Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - LiveRamp Holdings, Inc.Financial_Report.xls
EX-32.2 - EX. 32.2 CFO (JENSON) - LiveRamp Holdings, Inc.ex32-2.htm
EX-32.1 - EX. 32.1 CEO (HOWE) - LiveRamp Holdings, Inc.ex32-1.htm
EX-31.2 - EX. 31.2 CFO (JENSON) - LiveRamp Holdings, Inc.ex31-2.htm
EX-31.1 - EX. 31.1 CEO (HOWE) - LiveRamp Holdings, Inc.ex31-1.htm

 
 


 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2014
 
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 8190, 601 E. Third Street,
Little Rock, Arkansas
(Address of Principal Executive Offices)
72203-8190
(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 files).
 
Yes [X]
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 definitions 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 in 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 November 4, 2014 was 77,011,360.
 

 

 

ACXIOM CORPORATION AND SUBSIDIARIES
INDEX
REPORT ON FORM 10-Q
September 30, 2014

Part I.           Financial Information                                                                                                                                                                             Page No.
Item 1.
Financial Statements
 
Condensed Consolidated Balance Sheets
as of September 30, 2014 and March 31, 2014 (Unaudited)
 
 
3
                                                                                                                                                            
Condensed Consolidated Statements of Operations
for the Three months ended September 30, 2014 and 2013 (Unaudited)
 
 
4
                                                                                                                                              
Condensed Consolidated Statements of Operations
for the Six months ended September 30, 2014 and 2013 (Unaudited)
 
 
5
                                                                                                                                                               
Condensed Consolidated Statements of Comprehensive Income (Loss)
for the Three months ended September 30, 2014 and 2013 (Unaudited)
 
 
6
                                                                                                                                          
Condensed Consolidated Statements of Comprehensive Income (Loss)
for the Six months ended September 30, 2014 and 2013 (Unaudited)
 
 
7
                                                                                                             
Condensed Consolidated Statement of Equity
for the Six months ended September 30, 2014 (Unaudited)
 
 
8
                                                                                                            
Condensed Consolidated Statements of Cash Flows
for the Six months ended September 30, 2014 and 2013 (Unaudited)
 
 
 
9-10
        Notes to Condensed Consolidated Financial Statements
 
11-26
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
27-38
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
39
 
Item 4.
Controls and Procedures
 
39
 

Part II.       Other Information
Item 1.
Legal Proceedings
 
40
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
40
 
Item 6.
Exhibits
 
41
 
Signature
 
 
42
 
Exhibit Index
 
 
43

                                                                                                                             
 

 

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
   
September 30,
2014
   
March 31,
2014
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 109,810     $ 418,586  
Trade accounts receivable, net
    156,500       160,718  
Deferred income taxes
    18,090       12,870  
Refundable income taxes
    5,128       11,535  
Restricted cash held in escrow
    31,000       -  
Other current assets
    57,373       54,484  
Assets from discontinued operations
    952       7,332  
Total current assets
    378,853       665,525  
Property and equipment, net of accumulated depreciation and amortization
    221,810       216,906  
Software, net of accumulated amortization
    79,768       39,425  
Goodwill
    573,468       358,384  
Purchased software licenses, net of accumulated amortization
    16,114       18,584  
Other assets, net
    45,215       24,477  
    $ 1,315,228     $ 1,323,301  
LIABILITIES AND EQUITY
               
Current liabilities:
               
Current installments of long-term debt
  $ 34,118     $ 28,567  
Trade accounts payable
    50,112       36,179  
Accrued expenses
               
Payroll
    31,956       62,182  
Other
    67,229       70,412  
Acquisition escrow payable
    31,000       -  
Deferred revenue
    35,678       47,638  
Income taxes payable
    -       241  
Liabilities from discontinued operations
    1,671       4,250  
Total current liabilities
    251,764       249,469  
Long-term debt
    270,869       289,043  
Deferred income taxes
    101,424       90,226  
Other liabilities
    12,689       11,706  
Commitments and contingencies
               
Equity:
               
Common stock
    12,707       12,584  
Additional paid-in capital
    1,005,443       981,985  
Retained earnings
    593,681       602,829  
Accumulated other comprehensive income
    11,856       13,662  
Treasury stock, at cost
    (945,205 )     (928,203 )
Total equity
    678,482       682,857  
    $ 1,315,228     $ 1,323,301  
See accompanying notes to condensed consolidated financial statements.
               

