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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
(Mark One)
 
[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2009
 
OR
 
[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ----- to -----
 

Commission file number 0-13163
   
Acxiom Corporation
(Exact Name of Registrant as Specified in Its Charter)
   
DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization)
71-0581897
(I.R.S. Employer
Identification No.)
   
P.O. Box 8180, 601 E. Third Street,
Little Rock, Arkansas
(Address of Principal Executive Offices)
72201
(Zip Code)
   
(501) 342-1000
(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
   
Yes  [X]
No  [ ]
     
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such filings).
 
Yes [ ]
No [ ]
     
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer [X]
 
Accelerated filer   [ ]
   
 
Non-accelerated filer [ ]
 
Smaller reporting company [ ]
   
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act.)
 
   
Yes  [ ]
No  [X]
     
             
The number of shares of Common Stock, $ 0.10 par value per share outstanding as of February 4, 2010 was 79,147,630.
 

1
 
 

 

ACXIOM CORPORATION AND SUBSIDIARIES
INDEX
REPORT ON FORM 10-Q
December 31, 2009
 
Part I.
 
Financial Information
Page No.
 
Item 1.
Financial Statements
 
   
Condensed Consolidated Balance Sheets
 
     
as of December 31, 2009 and March 31, 2009 (Unaudited)
3
   
Condensed Consolidated Statements of Operations
 
     
for the Three Months ended December 31, 2009 and 2008 (Unaudited)
4
   
Condensed Consolidated Statements of Operations
 
     
for the Nine Months ended December 31, 2009 and 2008 (Unaudited)
5
   
Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Income
 
     
for the Nine Months ended December 31, 2009 (Unaudited)
6
   
Condensed Consolidated Statements of Cash Flows
 
     
for the Nine Months ended December 31, 2009 and 2008 (Unaudited)
7-8
   
Notes to Condensed Consolidated Financial Statements
9-20
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21-29
 
Item 3.
Quantitative and Qualitative Disclosure about Market Risk
30
 
Item 4.
Controls and Procedures
30
         
Part II.
 
Other Information
 
 
Item 1.
Legal Proceedings
31
 
Item 6.
Exhibits
31
         
Signature
     
32
         
         

2
 
 

 

PART I.  FINANCIAL INFORMATION
Item 1.  Financials Statements
 
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
 
   
December 31,
2009
   
March 31,
2009
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 200,582     $ 177,166  
Trade accounts receivable, net
    180,546       184,814  
Deferred income taxes
    45,481       45,641  
Refundable income taxes
    -       4,579  
Other current assets
    46,042       46,873  
Total current assets
    472,651       459,073  
Property and equipment, net of accumulated depreciation and amortization
    220,979       214,589  
Software, net of accumulated amortization
    43,077       52,798  
Goodwill
    474,597       454,944  
Purchased software licenses, net of accumulated amortization
    51,499       65,341  
Deferred costs, net
    71,512       70,343  
Data acquisition costs, net
    24,871       31,317  
Other assets, net
    18,366       18,938  
    $ 1,377,552     $ 1,367,343  
LIABILITIES AND EQUITY
               
Current liabilities:
               
Current installments of long-term debt
  $ 41,485     $ 40,967  
Trade accounts payable
    23,575       27,701  
Accrued expenses:
               
Payroll
    28,105       44,823  
Other
    85,769       86,072  
Deferred revenue
    57,426       54,991  
Income taxes
    121       -  
Total current liabilities
    236,481       254,554  
Long-term debt
    483,846       537,272  
Deferred income taxes
    79,505       58,526  
Other liabilities
    10,588       9,321  
Commitments and contingencies
               
Equity:
               
Common stock
    11,625       11,576  
Additional paid-in capital
    810,236       800,094  
Retained earnings
    469,851       441,950  
Accumulated other comprehensive income (loss)
    9,638       (6,238 )
Treasury stock, at cost
    (738,601 )     (739,712 )
Total Acxiom stockholders' equity
    562,749       507,670  
Noncontrolling interest
    4,383       -  
Total equity
    567,132       507,670  
    $ 1,377,552     $ 1,367,343  
                 
See accompanying notes to condensed consolidated financial statements.
               
 
 
3
 
 

 

 
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
     For the Three Months ended
December 31
   
2009
   
2008
 
Revenue:
           
Services
  $ 218,340     $ 231,077  
Products
    65,467       89,979  
Total revenue
    283,807       321,056  
Operating costs and expenses:
               
Cost of revenue
               
Services
    163,206       173,433  
Products
    46,727       70,487  
Total cost of revenue
    209,933       243,920  
Selling, general and administrative
    43,477       42,560  
Gains, losses and other items, net
    538       43,175  
Total operating costs and expenses
    253,948       329,655  
Income (loss) from operations
    29,859       (8,599 )
Other income (expense):
               
Interest expense
    (5,687 )     (8,105 )
Other, net
    198       140  
Total other income (expense)
    (5,489 )     (7,965 )
Earnings (loss) before income taxes
    24,370       (16,564 )
Income taxes
    10,212       (5,115 )
Net earnings (loss)
  $ 14,158     $ (11,449 )
Less: Net earnings (loss) attributable to noncontrolling interest
    (104 )     -  
Net earnings (loss) attributable to Acxiom
  $ 14,262     $ (11,449 )
                 
Earnings (loss) per share:
               
Basic
  $ 0.18     $ (0.15 )
Diluted
  $ 0.18     $ (0.15 )
                 
Earnings (loss) per share attributable to Acxiom stockholders:
               
Basic
  $ 0.18     $ (0.15 )
Diluted
  $ 0.18     $ (0.15 )
See accompanying notes to condensed consolidated financial statements.
               

