,015 3,004 2,295
Convertible debt 2,000 2,000 -
------ ------ ------
59,687 59,143 52,078
====== ====== ======
Earnings per share $.60 $.47 $.35
====== ====== ======
Options to purchase shares of common stock that were outstanding during 1998,
1997 and 1996 but were not included in the computation of diluted earnings per
share because the option exercise price was greater than the average market
price of the common shares are shown below.
1998 1997 1996
---- ---- ----
Number of shares under option 252,536 1,485,569 1,798,828
Range of exercise prices $26.06-$35.92 $18.61-$35.00 $12.25-$24.81
(l) 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 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.
(m) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(n) Reclassifications
To conform to the 1998 presentation, certain accounts for 1997 and 1996 have
been reclassified. The reclassifications had no effect on net earnings.
(2) Software and Research and Development Costs
The Company recorded amortization expense related to internally developed
computer software of $5.0 million, $5.4 million and $3.1 million in 1998, 1997
and 1996, respectively. Additionally, research and development costs of $10.0
million, $10.5 million and $6.4 million were charged to operations during 1998,
1997 and 1996, respectively.
(3) Property and Equipment
Property and equipment is summarized as follows (dollars in thousands):
1998 1997
---- ----
Land $ 2,309 $ 2,238
Buildings and improvements 57,747 56,825
Office furniture and equipment 18,265 13,484
Data processing equipment 156,149 126,739
------- -------
234,470 199,286
Less accumulated depreciation and amortization 103,916 83,115
------- -------
$130,554 $116,171
======= =======
(4) Long-Term Debt
Long-term debt consists of the following (dollars in thousands):
1998 1997
---- ----
Unsecured revolving credit agreement $ 36,445 $21,454
6.92% Senior notes due March 30, 2007, payable in
annual installments of $4,286 commencing March
30, 2001; interest is payable semi-annually 30,000 30,000
3.12% Convertible note, interest and principal
due April 30, 1999; partially collateralized
by letter of credit; convertible at maturity
into two million shares of common stock (note 13) 25,000 25,000
9.75% Senior notes, due May 1, 2000, payable in
annual installments of $2,143 each May 1;
interest is payable semi-annually 6,429 8,571
Other 6,022 6,176
------- ------
Total long-term debt 103,896 91,201
Less current installments 3,979 4,081
------- ------
Long-term debt, excluding current installments $ 99,917 $87,120
======= ======
The unsecured revolving credit agreement, which expires January 31, 2003
provides for revolving loans and letters of credit in amounts of up to $125
million. The terms of the credit agreement provide for interest at the prime
rate (or, at other alternative market rates at the Company's option). At March
31, 1998, the effective rate was 7.175%. The agreement requires a commitment fee
equal to 3/16 of 1% on the average unused portion of the loan. A letter of
credit in the amount of $6.6 million is outstanding in connection with an
acquisition (see note 13), leaving $118.4 million available for revolving loans.
The Company also has another unsecured line of credit amounting to $1.5 million
of which none was outstanding at March 31, 1998 or 1997. The other unsecured
line expires July 30, 1998 and bears interest at the prime rate less 1/2 of 1%.
Under the terms of certain of the above borrowings, the Company is required
to maintain certain tangible net worth levels and working capital,
debt-to-equity and debt service coverage ratios. At March 31, 1998, the Company
was in compliance with all such financial requirements. The aggregate maturities
of long-term debt for the five years ending March 31, 2003 are as follows: 1999,
$4.0 million; 2000, $28.0 million; 2001, $7.1 million; 2002, $4.8 million; and
2003, $43.0 million.
(5) Leases
The Company leases data processing equipment, office furniture and equipment,
land and office space under noncancellable operating leases. Future minimum
lease payments under noncancellable operating leases for the five years ending
March 31, 2003 are as follows: 1999, $4.6 million; 2000, $4.1 million; 2001,
$3.4 million; 2002, $1.9 million; and 2003, $1.8 million.
Total rental expense on operating leases was $5.9 million, $6.7 million and
$3.7 million for the years ended March 31, 1998, 1997 and 1996, respectively.