 

 

ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
 
 
   
For the Three Months ended
September 30
 
   
2014
   
2013
 
             
Revenues
  $ 260,037     $ 267,777  
Operating costs and expenses:
               
Cost of revenue
    205,318       199,107  
Selling, general and administrative
    50,483       42,859  
Gains, losses and other items, net
    929       6,584  
Total operating costs and expenses
    256,730       248,550  
Income from operations
    3,307       19,227  
Other expense:
               
Interest expense
    (2,395 )     (2,980 )
Other, net
    (115 )     (350 )
Total other expense
    (2,510 )     (3,330 )
Earnings from continuing operations before income taxes
    797       15,897  
Income taxes
    2,293       6,459  
Net earnings (loss) from continuing operations
    (1,496 )     9,438  
Earnings (loss) from discontinued operations, net of tax
    (48 )     426  
Net earnings (loss)
    (1,544 )     9,864  
Less:  Net earnings attributable to noncontrolling interest
    -       25  
Net earnings (loss) attributable to Acxiom
  $ (1,544 )   $ 9,839  
                 
Basic earnings (loss) per share:
               
Net earnings (loss) from continuing operations
  $ (0.02 )   $ 0.13  
Net earnings (loss) from discontinued operations
    -       0.01  
Net earnings (loss)
  $ (0.02 )   $ 0.13  
                 
Net earnings (loss) attributable to Acxiom stockholders
  $ (0.02 )   $ 0.13  
                 
Diluted earnings (loss) per share:
               
Net earnings (loss) from continuing operations
  $ (0.02 )   $ 0.12  
Net earnings (loss) from discontinued operations
    -       0.01  
Net earnings (loss)
  $ (0.02 )   $ 0.13  
                 
Net earnings (loss) attributable to Acxiom stockholders
  $ (0.02 )   $ 0.13  
                 
                 
Some earnings (loss) per share amounts may not add due to rounding.
               
See accompanying notes to condensed consolidated financial statements.
               


 

 


ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
 
     
For the Six Months ended
September 30
 
   
2014
   
2013
 
             
Revenues
  $ 502,252     $ 524,955  
Operating costs and expenses:
               
Cost of revenue
    397,621       395,212  
Selling, general and administrative
    97,421       80,474  
Gains, losses and other items, net
    8,381       6,584  
Total operating costs and expenses
    503,423       482,270  
Income (loss) from operations
    (1,171 )     42,685  
Other expense:
               
Interest expense
    (4,966 )     (5,999 )
Other, net
    (528 )     (246 )
Total other expense
    (5,494 )     (6,245 )
Earnings (loss) from continuing operations before income taxes
    (6,665 )     36,440  
Income taxes
    903       14,499  
Net earnings (loss) from continuing operations
    (7,568 )     21,941  
Earnings (loss) from discontinued operations, net of tax
    (1,580 )     1,018  
Net earnings (loss)
    (9,148 )     22,959  
Less:  Net loss attributable to noncontrolling interest
    -       (60 )
Net earnings (loss) attributable to Acxiom
  $ (9,148 )   $ 23,019  
                 
Basic earnings (loss) per share:
               
Net earnings (loss) from continuing operations
  $ (0.10 )   $ 0.30  
Net earnings (loss) from discontinued operations
    (0.02 )     0.01  
Net earnings (loss)
  $ (0.12 )   $ 0.31  
                 
Net earnings (loss) attributable to Acxiom stockholders
  $ (0.12 )   $ 0.31  
                 
Diluted earnings (loss) per share:
               
Net earnings (loss) from continuing operations
  $ (0.10 )   $ 0.29  
Net earnings (loss) from discontinued operations
    (0.02 )     0.01  
Net earnings (loss)
  $ (0.12 )   $ 0.30  
                 
Net earnings (loss) attributable to Acxiom stockholders
  $ (0.12 )   $ 0.30  
                 
                 
                 
See accompanying notes to condensed consolidated financial statements.
               