4
 
 

 

 
 
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
     For the Nine Months ended
December 31
   
2009
   
2008
 
Revenue:
           
Services
  $ 627,879     $ 701,377  
Products
    183,014       279,687  
Total revenue
    810,893       981,064  
Operating costs and expenses:
               
Cost of revenue
               
Services
    488,574       533,280  
Products
    138,775       225,242  
Total cost of revenue
    627,349       758,522  
Selling, general and administrative
    119,084       131,030  
Gains, losses and other items, net
    858       40,260  
Total operating costs and expenses
    747,291       929,812  
Income from operations
    63,602       51,252  
Other income (expense):
               
Interest expense
    (16,615 )     (26,155 )
Other, net
    303       1,786  
Total other income (expense)
    (16,312 )     (24,369 )
Earnings before income taxes
    47,290       26,883  
Income taxes
    19,493       11,829  
Net earnings
  $ 27,797     $ 15,054  
Less: net earnings (loss) attributable to noncontrolling interest
    (104 )     -  
Net earnings attributable to Acxiom
  $ 27,901     $ 15,054  
                 
Earnings per share:
               
Basic
  $ 0.35     $ 0.19  
Diluted
  $ 0.35     $ 0.19  
                 
Earnings per share attributable to Acxiom stockholders
               
Basic
  $ 0.35     $ 0.19  
Diluted
  $ 0.35     $ 0.19  
                 
See accompanying notes to condensed consolidated financial statements.
               


5
 
 

 

ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
NINE MONTHS ENDED DECEMBER 31, 2009
(Unaudited)
(Dollars in thousands)

                                 
Accumulated
                         
   
Common Stock
   
Additional
               
other
   
Treasury Stock
             
   
Number
         
paid-in
   
Comprehensive
   
Retained
   
comprehensive
   
Number
         
Noncontrolling
   
Total
 
   
of shares
   
Amount
   
Capital
   
Income (loss)
   
earnings
   
income (loss)
   
of shares
   
Amount
   
interest
   
equity
 
Balances at March 31, 2009
    115,756,876     $ 11,576     $ 800,094           $ 441,950     $ (6,238 )     (37,224,867 )   $ (739,712 )   $ -     $ 507,670  
Employee stock awards, benefit plans and other issuances
    349,060       35       2,979     $ -       -       -       -       -       -       . 3,014  
Restricted stock units vested
    144,258       14       (14 )     -       -       -       -       -       -       -  
Non-cash share-based compensation
    -       -       7,177       -       -       -       70,631       1,111       -       8,288  
Purchase of MENA
    -       -       -       -       -       -       -       -       4,030       4,030  
Noncontrolling interest equity contributions
    -       -       -       -       -       -       -       -       457       457  
Comprehensive income
                                                                               
Foreign currency translation
    -       -       -       15,953       -       15,953       -       -       -       15,953  
Unrealized loss on interest rate swap
    -       -       -       (50 )     -       (50 )     -       -       -       (50 )
Unrealized loss on marketable securities
    -       -       -       (27 )     -       (27 )     -       -       -       (27 )
Net earnings (loss)
    -       -       -       27,797       27,901       -       -       -       (104 )     27,797  
Total comprehensive income
                          $ 43,673                                                  
Balances at December 31, 2009
    116,250,194     $ 11,625     $ 810,236             $ 469,851     $ 9,638       (37,154,236 )   $ (738,601 )   $ 4,383     $ 567,132  
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
                                                                                 
 
See accompanying notes to condensed consolidated financial statements
 
6
 
 

 

ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
 
 
      For the Nine Months ended
December 31
 
   
2009
   
2008
 
Cash flows from operating activities:
           
Net earnings
  $ 27,797     $ 15,054  
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation and amortization
    124,912       154,297  
Loss on disposal of assets, net
    410       22,654  
Deferred income taxes
    23,100       5,069  
Non-cash share-based compensation expense
    8,288       8,040  
Changes in operating assets and liabilities:
               
Accounts receivable, net
    5       (9,377 )
Deferred costs
    (15,381 )     (2,986 )
Other assets
    11,913       13,875  
Accounts payable and other liabilities
    (31,214 )     (6,222 )
Deferred revenue
    1,548       (6,215 )
Net cash provided by operating activities
    151,378       194,189  
 
Cash flows from investing activities:
               
Payments received (paid) for investments
    (1,000 )     2,596  
Sale of assets
    1,058       24,174  
Capitalized software development costs
    (6,661 )     (13,001 )
Capital expenditures
    (31,372 )     (19,183 )
Cash collected from the sale and license of software
    -       2,000  
Data acquisition costs
    (14,231 )     (22,954 )
Net cash paid in acquisitions
    (3,428 )     (15,403 )
Net cash used in investing activities
    (55,634 )     (41,771 )
 
Cash flows from financing activities:
               
Payments of debt
    (72,442 )     (73,694 )
Fees for debt refinancing
    (4,563 )     -  
Dividends paid
    -       (9,312 )
Sale of common stock
    3,014       8,362  
Income tax benefit of stock options, warrants and restricted stock
    -       115  
Acquisition of treasury stock
    (307 )     (655 )
Noncontrolling interests equity contributions
    457       -  
Net cash used in financing activities
    (73,841 )     (75,184 )
Effect of exchange rate changes on cash
    1,513       (1,820 )
Net increase in cash and cash equivalents
    23,416       75,414  
Cash and cash equivalents at beginning of period
    177,166       62,661  
 
Cash and cash equivalents at end of period
  $ 200,582     $ 138,075  
                 

7
 
 

 

 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Dollars in thousands)
 
     For the Nine Months ended
December 31
 
   
2009
   
2008
 
 
Supplemental cash flow information:
           
Cash paid (received) during the period for:
           
Interest
  $ 16,807     $ 24,468  
Income taxes
    (8,450 )     (3,029 )
Payments on capital leases and installment payment arrangements
    22,607       33,116  
Payments on software and data license liabilities
    6,134       19,887  
Prepayments of debt
    37,500       14,500  
Other debt payments, excluding line of credit
    6,201       6,191  
Non-cash investing and financing activities:
               
Acquisition of property and equipment under capital leases and installment payment arrangements
    18,247       7,892  
Enterprise software licenses acquired under software obligations
    611       1,546  
 
 
See accompanying notes to condensed consolidated financial statements.
               