(6) Stockholders' Equity
The Company has authorized 200 million shares of $.10 par value common stock and
1 million shares of authorized but unissued $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.
In connection with its data center management agreement ("Agreement")
entered into in August 1992 with Trans Union Corporation ("Trans Union"), the
Company issued a warrant, which expires on August 31, 2000 and entitles Trans
Union to acquire up to 4 million additional shares of newly-issued common stock.
The exercise price for the warrant stock is $3.06 per share through August 31,
1998 and increases $.25 per share in each of the two years subsequent to August
31, 1998. Trans Union is precluded from exercising the warrant to the extent
that the shares acquired thereunder would cause its percentage ownership of the
Company's common stock acquired pursuant to the Agreement to exceed 10% of the
Company's then issued and outstanding common stock. Based on shares outstanding
at March 31, 1998, Trans Union would be entitled to purchase approximately 3.7
million total shares under the warrant.
The Company has for its U.S. employees a Key Employee Stock Option Plan
("Plan") for which 15.2 million shares of the Company's common stock have been
reserved. 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.
Incentive options granted under the plans must be exercised within 10 years
after the date of the option. At March 31, 1998, 2,161,461 shares and 824,163
shares are available for future grants under the Plan and the Scheme,
respectively.
Activity in stock options was as follows:
Weighted Number
Number of average price of shares
shares per share exercisable
--------- ----- ---------
Outstanding at March 31, 1995 4,928,696 $ 4.68 1,715,966
Granted 1,560,556 19.12
DataQuick acquisition (note 13) 1,616,740 2.93
Exercised (371,046) 2.49
Terminated (6,000) 1.42
--------- ----- ---------
Outstanding at March 31, 1996 7,728,946 7.88 3,467,728
Granted 454,251 25.02
Pro CD acquisition (note 13) 294,132 1.76
Exercised (662,117) 2.36
Terminated (93,255) 7.29
--------- ----- ---------
Outstanding at March 31, 1997 7,721,957 9.34 3,652,744
Granted 579,336 16.48
Exercised (412,951) 4.87
Terminated (116,390) 13.61
--------- ----- ---------
Outstanding at March 31, 1998 7,771,952 $10.05 4,432,667
========= ===== =========
The per share weighted-average fair value of stock options granted during fiscal
1998, 1997 and 1996 was $9.91, $8.61 and $4.14, respectively, on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: Dividend yield of 0% for 1998, 1997 and 1996;
risk-free interest rate of 6.79% in 1998, 6.71% in 1997 and 6.16% in 1996;
expected option life of 10 years for 1998, 1997 and 1996; and expected
volatility of 38.69% in 1998, 34.85% in 1997 and 28.53% in 1996.
Following is a summary of stock options outstanding as of March 31, 1998:
Options outstanding Options exercisable
------------------------------------ -----------------------
Weighted
average Weighted Weighted
Range of remaining average average
exercise Options contractual exercise Options exercise
prices outstanding life per share exercisable per share
- ------------- --------- ----------- ----- --------- -----
$ 1.38-$ 2.54 1,413,970 6.72 years $ 2.13 1,270,298 $ 2.17
$ 2.56-$ 4.69 1,673,111 5.86 years $ 3.78 1,146,878 $ 3.75
$ 5.38-$ 6.25 1,500,635 5.12 years $ 6.11 891,683 $ 6.04
$ 7.43-$15.70 1,473,862 9.28 years $13.20 779,027 $14.05
$15.75-$24.81 1,440,498 8.68 years $22.22 318,186 $22.27
$25.34-$35.92 269,876 12.82 years $31.00 26,595 $30.96
--------- ----------- ----- --------- -----
7,771,952 7.28 years $10.05 4,432,667 $ 7.06
========= =========== ===== ========= =====
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 earnings 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 would
have been reduced to the following pro forma amounts for the years ended March
31 (dollars in thousands, except per share amounts):
1998 1997 1996
---- ---- ----
Net earnings As reported $35,597 $27,512 $18,223
Pro forma 31,707 26,953 18,041
Basic earnings per share As reported .68 .54 .39
Pro forma .61 .53 .38
Diluted earnings per share As reported .60 .47 .35
Pro forma .53 .46 .35
Pro forma net earnings 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 9 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
125,151, 110,332 and 190,470 shares purchased under the plans during the years
ended March 31, 1998, 1997 and 1996, respectively.