 

 


ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in thousands)
 
 
     
For the Three Months ended
September 30
 
   
2014
   
2013
 
             
Net earnings (loss)
  $ (1,544 )   $ 9,864  
Other comprehensive income (loss):
               
Change in foreign currency translation adjustment
    (2,811 )     3,660  
Unrealized gain on interest rate swap
    239       220  
Other comprehensive income (loss)
    (2,572 )     3,880  
Comprehensive income (loss)
    (4,116 )     13,744  
Less: comprehensive earnings attributable to noncontrolling interests
    -       25  
Comprehensive income (loss) attributable to Acxiom stockholders
  $ (4,116 )   $ 13,719  
                 
                 
                 
                 
                 
See accompanying notes to condensed consolidated financial statements.
               


 

 



ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in thousands)
 
 
     
For the Six Months ended
September 30
 
   
2014
   
2013
 
             
Net earnings (loss)
  $ (9,148 )   $ 22,959  
Other comprehensive income (loss):
               
Change in foreign currency translation adjustment
    (1,894 )     913  
Unrealized gain on interest rate swap
    88       418  
Other comprehensive income (loss)
    (1,806 )     1,331  
Comprehensive income (loss)
    (10,954 )     24,290  
Less: comprehensive loss attributable to noncontrolling interests
    -       (60 )
Comprehensive income (loss) attributable to Acxiom stockholders
  $ (10,954 )   $ 24,350  
                 
                 
                 
                 
                 
See accompanying notes to condensed consolidated financial statements.
               

 

 


ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
SIX MONTHS ENDED SEPTEMBER 30, 2014
(Unaudited)
(Dollars in thousands)

                   
Accumulated
             
   
Common Stock
 
Additional
     
other
 
Treasury Stock
     
   
Number
     
paid-in
 
Retained
 
comprehensive
 
Number
       
Total
   
of shares
 
Amount
 
Capital
 
Earnings
 
income
 
of shares
 
Amount
   
Equity
Balances at March 31, 2014
 
125,843,608
 
$12,584
 
$981,985
 
$    602,829
 
$13,662
 
(49,203,507)
 
$(928,203)
   
$682,857
Employee stock awards, benefit plans and other issuances
 
232,806
 
24
 
4,638
 
-
 
-
 
(366,731)
 
(7,149)
   
(2,487)
Non-cash share-based compensation
 
-
 
-
 
11,941
 
-
 
-
 
-
 
15
   
11,956
Restricted stock units vested
 
989,168
 
99
 
(99)
 
-
 
-
 
-
 
-
   
-
Acquisition of treasury stock
 
-
 
-
 
-
 
-
 
-
 
(528,918)
 
(9,868)
   
(9,868)
LiveRamp replacement stock options
 
-
 
-
 
6,978
                   
6,978
Comprehensive loss:
                                 
Foreign currency translation
 
-
 
-
 
-
 
-
 
(1,894)
 
-
 
-
   
(1,894)
Unrealized gain on interest rate swap
 
-
 
-
 
-
 
-
 
88
 
-
 
-
   
88
Net loss
 
-
 
-
 
-
 
(9,148)
 
-
 
-
 
-
   
(9,148)
Balances at September 30, 2014
 
127,065,582
 
$12,707
 
$1,005,443
 
$    593,681
 
$11,856
 
(50,099,156)
 
$   (945,205)
   
$678,482
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
 
See accompanying notes to condensed consolidated financial statements

 

 

ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
     
For the Six Months ended
September 30
 
   
2014
   
2013
 
Cash flows from operating activities:
           
Net earnings (loss)
  $ (9,148 )   $ 22,959  
Loss (earnings) from discontinued operations, net of tax
    1,580       (1,018 )
Adjustments to reconcile net earnings (loss) to net cash from operating activities:
               
Depreciation and amortization
    55,686       50,241  
Deferred income taxes
    (6,022 )     (528 )
Non-cash share-based compensation expense
    11,956       6,889  
Changes in operating assets and liabilities:
               