                 
                 
                 
                 

8
 
 

 

ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.           BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

These condensed consolidated financial statements have been prepared by Acxiom Corporation (“Registrant,” “Acxiom” or “the Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC” or “the Commission”).  In the opinion of the Registrant’s management all adjustments necessary for a fair presentation of the results for the periods included have been made and the disclosures are adequate to make the information presented not misleading.  All such adjustments are of a normal recurring nature.  Certain note information has been omitted because it has not changed significantly from that reflected in notes 1 through 19 of the Notes to Consolidated Financial Statements filed as part of Item 8 of the Registrant’s annual report on Form 10-K for the fiscal year ended March 31, 2009 (“2009 Annual Report”), as filed with the Commission on May 29, 2009.  This report and the accompanying condensed consolidated financial statements should be read in connection with the 2009 Annual Report.  The financial information contained in this report is not necessarily indicative of the results to be expected for any other period or for the full fiscal year ending March 31, 2010.

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States.  Actual results could differ from those estimates.  Certain of the accounting policies used in the preparation of these condensed consolidated financial statements are complex and require management to make judgments and/or significant estimates regarding amounts reported or disclosed in these financial statements.  Additionally, the application of certain of these accounting policies is governed by complex accounting principles and their interpretation.  A discussion of the Company’s significant accounting principles and their application is included in note 1 and in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, to the Company’s 2009 Annual Report.

In May 2009, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 165, “Subsequent Events” (“SFAS No. 165”).  SFAS No. 165 was subsequently codified in the FASB Accounting Standards Codification Topic 855 (“ASC 855”).  ASC 855 establishes principles and standards related to the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  ASC 855 requires an entity to recognize, in the financial statements, subsequent events that provide additional information regarding conditions that existed at the balance sheet date.  In accordance with this standard, which was effective beginning with the quarter ended June 30, 2009, management has evaluated subsequent events for accounting and disclosure through the date of filing this quarterly report on Form 10-Q, which is February 8, 2010.

9
 
 

 

2.           EARNINGS PER SHARE AND STOCKHOLDERS’ EQUITY:

Earnings Per Share

A reconciliation of the numerator and denominator of basic and diluted earnings per share is shown below (in thousands, except per share amounts):
   
For the quarter ended
December 31
   
For the nine months ended
December 31
 
   
2009
   
2008
   
2009
   
2008
 
Basic earnings (loss) per share:
                       
Numerator – net earnings (loss)
  $ 14,158     $ (11,449 )   $ 27,797     $ 15,054  
Denominator – weighted-average shares outstanding
    79,068       78,086       78,883       77,735  
Basic earnings (loss) per share
  $ 0.18     $ (0.15 )   $ 0.35     $ 0.19  
Diluted earnings (loss) per share:
                               
Numerator – net earnings (loss)
  $ 14,158     $ (11,449 )   $ 27,797     $ 15,054  
                                 
Denominator:
                               
Weighted-average shares outstanding
    79,068       78,086       78,883       77,735  
Dilutive effect of common stock options, warrants,
and restricted stock as computed under the
treasury stock method
    802       -       537       345  
      79,870       78,086       79,420       78,080  
Diluted earnings (loss) per share
  $ 0.18     $ (0.15 )   $ 0.35     $ 0.19  


   
For the quarter ended
December 31
   
For the nine months ended
December 31
 
   
2009
   
2008
   
2009
   
2008
 
Basic earnings (loss) per share attributable to Acxiom stockholders:
                       
Numerator – net earnings (loss)
  $ 14,262     $ (11,449 )   $ 27,901     $ 15,054  
Denominator – weighted-average shares outstanding
    79,068       78,086       78,883       77,735  
Basic earnings (loss) per share attributable to stockholders
  $ 0.18     $ (0.15 )   $ 0.35     $ 0.19  
Diluted earnings (loss) per share attributable to Acxiom stockholders:
                               
Numerator – net earnings (loss)
  $ 14,262     $ (11,449 )   $ 27,901     $ 15,054  
                                 
Denominator:
                               
Weighted-average shares outstanding
    79,068       78,086       78,883       77,735  
Dilutive effect of common stock options, warrants,
and restricted stock as computed under the
treasury stock method
    802       -       537       345  
      79,870       78,086       79,420       78,080  
Diluted earnings (loss) per share attributable to stockholders
  $ 0.18     $ (0.15 )   $ 0.35     $ 0.19  
 
10
 
 
 

 

2.           EARNINGS PER SHARE AND STOCKHOLDERS’ EQUITY (continued):

As of December 31, 2009, the Company had options and warrants outstanding providing for the purchase of approximately 12.1 million shares of common stock.  As of December 31, 2008, the Company had options and warrants outstanding providing for the purchase of approximately 12.3 million shares of common stock.  Options, warrants and restricted stock units that were outstanding during the periods presented, but were not included in the computation of diluted earnings (loss) per share because the effect was antidilutive are shown below (in thousands, except per share amounts):

   
For the quarter ended
December 31
   
For the nine months ended
December 31
 
   
2009
   
2008
   
2009
   
2008
 
Number of shares outstanding under options, warrants and restricted stock units
    10,336       12,286       11,594       11,247  
Range of exercise prices for options and warrants
  $ 11.87-$268.55     $ 8.36-$268.55     $ 10.66-$268.55     $ 11.50-$268.55  


Stockholders’ Equity

The Company did not declare a dividend on its common stock in the nine months ended December 31, 2009.  The Company declared dividends on its common stock of $0.12 per share in the nine months ended December 31, 2008.