(7) Income Taxes
Total income tax expense was allocated as follows (dollars in thousands):
1998 1997 1996
---- ---- ----
Income from operations $20,906 $16,526 $11,173
Stockholders' equity, for compensation
expense for tax purposes in excess of
amounts recognized for financial
reporting purposes (1,467) (1,684) (656)
------ ------ ------
$19,439 $14,842 $10,517
====== ====== ======
Income tax expense attributable to earnings from operations consists of (dollars
in thousands):
1998 1997 1996
---- ---- ----
Current expense:
Federal $ 9,736 $ 9,884 $ 6,720
Foreign 1,206 83 -
State 1,047 783 1,019
------ ------ ------
11,989 10,750 7,739
------ ------ ------
Deferred expense:
Federal 7,169 3,898 2,706
Foreign 23 687 161
State 1,725 1,191 567
------ ------ ------
8,917 5,776 3,434
------ ------ ------
Total tax expense $20,906 $16,526 $11,173
====== ====== ======
The actual income tax expense attributable to earnings from operations differs
from the expected tax expense (computed by applying the U.S. Federal corporate
tax rate of 35% to earnings before income taxes) as follows (dollars in
thousands):
1998 1997 1996
---- ---- ----
Computed expected tax expense $19,776 $15,413 $10,289
Increase (reduction) in income taxes
resulting from:
State income taxes, net of Federal income
tax benefit 1,802 1,283 1,031
Research and experimentation credits (715) (683) (800)
Other 43 513 653
------ ------ ------
$20,906 $16,526 $11,173
====== ====== ======
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at March 31, 1998 and 1997 are
presented below (dollars in thousands).
1998 1997
---- ----
Deferred tax assets:
Accrued expenses not currently deductible
for tax purposes $ 1,616 $ 1,407
Investments, principally due to differences
in basis for tax and financial reporting
purposes 676 327
Net operating loss carryforwards - 1,208
Other 417 903
Valuation allowance - (1,208)
------ ------
Total deferred tax assets 2,709 2,637
------ ------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation (6,536) (6,390)
Intangible assets, principally due to
differences in amortization (2,029) (482)
Capitalized software and other costs
expensed as incurred for tax purposes (16,231) (10,519)
Installment sale gains for tax purposes (1,843) (259)
------ ------
Total deferred tax liabilities (26,639) (17,650)
------ ------
Net deferred tax liability $(23,930) $(15,013)
====== ======
The valuation allowance for deferred tax assets as of March 31, 1997 was $1.2
million. The net change in the total valuation allowance for the years ended
March 31, 1998 and 1997 was a decrease of $1.2 million and an increase of
$880,000, respectively. 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 substantial profitability and taxable income and
its utilization of tax planning strategies, management believes it is more
likely than not the Company will realize the benefits of these deductible
differences, net of any valuation allowances. Included in other current assets
are deferred tax assets of $2.0 million and $2.3 million at March 31, 1998 and
1997, respectively.
(8) Related Party Transactions
The Company leases certain equipment from a business partially owned by an
officer. Rent expense under these leases was approximately $797,000 during the
years ended March 31, 1998 and 1997, respectively, and $371,000 during the year
ended March 31, 1996. Under the terms of the lease in effect at March 31, 1998
the Company will make monthly lease payments of $66,000 through December, 2001.
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
$5.4 million at March 31, 1998) should the Company elect to exercise its early
termination rights or not extend the lease beyond its initial five year term and
the lessor sells the equipment as a result thereof.