Accounts receivable, net
    8,608       (4,842 )
Other assets
    3,480       7  
Deferred costs
    (1,383 )     -  
Accounts payable and other liabilities
    (24,542 )     (18,874 )
Deferred revenue
    (12,556 )     3,929  
Net cash provided by operating activities
    27,659       58,763  
 
Cash flows from investing activities:
               
Capitalized software development costs
    (10,577 )     (13,614 )
Capital expenditures
    (38,397 )     (18,042 )
Data acquisition costs
    (1,103 )     (2,874 )
Net cash paid in acquisitions
    (265,672 )     -  
Net cash used in investing activities
    (315,749 )     (34,530 )
 
Cash flows from financing activities:
               
Payments of debt
    (10,858 )     (9,233 )
Acquisition of treasury stock
    (9,868 )     (38,837 )
Sale of common stock, net of stock acquired for withholding taxes
    (2,487 )     18,559  
Net cash used in financing activities
    (23,213 )     (29,511 )
Net cash used in continuing operations
    (311,303 )     (5,278 )
 
Cash flows from discontinued operations:
               
Net cash provided by (used in) operating activities
    69       (1,393 )
Net cash provided by (used in) investing activities
    2,927       (147 )
Net cash provided by (used in) discontinued operations
    2,996       (1,540 )
 
Net cash used in continuing and discontinued operations
    (308,307 )     (6,818 )
Effect of exchange rate changes on cash
    (469 )     460  
Net change in cash and cash equivalents
    (308,776 )     (6,358 )
Cash and cash equivalents at beginning of period
    418,586       222,974  
 
Cash and cash equivalents at end of period
  $ 109,810     $ 216,616  
                 


 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Dollars in thousands)
     
For the Six Months ended
September 30
 
   
2014
   
2013
 
 
Supplemental cash flow information:
           
Cash paid during the period for:
           
Interest
  $ 5,391     $ 5,986  
Income taxes
    356       11,008  
Payments on capital leases and installment payment arrangements
    2,319       5,239  
Other debt payments
    8,539       3,994  
 
 
See accompanying notes to condensed consolidated financial statements.
               
                 
                 
                 
                 


 
10 

 

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 18 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, 2014 (“2014 Annual Report”), as filed with the Commission on May 28, 2014.  This report and the accompanying condensed consolidated financial statements should be read in connection with the 2014 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, 2015.
 
On July 1, 2014, we completed our acquisition of LiveRamp, Inc. (“LiveRamp”). The results of LiveRamp are reflected in our condensed consolidated results as of the acquisition date. (See note 5).

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 of the Notes to Consolidated Financial Statements and in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s 2014 Annual Report.

Reclassifications

Certain amounts reported in previous periods have been reclassified to conform to the current presentation.  On May 30, 2014 the Company substantially completed the sale of its U.K. call center operation, 2Touch, to Parseq Ltd., a European business process outsourcing service provider.  Some assets of the 2Touch operation are subject to a second closing, expected to occur during the current fiscal year.  The business qualified for treatment as discontinued operations during the current fiscal year.  The results of operations and the balance sheet amounts pertaining to 2Touch have been classified as discontinued operations in the condensed consolidated financial statements.  Refer to Note 4, Discontinued Operations, for more information regarding the sale.


 
11 

 


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

Earnings (Loss) Per Share

A reconciliation of the numerator and denominator of basic and diluted earnings (loss) per share is shown below (in thousands, except per share amounts):
 
   
For the quarter ended
September 30
   
For the six months ended
September 30
 
   
2014
   
2013
   
2014
   
2013
 
Basic earnings (loss) per share:
                       
Net earnings (loss) from continuing operations
  $ (1,496 )   $ 9,438     $ (7,568 )   $ 21,941  
Net earnings (loss) from discontinued operations
    (48 )     426       (1,580 )     1,018  
Net earnings (loss)
  $ (1,544 )   $ 9,864     $ (9,148 )   $ 22,959  
Net earnings (loss) attributable to noncontrolling interest
    -       25       -       (60 )
Net earnings (loss) attributable to Acxiom
  $ (1,544 )   $ 9,839     $ (9,148 )   $ 23,019  
                                 