There were no shares repurchased under the Company’s common stock repurchase program in the nine months ended December 31, 2009.  In the nine months ended December 31, 2008 the Company repurchased 0.14 million shares for $1.0 million.  The share repurchase program has expired as of November 7, 2009.  In the nine months ending December 31, 2009, the Company issued 70,631 shares of treasury stock to members of the board who elected to receive their annual compensation in Company stock.

3.           SHARE-BASED COMPENSATION:

Share-based Compensation Plans

Stock Option Activity
The Company has stock option and equity compensation plans for which a total of 37.7 million shares of the Company’s common stock have been reserved for issuance since inception of the plans.  These plans provide that the option prices of qualified options will be at or above the fair market value of the common stock at the time of the grant.  Board policy has required that nonqualified options be priced at or above the fair market value of the common stock at the time of grant.  At December 31, 2009, there were a total of 4.7 million shares available for future grants under the plans.

The Company granted 532,000 stock options in the nine months ended December 31, 2009.  The per-share weighted-average fair value of the stock options granted during the nine months ended December 31, 2009 was $4.61.  This valuation was determined using a customized binomial lattice approach with the following weighted-average assumptions: dividend yield of 0.0%; risk-free interest rate of 3.5%; expected option life of 5.4 years and expected volatility of 54%.  The Company granted 689,126 stock options in the nine months ended December 31, 2008.  The per-share weighted-average fair value of the stock options granted during the nine months ended December 31, 2008 was $4.39.  This valuation was determined using a customized binomial lattice approach with the following weighted-average assumptions: dividend yield of 1.7%; risk-free interest rate of 3.9%; expected option life of 5.6 years and expected volatility of 36.6%.

11
 
 

 

3.           SHARE-BASED COMPENSATION (continued):

Option activity for the nine months ended December 31, 2009 was as follows:

   
Number
of shares
   
Weighted-average exercise price
per share
   
Weighted-average remaining contractual term (in years)
   
Aggregate intrinsic value
(in thousands)
 
Outstanding at March 31, 2009
    10,414,093     $ 20.83              
Granted
    532,000     $ 8.91              
Exercised
    (28,657 )   $ 8.52           $ 141  
Forfeited or cancelled
    (305,688 )   $ 20.17                
Outstanding at December 31, 2009
    10,611,748     $ 20.29       6.32     $ 5,799  
 
Exercisable at December 31, 2009
    8,891,105     $ 21.71       5.88     $ 2,454  

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Acxiom’s closing stock price on the last trading day of its third quarter of fiscal 2010 and the exercise price for each in-the-money option) that would have been received by the option holders had vested option holders exercised their options on December 31, 2009.  This amount changes based upon changes in the fair market value of Acxiom’s stock.

Following is a summary of stock options outstanding and exercisable as of December 31, 2009:

     
Options outstanding
   
Options exercisable
 
Range of
exercise price
per share
   
Options
outstanding
 
Weighted- average remaining contractual life
 
Weighted-average
exercise price
per share
   
Options
exercisable
   
Weighted-average
exercise price
per share
 
                             
$ 3.69 - $ 9.62       648,420  
8.85 years
  $ 8.72       78,920     $ 7.23  
$ 10.22 - $ 15.00       2,411,762  
7.30 years
  $ 12.42       1,603,119     $ 12.31  
$ 15.10 - $ 19.82       2,482,464  
6.10 years
  $ 16.48       2,289,964     $ 16.55  
$ 20.12 - $ 25.00       2,569,521  
6.59 years
  $ 22.98       2,494,521     $ 22.92  
$ 25.44 - $ 29.30       1,407,078  
4.94 years
  $ 26.81       1,332,078     $ 26.76  
$ 30.93 - $ 39.12       806,843  
4.26 years
  $ 35.69       806,843     $ 35.69  
$ 40.50 - $ 75.55       282,930  
4.57 years
  $ 44.51       282,930     $ 44.51  
$ 168.61 - $268.55       2,730  
0.13 years
  $ 213.46       2,730     $ 213.46  
          10,611,748  
6.32 years
  $ 20.29       8,891,105     $ 21.71  

Total expense related to stock options for the nine months ended December 31, 2009 and 2008 was approximately $1.8 million and $1.7 million respectively.  Future expense for these options is expected to be approximately $6.0 million over the next four years.

Restricted Stock Unit Activity
Non-vested restricted stock unit activity for the period ending December 31, 2009 was as follows:

   
Number
of shares
   
Weighted average fair value per
share at grant date
(in thousands)
   
Weighted-average remaining contractual term (in years)
 
Outstanding at March 31, 2009
    1,499,470     $ 13.83       2.49  
Granted
    1,545,000     $ 9.57          
Vested
    (144,258 )   $ 23.65          
Forfeited or cancelled
    (161,158 )   $ 12.87          
Outstanding at December 31, 2009
    2,739,054     $ 11.19       2.47  

12
 
 

 

3.           SHARE-BASED COMPENSATION (continued):

During the nine months ended December 31, 2009, the Company granted restricted stock units covering 1,545,000 shares of common stock with a value at the date of grant of $14.2 million.  The value at the date of grant is determined by reference to quoted market prices for the shares.  Of the restricted stock units granted in the current period, 946,000 vest in equal annual increments over four years.  The remaining 599,000 vest subject to 1) the Company’s achievement of certain performance criteria and 2) the individual remaining employed by the Company for three years.  If both criteria are met the units vest three years from the date of grant.  The expense related to restricted stock in the nine months ended December 31, 2009 was $5.8 million.  During the nine months ended December 31, 2008, the Company granted restricted stock units covering 851,532 shares of common stock with a value at the date of grant of $11.0 million.  Of the restricted stock units granted in that period, 275,963 vest in equal annual increments over four years and the remaining 575,569 vest at the end of three years and were subject to performance criteria that was met as of March 31, 2009.  Future expense for restricted stock units is expected to be approximately $16.4 million over the next four years.