(9) Retirement Plans
The Company has a retirement savings plan which covers substantially all
domestic employees. The Company also offers a supplemental non-qualified
deferred compensation plan for certain management employees. The Company matches
50% of the employee's salary deferred 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
amounted to approximately $1.9 million, $1.5 million and $.8 million in 1998,
1997 and 1996, respectively.
(10) Major Customers
In 1998, 1997 and 1996, the Company had two major customers who accounted for
more than 10% of revenue. Allstate Insurance Company accounted for revenue of
$74.7 million (16.1%), $67.7 million (16.8%), and $55.8 million (20.7%) in 1998,
1997 and 1996, respectively, and Trans Union accounted for revenue of $54.9
million (11.8%), $56.6 million (14.1%) and $42.0 million (15.5%) in 1998, 1997
and 1996, respectively.
(11) Foreign Operations
The following table shows financial information by geographic area for the years
1998, 1997 and 1996 (dollars in thousands).
United United Consolidated
States Kingdom
1998:
Revenue $430,419 $34,646 $465,065
Earnings before income taxes 54,061 2,442 56,503
Net earnings 34,059 1,538 35,597
Total assets 364,854 29,456 394,310
Total tangible assets 318,560 21,748 340,308
Total liabilities 182,667 11,515 194,182
Total equity 182,187 17,941 200,128
======= ====== =======
1997:
Revenue $373,596 $28,420 $402,016
Earnings before income taxes 42,365 1,673 44,038
Net earnings 26,466 1,046 27,512
Total assets 276,832 22,836 299,668
Total tangible assets 246,262 15,109 261,371
Total liabilities 135,039 8,532 143,571
Total equity 141,793 14,304 156,097
======= ====== =======
1996:
Revenue $252,190 $17,712 $269,902
Earnings(loss) before income taxes 29,634 (238) 29,396
Net earnings 18,622 (399) 18,223
Total assets 176,321 17,728 194,049
Total tangible assets 169,971 10,096 180,067
Total liabilities 65,172 6,136 71,308
Total equity 111,149 11,592 122,741
======= ====== =======
(12) Contingencies
The Company is involved in various claims and legal actions in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position or its expected future consolidated results of
operations.
(13) Acquisitions
On August 25, 1995, the Company acquired all of the outstanding capital stock of
DataQuick Information Systems (formerly an "S" Corporation) and DQ Investment
Corporation (collectively, "DataQuick"). The Company exchanged 1,969,678 shares
of its common stock for all of the outstanding shares of capital stock of
DataQuick. Additionally, the Company assumed all of the currently outstanding
options granted under DataQuick's stock option plans, with the result that
1,616,740 shares of the Company's common stock became subject to issuance upon
exercise of such options (see note 6). The acquisition was accounted for as a
pooling-of-interests.
DataQuick, headquartered in San Diego, California, provides real property
information to support a broad range of applications including marketing,
appraisal, real estate, banking, mortgage and insurance. This information is
distributed on-line and via CD-ROM, list services, and microfiche.
The stockholders' equity and operations of DataQuick were not material in
relation to those of the Company. As such, the Company recorded the combination
by restating stockholders' equity as of April 1, 1995, without restating prior
years' financial statements to reflect the pooling-of-interests combination.
DataQuick's net assets as of April 1, 1995 totaled $5.8 million. The statements
of earnings for the years ended March 31, 1998, 1997 and 1996 include the
results of DataQuick for the entire periods presented. Included in the statement
of earnings for 1996 are revenues of $8.0 million and earnings before income
taxes of $79,000 for DataQuick for the period from April 1, 1995 to August 25,
1995.
On April 9, 1996, the Company issued 3,313,324 shares of its common stock
for all of the outstanding common stock and common stock options of Pro CD,
Inc., ("Pro CD"). Headquartered in Danvers, Massachusetts, Pro CD is a publisher
of reference software on CD-ROM. The business combination was accounted for as a
pooling-of-interests. The stockholders' equity and operations of Pro CD were not
material in relation to those of the Company. As such, the Company recorded the
combination by restating stockholders' equity as of April 1, 1996, without
restating prior years' financial statements to reflect the pooling-of-interests.
At April 1, 1996 Pro CD's liabilities exceeded its assets by $1.8 million.
Also in April, 1996, the Company acquired the assets of Direct Media/DMI,
Inc. ("DMI") for $25 million and the assumption of certain liabilities of DMI.
The $25 million purchase price is payable in three years, is partially
collateralized by a letter of credit (see note 4), and may, at DMI's option, be
paid in two million shares of Acxiom common stock in lieu of cash plus accrued
interest. Headquartered in Greenwich, Connecticut, DMI provides list brokerage,
management and consulting services to business-to-business and consumer list
owners and mailers. At April 1, 1996 the liabilities assumed by the Company
exceeded the fair value of the net assets acquired from DMI by approximately
$1.0 million. The resulting excess of purchase price over fair value of net
assets acquired is being amortized over its estimated economic life of 20 years.
The acquisition has been accounted for as a purchase, and accordingly, the
results of operations of DMI are included in the consolidated results of
operations from the date of its acquisition.
The purchase price for DMI has been allocated as follows (dollars in
thousands):
Trade accounts receivable $ 7,558
Property and equipment 2,010
Software 3,500
Excess of cost over fair value of net assets acquired 25,993
Other assets 840
Short-term note payable to bank (11,594)
Accounts payable and other liabilities (3,020)
Long-term debt (287)
------
$25,000
======
Effective October 1, 1997, the Company acquired 100% ownership of MultiNational
Concepts, Ltd. ("MultiNational") and Catalog Marketing Services, Inc. (d/b/a
Shop the World by Mail), entities under common control (collectively "STW").
Total consideration was $4.6 million (net of cash acquired) and other cash
consideration based on the future performance of STW. MultiNational,
headquartered in Hoboken, New Jersey, is an international mailing list and
database maintenance provider for consumer catalogers interested in developing
foreign markets. Shop the World by Mail, headquartered in Sarasota, Florida,
provides cooperative customer acquisition programs, and also produces an
international catalog of catalogs whereby end-customers in over 60 countries can
order catalogs from around the world.
Also effective October 1, 1997, the Company acquired Buckley Dement, L.P.
and its affiliated company, KM Lists, Incorporated (collectively "Buckley
Dement"). Buckley Dement, headquartered in Skokie, Illinois, provides list
brokerage, list management, promotional mailing and fulfillment, and merchandise
order processing to pharmaceutical, health care, and other commercial customers.
Total consideration was $14.2 million (net of cash acquired) and other cash
consideration based on the future performance of Buckley Dement.
Both the Buckley Dement and STW acquisitions are accounted for as purchases
and their operating results are included with the Company's results beginning
October 1, 199ZThe purchase price for the two acquisitions exceeded the fair
value of net assets acquired by $12.6 million and $5.2 million for Buckley
Dement and STW, respectively. The resulting excess of cost over net assets
acquired is being amortized over its estimated economic life of 20 years. The
pro forma combined results of operations, assuming the acquisitions occurred at
the beginning of the fiscal year, are not materially different than the
historical results of operations reported.
(14) Dispositions
Effective August 22, 1997, the Company sold certain assets of its Pro CD
subsidiary to a wholly-owned subsidiary of American Business Information, Inc.
("ABI"). ABI acquired the retail and direct marketing operations of Pro CD,
along with compiled telephone book data for aggregate cash proceeds of $18.0
million, which included consideration for a compiled telephone book data
license. The Company also entered into a data license agreement with ABI under
which the Company will pay ABI $8.0 million over a two-year period, and a
technology and data license agreement under which ABI will pay the Company $8.0
million over a two-year period. In conjunction with the sale to ABI, the Company
also recorded certain valuation and contingency reserves. Included in other
income is the gain on disposal related to this transaction of $855,000.
(15) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Cash and cash equivalents, trade receivables, short-term borrowings, and
trade payables - The carrying amount approximates fair value because of the
short maturity of these instruments.
Long-term debt - The interest rate on the 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, 1998 the estimated fair value of long-term debt approximates its carrying
value.