4.           ACQUISITIONS:

In December 2009, the Company acquired a 51% interest in Direct Marketing Services (“DMS”), with operations in Saudi Arabia and the United Arab Emirates.  Upon acquisition DMS was reorganized as a limited liability company registered under the laws and regulations of the Kingdom of Saudi Arabia and renamed Acxiom Middle East and North Africa, LTD (“MENA”).  The acquisition allows the Company to expand into this strategic geographic area.  The purchase price for DMS was $3.8 million in cash, not including the amount, if any, to be paid pursuant to an earnout agreement where additional payment is contingent on MENA’s financial performance for the period ending on December 31, 2012.  Financial performance under the earnout will be measured based on MENA’s calculation of earnings before interest, taxes, depreciation and amortization (“EBITDA”).  The actual EBITDA will be divided by $18.3 million and that percentage multiplied by $6.1 million to determine the earnout payment.  There will be no earnout payment if the actual EBITDA does not exceed $12.8 million.  The Company has omitted pro forma disclosures related to this acquisition as the pro forma effect of this acquisition is not material to the Company’s consolidated results for any period presented.  DMS has annual revenue of less than $5 million.  The results of operation for MENA are included in the Company’s consolidated results beginning December 1, 2009.

The following table shows the allocation of the purchase price for the above acquisition to assets acquired and liabilities assumed (dollars in thousands):
     
MENA
 
Assets acquired:
       
Cash
  $
40
 
Goodwill
   
4,824
 
Other intangible assets
   
3,250
 
Other current and noncurrent assets
   
2,139
 
     
10,253
 
Accounts payable, accrued expenses and capital leases assumed
   
(2,027
)
Net assets acquired
   
8,226
 
Less:
     
 
Cash acquired
   
40
 
Earnout liability
   
371
 
Noncontrolling interest
   
4,030
 
Net cash paid
  $
3,785
 


The above allocation of the purchase price is preliminary, pending the completion of a final valuation of the intangible assets.  The value of the noncontrolling interest was estimated based on the purchase price paid by Acxiom for its interest.  The amount allocated to goodwill is primarily due to the assembled work force of MENA.

13
 
 

 

4.           ACQUISITIONS (continued):

In July 2008, the Company acquired the database marketing unit of ChoicePoint Precision Marketing, LLC (“Precision Marketing”).  The Company paid $9.0 million, of which $4.5 million was paid into two escrow accounts which were subject to escrow arrangements finally resolved during the quarter ended September 30, 2009.  A total of $0.5 million of one of the escrow funds has been released to reimburse the Company for costs incurred.  Of the remaining $4.0 million escrow fund, $3.6 million has been paid to the sellers and approximately $0.4 million has been returned to the Company.  The $4.0 million placed into escrow was originally treated as purchase price, therefore the $0.4 million returned to the Company has been recorded as a reduction of purchase price and the $3.6 million has been charged to goodwill.  The acquired business had annual revenue of approximately $16.0 million.  The Company has omitted pro forma disclosures related to this acquisition as the pro forma effect of this acquisition is not material to the Company’s consolidated results for any period presented.  Precision Marketing’s results of operations are included in the Company’s consolidated results beginning July 1, 2008.

5.           OTHER CURRENT AND NONCURRENT ASSETS:

Other current assets consist of the following (dollars in thousands):

   
December 31,
2009
   
March 31,
2009
 
Current portion of unbilled and notes receivable
  $ 1,141     $ 1,730  
Prepaid expenses
    32,817       31,313  
Assets of non-qualified retirement plan
    11,932       8,155  
Escrowed cash
    -       4,344  
Other miscellaneous assets
    152       1,331  
Other current assets
  $ 46,042     $ 46,873  

Other noncurrent assets consist of the following (dollars in thousands):

   
December 31,
2009
   
March 31,
2009
 
Acquired intangible assets, net
  $ 10,777     $ 11,579  
Noncurrent portion of unbilled and notes receivable
    2,965       3,367  
Other miscellaneous noncurrent assets
    4,624       3,992  
Other assets
  $ 18,366     $ 18,938  

The acquired intangible assets noted above include customer relationship intangibles acquired through purchase acquisitions, net of accumulated amortization.

14
 
 

 

6.           GOODWILL:

Goodwill represents the excess of acquisition costs over the fair values of net assets acquired in business combinations.  Goodwill is reviewed at least annually for impairment under a two-part test.  Impairment exists to the extent that the reporting unit’s recorded goodwill exceeds the residual fair value assigned to goodwill.  Any impairment that results from the completion of the two-part test is recorded as a charge to operations during the period in which the impairment test is completed.  Completion of the Company’s most recent annual impairment test during the quarter ended June 30, 2009 indicated that no potential impairment of its goodwill balances existed as of April 1, 2009.

The carrying amount of goodwill, by business segment, for the nine months ended December 31, 2009 is presented in the following table.

(dollars in thousands)
 
 
Services
   
Products
   
Total
 
Balance at March 31, 2009
  $ 336,406     $ 118,538     $ 454,944  
MENA acquisition
    4,824       -       4,824  
Purchase adjustments
    5,064       -       5,064  
Change in foreign currency translation adjustment
    2,929       6,836       9,765  
Balance at December 31, 2009
  $ 349,223     $ 125,374     $ 474,597  

7.           LONG-TERM DEBT:

Long-term debt consists of the following (dollars in thousands):

   
December 31,
2009
   
March 31,
2009
 
Term loan credit agreement
  $ 448,500     $ 490,500  
Capital leases and installment payment obligations on land, buildings and equipment payable in monthly payments of principal plus interest at rates ranging from approximately 3% to 8%; remaining terms up to twelve years
    42,957       46,646  
Warrants
    1,499       1,492  
Software license liabilities payable over terms up to three years; effective interest rates ranging from approximately 4% to 7%
    9,833       12,423  
Data license agreement
    -       2,934  
Other debt and long-term liabilities
    22,542       24,244  
Total long-term debt and capital leases
    525,331       578,239  
Less current installments
    41,485       40,967  
Long-term debt, excluding current installments
  $ 483,846     $ 537,272  

Effective September 15, 2006, the Company entered into an amended and restated credit agreement allowing (1) term loans up to an aggregate principal amount of $600 million and (2) revolving credit facility borrowings consisting of revolving loans, letter of credit participations and swing-line loans up to an aggregate amount of $200 million.

In November 2009, the Company entered into an amendment to its term loan credit facility (the “Amendment”).  Under the terms of the Amendment, certain of the lenders have agreed to extend the maturity date of the existing term loan, becoming Tranche 2 Term Lenders.  Lenders who have not agreed to extend the maturity date become Tranche 1 Term Lenders.  Certain lenders have also agreed to extend the maturity date of the existing revolving loan commitment, becoming Tranche 2 Revolving Lenders.  Lenders who have not agreed to extend the maturity date of the revolving loan commitment become Tranche 1 Revolving Lenders.  Of the $450 million balance of the existing term loan on the date of the Amendment, approximately $75 million was held by Tranche 1 Term Lenders and $375 million was held by Tranche 2 Term Lenders.  Of the existing $200 million revolving loan commitment, $80 million is held by Tranche 1 Revolving Lenders and $120 million is held by Tranche 2 Revolving Lenders.
 

15
 
 

 

7.           LONG-TERM DEBT (continued):

Tranche 1 of the term loan is payable in quarterly installments of approximately $0.2 million each, through September 30, 2011, followed by four quarterly installments of approximately $18.1 million each with the last payment due September 15, 2012.  Tranche 2 of the term loan is payable in quarterly installments of approximately $1.3 million each, through September 30, 2011, followed by thirteen quarterly installments of $1.5 million each with a final payment of approximately $345.9 million due March 15, 2015.  The Tranche 1 revolving loan commitment expires September 15, 2011 and the Tranche 2 revolving loan commitment expires March 15, 2014.

Revolving credit facility borrowings currently bear interest at LIBOR plus a credit spread, or at an alternative base rate or at the Federal Funds rate plus a credit spread, depending on the type of borrowing.  The LIBOR credit spread is 1.5% for Tranche 1 and 2.75% for Tranche 2.  There were no revolving credit borrowings outstanding at December 31, 2009 or March 31, 2009.  Term loan borrowings bear interest at LIBOR plus a credit spread which is 1.75% for Tranche 1, and 3.00% for Tranche 2.  The weighted average interest rate on term loan borrowings at December 31, 2009 was 3.7%.  Outstanding letters of credit at December 31, 2009 were $3.9 million.

The term loan also allows prepayments before maturity.  The credit agreement is secured by the accounts receivable of Acxiom and its domestic subsidiaries, as well as by the outstanding stock of certain Acxiom subsidiaries.

Under the terms of certain of the above borrowings, the Company is required to maintain certain debt-to-cash flow and debt service coverage ratios, among other restrictions.  At December 31, 2009, the Company was in compliance with these covenants and restrictions.  In addition, if certain financial ratios and other conditions are not satisfied, the revolving credit facility limits the Company’s ability to pay dividends in excess of $30 million in any fiscal year (plus additional amounts in certain circumstances).

In fiscal 2009, the Company entered into an interest rate swap agreement.  The agreement provides for the Company to pay interest through July 25, 2011 at a fixed rate of 3.25% plus the applicable credit spread on $95.0 million notional amount while receiving interest for the same period at the LIBOR rate on the same notional amount.  The LIBOR rate as of December 31, 2009 was 0.3%.  The swap was entered into as a cash flow hedge against LIBOR interest rate movements on the term loan.  The Company assesses the effectiveness of the hedge based on the hypothetical derivative method.  There was no ineffectiveness for the period ended December 31, 2009.  Under the hypothetical derivative method, the cumulative change in fair value of the actual swap is compared to the cumulative change in fair value of the hypothetical swap, which has terms that identically match the critical terms of the hedged transaction.  Thus, the hypothetical swap is presumed to perfectly offset the hedged cash flows.  The change in the fair value of the hypothetical swap will then be regarded as a proxy for the present value of the cumulative change in the expected future cash flows from the hedged transactions.  All of the fair values are derived from an interest-rate futures model.  As of December 31, 2009, the hedge relationship qualified as an effective hedge under applicable accounting standards.  Consequently, all changes in fair value of the derivative are deferred and recorded in other comprehensive income until the related forecasted transaction is recognized in the consolidated statement of operations.  The fair market value of the derivative was zero at inception and an unrealized loss of $4.0 million since inception is recorded in other comprehensive income (loss) with the offset recorded to other noncurrent liabilities.  The fair value of the interest rate swap agreement recorded in accumulated other comprehensive income (loss) may be recognized in the statement of operations if certain terms of the floating-rate debt change, if the floating-rate debt is extinguished or if the interest rate swap agreement is terminated prior to maturity.  The Company has assessed the creditworthiness of the counterparty of the swap and concludes that no substantial risk of default exists as of December 31, 2009.