(16) Selected Quarterly Financial
The table below sets forth selected financial information for each quarter of
the last two years (dollars in thousands, except per share amounts):
1st quarter 2nd quarter 3rd quarter 4th quarter
1998:
Revenue $100,327 $109,966 $120,692 $134,080
Income from operations 9,634 13,508 18,688 17,615
Net earnings 5,313 8,365 11,206 10,713
Basic earnings per share .11 .16 .21 .20
Diluted earnings per share .09 .14 .19 .18
1997:
Revenue $ 93,953 $ 97,547 $104,534 $105,982
Income from operations 8,618 11,754 15,238 13,717
Net earnings 4,245 6,263 8,863 8,141
Basic earnings per share .09 .12 .17 .16
Diluted earnings per share .07 .11 .15 .14
(This page corresponds with page 40 of the Company's Annual Report.)
Market Information
Per share data is restated to reflect a stock split during fiscal 1997.
Stock Prices
The Company's Common Stock is traded on the national Market System of Nasdaq
under the symbol "ACXM." The following table sets forth for the periods
indicated the high and low closing sale prices of the Common Stock.
Fiscal 1998 High Low
Fourth Quarter $25 3/4 $18 3/4
Third Quarter 19 1/4 14 1/8
Second Quarter 21 1/8 17 1/8
First Quarter 20 5/8 11 1/8
Fiscal 1997 High Low
Fourth Quarter $24 $14 3/8
Third Quarter 25 18 5/8
Second Quarter 20 5/8 15 7/8
First Quarter 17 7/8 11 15/16
During the period beginning April 1, 1998, and ending May 13, 1998, the high
closing sales price per share for the Company's Common Stock as reported by
Nasdaq was $255/8 and the low closing sales price per share was $221/2.
On May 13, 1998, the closing price per share was $243/8.
Shareholders of Record
The approximate number of shareholders of record of the Company's Common Stock
as of May 13, 1998, was 1,617.
Dividends
The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain earnings to provide funds for its business
operations and for the expansion of its business. Thus, it does not anticipate
paying cash dividends in the foreseeable future.
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
U.S. SUBSIDIARIES
Name Incorporated In Doing Business As
Acxiom Asia, Ltd. Arkansas Acxiom Asia, Ltd.
Acxiom CDC, Inc. Arkansas Acxiom CDC, Inc.
Acxiom Children's Center, Inc. Arkansas Acxiom Children's Center,
Inc.
Acxiom/Direct Media, Inc. Arkansas Acxiom/Direct Media, Inc.
Acxiom Great Lakes Data Center,
Inc. Arkansas Acxiom Great Lakes Data
Center, Inc.
Acxiom Leasing Corporation Arkansas Acxiom Leasing Corporation
Acxiom RM-Tools, Inc. Arkansas Acxiom RM-Tools, Inc.
Acxiom RTC, Inc. Delaware Acxiom RTC, Inc.
Acxiom SDC, Inc. Arkansas Buckley Dement, an Acxiom
Company
Acxiom Transportation Services,
Inc. Arkansas ATS; Conway Aviation, Inc.
BSA, Inc. New Jersey MultiNational Concepts,
Ltd;
KM Lists Incorporated
Catalog Marketing Services, Inc. Florida Shop the World by Mail
DQ Investment Corporation* California AccuDat
DataQuick Information Systems California Acxiom/DataQuick Products
Group
Modern Mailers, Inc.* Delaware Acxiom Mailing Services
Pro CD, Inc. Delaware Data By Acxiom
INTERNATIONAL SUBSIDIARIES
Name Incorporated In Doing Business As
Acxiom Limited United Kingdom Acxiom Limited
Generator Datamarketing
Limited United Kingdom Generator Datamarketing
Limited
Marketlead Services, Ltd. United Kingdom N/A
(Agency company of Acxiom
Limited)
Southwark Computer Services,
Ltd. (Agency company of United Kingdom N/A
Acxiom Limited)
Normadress France Normadress
* Inactive
EXHIBIT 23
The Board of Directors
Acxiom Corporation
We consent to incorporation by reference in the registration statements (No.