8.           ALLOWANCE FOR DOUBTFUL ACCOUNTS:

Trade accounts receivable are presented net of allowances for doubtful accounts, returns and credits of $10.7 million at December 31, 2009 and $10.0 million at March 31, 2009.

16
 
 

 

9.           SEGMENT INFORMATION:

The Company reports segment information consistent with the way management internally disaggregates its operations to assess performance and to allocate resources.  The Company’s business segments consist of Information Services and Information Products.  The Information Services segment includes the Company’s global lines of business for Customer Data Integration (CDI), Multi-channel Marketing Services, Infrastructure Management Services and Consulting Services.  The Information Products segment is comprised of the Company’s global Consumer Insights and Risk Mitigation Products lines of business and the U.S. Background Screening Products line of business.  The Company evaluates performance of the segments based on segment operating income, which excludes certain gains, losses and other items.  Beginning in the quarter ended September 30, 2009, the Company has revised its calculation of segment operating income to allocate all corporate expenses, excluding those reported as gains, losses, and other items, to the segments.  Segment results for prior periods have been reclassified to reflect the revised segment operating income.  Such reclassifications had no effect on consolidated results.

The gains, losses and other items are reported as other, since the Company does not hold the individual segments responsible for these charges.  The following tables present information by business segment (dollars in thousands):

   
For the quarter ended
December 31
   
For the nine months ended
December 31
 
   
2009
   
2008
   
2009
   
2008
 
Revenue:
                       
Information services
  $ 218,340     $ 231,077     $ 627,879     $ 701,377  
Information products
    65,467       89,979       183,014       279,687  
Total revenue
  $ 283,807     $ 321,056     $ 810,893     $ 981,064  
                                 
Income (loss) from operations:
                               
Information services
  $ 27,565     $ 30,358     $ 63,374     $ 84,524  
Information products
    2,832       4,218       1,086       6,988  
Other
    (538 )     (43,175 )     (858 )     (40,260 )
Income from operations
  $ 29,859     $ (8,599 )   $ 63,602     $ 51,252  
                                 


10.           RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES:

The Company records costs associated with employee terminations and other exit activity in accordance with applicable accounting standards when those costs become probable and are reasonably estimable.  The following table summarizes the restructuring activity for the nine months ended December 31, 2009 (dollars in thousands):

   
Associate-related reserves
   
Ongoing
contract costs
   
Total
 
Balance at March 31, 2009
  $ 8,233     $ 23,932     $ 32,165  
Payments
    (4,988 )     (3,302 )     (8,290 )
Adjustments
    831       386       1,217  
Balance at December 31, 2009
  $ 4,076     $ 21,016     $ 25,092  
                         

17
 
 

 

10.           RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES (continued):

Restructuring Plans

In fiscal 2009, the Company recorded a total of $42.3 million in restructuring charges and adjustments included in gains, losses and other items in the consolidated statement of operations.  The expense includes severance and other associate-related payments of $12.4 million, lease accruals of $3.2 million, asset disposal and write-offs of $26.5 million and adjustments to the fiscal 2008 restructuring plan of $0.2 million.  Included in the asset disposal was a $24.6 million loss incurred as a result of the Company terminating a software contract.

The associate-related payments of $12.4 million relate to the termination of associates in the United States and Europe.  Of the amount accrued, $2.9 million remained accrued as of December 31, 2009.  These costs are expected to be paid out in fiscal 2010.

The lease accruals of $3.2 million were evaluated under the accounting standard which governs exit costs.  The accounting standard requires the Company to make an accrual for the liability for lease costs that will continue to be incurred without economic benefit to the Company upon the date that the Company ceases using the leased property.  The remaining amount accrued at December 31, 2009 is $2.1 million.

In fiscal 2008, the Company recorded a total of $75.1 million in restructuring charges and adjustments included in gains, losses and other items in the consolidated statement of operations.  The expense includes severance and other associate-related payments of $19.3 million, lease accruals of $19.0 million, contract accruals of $6.7 million, asset disposal and write-offs of $29.6 million, and other related costs of $0.5 million.

The associate-related payments of $19.3 million relate to associates in the United States and Europe who either have been terminated or are to be terminated.  Of the $19.3 million accrued, $1.0 million remained accrued as of December 31, 2009.  These costs are expected to be paid out in fiscal 2010.

The lease accruals of $19.0 million were evaluated under the accounting standard which governs exit costs.  The remaining amount accrued at December 31, 2009 is $12.8 million.  These liabilities will be paid out over the remainder of the leased properties’ terms, of which the longest continues through November 2021.

The contract accruals of $6.7 million were evaluated under the applicable accounting standard which requires that a liability to terminate a contract before the end of its term be recognized when the contract is terminated in accordance with its terms.  Prior to March 31, 2008, the Company gave notice under certain service contracts to the other parties which caused the Company to incur termination payments under those contracts.  The remaining amount accrued of $5.8 million is expected to be paid during fiscal 2010.

During fiscal 2006, the Company recorded a total of $13.0 million in restructuring and other impairment charges included in gains, losses and other items in the consolidated statement of operations.  The table above includes the portion of the above charges which are yet to be paid as of March 31, 2009.  The remaining accrued costs of $0.5 million are expected to be paid out over the terms of the related leases or contracts, of which the longest one continues through fiscal 2012.