33-17115, No. 33-37609, No. 33-37610, No. 33-42351, No. 33-72310, No. 33-72312,
No. 33-63423 and No. 333-03391 on Form S-8) of Acxiom Corporation of our report
dated May 8, 1998, relating to the consolidated balance sheets of Acxiom
Corporation and subsidiaries as of March 31, 1998 and 1997, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended March 31, 1998 which is
incorporated by reference in the March 31, 1998 annual report on Form 10-K of
Acxiom Corporation. We also consent to incorporation by reference in the
above-mentioned registration statements of our report dated May 8, 1998 relating
to the consolidated financial statement schedule, which report appears in the
March 31, 1998 annual report on Form 10-K of Acxiom Corporation.
/s/ KPMG Peat Marwick LLP
Little Rock, Arkansas
June 19, 1998
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer of Acxiom
Corporation, a Delaware corporation (the "Company"), does hereby constitute and
appoint Catherine L. Hughes as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him and in his name,
place and stead, in his capacity as the principal accounting officer of the
Company, to sign the Company's Annual Report on Form 10-K for the year ended
March 31, 1998, together with any amendments thereto, and to file the same,
together with any exhibits and all other documents related thereto, with the
Securities and Exchange Commission, granting to said attorney-in-fact and agent,
full power and authority to do and perform each and any act and thing requisite
and necessary to be done in connection therewith, as fully to all intents and
purposes as the undersigned might or could do in person, duly ratifying and
confirming all that said attorney-in-fact and agent may lawfully do or cause to
be done by virtue of the power herein granted.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this date.
Signature:
/s/ Robert S. Bloom
- ----------------------------------
Robert S. Bloom
Date: June 2, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Acxiom
Corporation, a Delaware corporation (the "Company"), does hereby constitute and
appoint Catherine L. Hughes and/or Robert S. Bloom as her true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for her and in her name, place and stead, in her capacity as a director of the
Company, to sign the Company's Annual Report on Form 10-K for the year ended
March 31, 1998, together with any amendments thereto, and to file the same,
together with any exhibits and all other documents related thereto, with the
Securities and Exchange Commission, granting to said attorneys-in-fact and
agents, full power and authority to do and perform each and any act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as the undersigned might or could do in person, duly
ratifying and confirming all that said attorneys-in-fact and agents may lawfully
do or cause to be done by virtue of the power herein granted.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this date.
Signature:
/s/ Ann H. Die
- ----------------------------------
Dr. Ann H. Die
Date: May 20, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Acxiom
Corporation, a Delaware corporation (the "Company"), does hereby constitute and
appoint Catherine L. Hughes and/or Robert S. Bloom as his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for him and in his name, place and stead, in his capacity as a director of the
Company, to sign the Company's Annual Report on Form 10-K for the year ended
March 31, 1998, together with any amendments thereto, and to file the same,
together with any exhibits and all other documents related thereto, with the
Securities and Exchange Commission, granting to said attorneys-in-fact and
agents, full power and authority to do and perform each and any act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as the undersigned might or could do in person, duly
ratifying and confirming all that said attorneys-in-fact and agents may lawfully
do or cause to be done by virtue of the power herein granted.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this date.
Signature:
/s/ William Dillard II
- ----------------------------------
William T. Dillard II
Date: May 18, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Acxiom
Corporation, a Delaware corporation (the "Company"), does hereby constitute and
appoint Catherine L. Hughes and/or Robert S. Bloom as his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for him and in his name, place and stead, in his capacity as a director of the
Company, to sign the Company's Annual Report on Form 10-K for the year ended
March 31, 1998, together with any amendments thereto, and to file the same,
together with any exhibits and all other documents related thereto, with the
Securities and Exchange Commission, granting to said attorneys-in-fact and
agents, full power and authority to do and perform each and any act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as the undersigned might or could do in person, duly
ratifying and confirming all that said attorneys-in-fact and agents may lawfully
do or cause to be done by virtue of the power herein granted.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this date.
Signature:
/s/ Harry C. Gambill
- ----------------------------------
Harry C. Gambill
Date: May 20, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and officer
of Acxiom Corporation, a Delaware corporation (the "Company"), does hereby
constitute and appoint Catherine L. Hughes and/or Robert S. Bloom as his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in his capacity as a
director and principal financial officer of the Company, to sign the Company's
Annual Report on Form 10-K for the year ended March 31, 1998, together with any
amendments thereto, and to file the same, together with any exhibits and all
other documents related thereto, with the Securities and Exchange Commission,
granting to said attorneys-in-fact and agents, full power and authority to do
and perform each and any act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as the undersigned
might or could do in person, duly ratifying and confirming all that said
attorneys-in-fact and agents may lawfully do or cause to be done by virtue of
the power herein granted.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this date.
Signature:
/s/ Rodger S. Kline
- ----------------------------------
Rodger S. Kline
Date: May 20, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and officer
of Acxiom Corporation, a Delaware corporation (the "Company"), does hereby
constitute and appoint Catherine L. Hughes and/or Robert S. Bloom as his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in his capacity as a
director and principal executive officer of the Company, to sign the Company's
Annual Report on Form 10-K for the year ended March 31, 1998, together with any
amendments thereto, and to file the same, together with any exhibits and all
other documents related thereto, with the Securities and Exchange Commission,
granting to said attorneys-in-fact and agents, full power and authority to do
and perform each and any act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as the undersigned
might or could do in person, duly ratifying and confirming all that said
attorneys-in-fact and agents may lawfully do or cause to be done by virtue of
the power herein granted.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this date.
Signature:
/s/ Charles D. Morgan
- ----------------------------------
Charles D. Morgan
Date: May 20, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Acxiom
Corporation, a Delaware corporation (the "Company"), does hereby constitute and
appoint Catherine L. Hughes and/or Robert S. Bloom as his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for him and in his name, place and stead, in his capacity as a director of the
Company, to sign the Company's Annual Report on Form 10-K for the year ended
March 31, 1998, together with any amendments thereto, and to file the same,
together with any exhibits and all other documents related thereto, with the
Securities and Exchange Commission, granting to said attorneys-in-fact and
agents, full power and authority to do and perform each and any act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as the undersigned might or could do in person, duly
ratifying and confirming all that said attorneys-in-fact and agents may lawfully
do or cause to be done by virtue of the power herein granted.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this date.
Signature:
/s/ Robert A. Pritzker
- ----------------------------------
Robert A. Pritzker
Date: June 5, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Acxiom
Corporation, a Delaware corporation (the "Company"), does hereby constitute and
appoint Catherine L. Hughes and/or Robert S. Bloom as his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for him and in his name, place and stead, in his capacity as a director of the
Company, to sign the Company's Annual Report on Form 10-K for the year ended
March 31, 1998, together with any amendments thereto, and to file the same,
together with any exhibits and all other documents related thereto, with the
Securities and Exchange Commission, granting to said attorneys-in-fact and
agent, full power and authority to do and perform each and any act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as the undersigned might or could do in person, duly
ratifying and confirming all that said attorneys-in-fact and agents may lawfully
do or cause to be done by virtue of the power herein granted.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this date.
Signature:
/s/ Walter V. Smiley
- ----------------------------------
Walter V. Smiley
Date: May 20, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and officer
of Acxiom Corporation, a Delaware corporation (the "Company"), does hereby
constitute and appoint Catherine L. Hughes and/or Robert S. Bloom as his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in his capacity as a
director and officer of the Company, to sign the Company's Annual Report on Form
10-K for the year ended March 31, 1998, together with any amendments thereto,
and to file the same, together with any exhibits and all other documents related
thereto, with the Securities and Exchange Commission, granting to said
attorneys-in-fact and agents, full power and authority to do and perform each
and any act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as the undersigned might or
could do in person, duly ratifying and confirming all that said
attorneys-in-fact and agents may lawfully do or cause to be done by virtue of
the power herein granted.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this date.
Signature:
/s/ James T. Womble
- ----------------------------------
James T. Womble
Date: May 20, 1998