Gains, Losses and Other Items

Gains, losses and other items for each of the quarters presented are as follows (dollars in thousands):

   
For the quarter ended
December 31
   
For the nine months ended
December 31
 
   
2009
   
2008
   
2009
   
2008
 
Gain on disposition of operations in France
    (442 )     (1,071 )     (442 )     (1,910 )
Software and data disposal
    -       26,485               26,485  
Restructuring plan
    (5 )     17,761       230       17,194  
Other
    985       -       1,070       (1,509 )
    $ 538     $ 43,175     $ 858     $ 40,260  

18
 
 

 

11.           COMMITMENTS AND CONTINGENCIES:

Legal Matters

Richard Fresco, et al. v. R.L. Polk and Company and Acxiom Corporation, (U.S. Dist. Court, S.D. Florida, 07-60695) formerly, Linda Brooks and Richard Fresco v. Auto Data Direct, Inc., et al., (U.S. Dist. Court, S.D. Florida, 03-61063) is a putative class action lawsuit, removed to federal court in May 2003, filed against Acxiom and several other information providers.  The plaintiffs allege that the defendants obtained and used drivers’ license data in violation of the federal Drivers Privacy Protection Act.  To date, a class has not been certified.  Among other things, the plaintiffs seek injunctive relief, statutory damages, and attorneys’ fees.  Acxiom has agreed to settle the case and is seeking preliminary approval by the court.  The process of obtaining final approval of the settlement is expected to take several months.  Acxiom has accrued $5.0 million for the settlement and ancillary costs to obtain final approval and has paid $2.5 million of this amount into an escrow fund established for the settlement, leaving a remaining accrual of $2.5 million.  Two companion cases, Sharon Taylor, et al., v. Acxiom, et al., (U.S. District Court, E.D. Texas, 207CV001) and Sharon Taylor, et al. v. Biometric Access Company, et al., (U.S. District Court, E.D. Texas, 2:07-CV-00018), were filed in January 2007.  Both Taylor cases were dismissed by the District Court and are now on appeal.

Epsilon Data Management LLC, et al. v. Acxiom Corporation, (192nd Judicial District Court of Dallas County, TX, 07-08569) is a case that was brought by a competitor of Acxiom after the acquisition of three long-time data providers and alleges that Acxiom breached certain terms and conditions of the data licenses with those acquired companies in the course of building and distributing Acxiom data products.  The plaintiffs seek injunctive relief and unspecified damages.  Acxiom contends that it has acted in conformance with the data licenses and is vigorously defending the claims.

The Company is involved in a number of actions with the Data Protection Authority of Spain, involving alleged improper usage of individuals’ data.  The Company maintains that the Company’s usage of data has been in compliance with the applicable law.  However, upon advice of counsel and after review of the pending claims, the Company accrued $3.9 million as part of the cost of closure of the Spain office.  During the quarter ended March 31, 2008, the Company reversed $2.4 million of the accrual as some of the claims had been settled for less than the Company originally accrued.  As of December 31, 2009 the Company has a remaining accrual for this matter of $0.5 million.

The Company is involved in various other claims and legal actions in the ordinary course of business.  In the opinion of management, the ultimate disposition of all of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Commitments

The Company leases or licenses data processing equipment, software, office furniture and equipment, land and office space under noncancellable operating leases or licenses.  The Company has a future commitment for lease payments of $109.2 million.

In connection with a certain building, the Company has entered into a 50/50 joint venture with a local real estate developer.  The Company is guaranteeing a portion of the loan for the building.  In addition, in connection with the disposal of certain assets, the Company has guaranteed loans for the buyers of the assets.  These guarantees were made by the Company primarily to facilitate favorable financing terms for those third parties.  Should the third parties default on this indebtedness, the Company would be required to perform under its guarantee.  Substantially all of the third-party indebtedness is collateralized by various pieces of real property.  At December 31, 2009 the Company’s maximum potential future payments under this guarantee of third-party indebtedness was $1.5 million.

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12.           INCOME TAX

In determining the quarterly provision for income taxes, the Company makes its best estimate of the effective tax rate expected to be applicable for the full fiscal year. The anticipated effective tax rate for fiscal 2010 is approximately 40-42%.
 
At December 31, 2009, the Company had $6.2 million in gross unrecognized tax benefits, which is included in other liabilities on the balance sheet. This entire amount, if recognized, would impact the effective tax rate. The total amount of accrued interest and penalties for such unrecognized tax benefits, and included in the amount above, is $0.9 million. It is reasonably possible that the amount of unrecognized tax benefit with respect to the Company's uncertain tax positions will increase or decrease during the next 12 months. However, management does not expect the change to have a significant effect on consolidated results of operations or financial position.

13.           FINANCIAL INSTRUMENTS:

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

Cash and cash equivalents, trade receivables, unbilled and notes receivable, short-term borrowings and trade payables—The carrying amount approximates fair value because of the short maturity of these instruments.

Long-term debt—The interest rate on the term loan and revolving credit agreement is adjusted for changes in market rates and therefore the carrying value of these loans approximates fair value.  The estimated fair value of other long-term debt was determined based upon the present value of the expected cash flows considering expected maturities and using interest rates currently available to the Company for long-term borrowings with similar terms.  At December 31, 2009, the estimated fair value of long-term debt approximates its carrying value.

Derivative instruments included in other liabilities—The carrying value is adjusted to fair value through other comprehensive income at each balance sheet date.  The fair value is determined from an interest-rate futures model.

Under applicable accounting standards, financial assets and liabilities are classified in their entirety based on a hierarchy using the  lowest level of input that is significant to the fair value measurements. The Company assigned assets and liabilities to Level 1—quoted prices in active markets for identical assets or liabilities, Level 2—significant other observable inputs and Level 3—significant unobservable inputs.

The following table presents the balances of assets and liabilities measured at fair value as of December 31, 2009 (dollars in thousands):

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                       
Other current assets
  $ 11,932     $ -     $ -     $ 11,932  
Total assets
  $ 11,932     $ -     $ -     $ 11,932  
                                 
Liabilities:
                               
Other current liabilities
  $ 11,932     $ -     $ -     $ 11,932  
Long-term debt