Basic weighted-average shares outstanding
    77,123       73,778       76,978       73,728  
Basic earnings (loss) per share:
                               
Continuing operations
  $ (0.02 )   $ 0.13     $ (0.10 )   $ 0.30  
Discontinued operations
  $ -     $ 0.01     $ (0.02 )   $ 0.01  
Net earnings (loss)
  $ (0.02 )   $ 0.13     $ (0.12 )   $ 0.31  
Net earnings (loss) attributable to noncontrolling interest
  $ -     $ -     $ -     $ -  
Net earnings (loss) attributable to Acxiom
  $ (0.02 )   $ 0.13     $ (0.12 )   $ 0.31  
                                 
Diluted earnings (loss) per share:
                               
Basic weighted-average shares outstanding
    77,123       73,778       76,978       73,728  
Dilutive effect of common stock options, warrants, and restricted stock as computed under the treasury stock method
    -       2,258       -       2,036  
Diluted weighted-average shares outstanding
    77,123       76,036       76,978       75,764  
Diluted earnings (loss) per share:
                               
Continuing operations
  $ (0.02 )   $ 0.12     $ (0.10 )   $ 0.29  
Discontinued operations
  $ -     $ 0.01     $ (0.02 )   $ 0.01  
Net earnings (loss)
  $ (0.02 )   $ 0.13     $ (0.12 )   $ 0.30  
Net earnings (loss) attributable to noncontrolling interest
  $ -     $ -     $ -     $ -  
Net earnings (loss) attributable to Acxiom
  $ (0.02 )   $ 0.13     $ (0.12 )   $ 0.30  
                                 
Some earnings (loss) per share amounts may not add due to rounding.

Options and warrants to purchase shares of common stock 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
September 30
 
For the six months ended
September 30
   
2014
 
2013
 
2014
 
2013
Number of shares outstanding under options, warrants and restricted stock units
 
3,446
 
2,224
 
1,813
 
3,390
Range of exercise prices for options and warrants
 
$19.02-$62.06
 
$21.46-$62.06
 
$21.17-$62.06
 
$21.46-$62.06
                 

 
 
12

 
In addition to the antidilutive items shown above, because of the loss reported for the quarter and six months ended September 30, 2014, all options, warrants, and restricted stock are excluded from the diluted weighted-average shares calculation since the effect would be antidilutive.

Stockholders’ Equity

On August 29, 2011, the board of directors adopted a common stock repurchase program.  That program was subsequently modified and expanded on December 5, 2011, on May 24, 2012, on February 5, 2013, and again on November 18, 2013.  Under the modified common stock repurchase program, the Company may purchase up to $250.0 million of its common stock through the period ending November 18, 2014. During the six months ended September 30, 2014, the Company repurchased 0.5 million shares of its common stock for $9.9 million.  Through September 30, 2014, the Company had repurchased 12.9 million shares of its stock for $202.4 million, leaving remaining capacity of $47.6 million under the stock repurchase program.

Accumulated Other Comprehensive Income

The accumulated balances for each component of other comprehensive income are as follows (dollars in thousands):

   
September 30,
2014
   
March 31,
2014
 
Foreign currency translation
  $ 11,793     $ 13,686  
Unrealized gain/(loss) on interest rate swap
    63       (24 )
    $ 11,856     $ 13,662  

Noncontrolling Interest

During fiscal year 2011, the Company acquired a 70% interest in GoDigital (Acxiom Brazil), a data quality and precision marketing firm located in Brazil.  Since Acxiom had voting control of the entity, its results were included in Acxiom’s consolidated results.  The interest that was not Acxiom-owned was reflected as noncontrolling interest in the condensed consolidated statement of operations and the condensed consolidated balance sheets.  During fiscal 2014, the Company acquired the balance of the outstanding equity interests it did not already own in Acxiom Brazil and, as a result, the subsidiary is now wholly-owned.

3.           SHARE-BASED COMPENSATION:

Share-based Compensation Plans

The Company has stock option and equity compensation plans for which a total of 26.4 million shares of the Company’s common stock have been reserved for issuance since inception of the plans.  These plans provide that the exercise 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 requires that nonqualified options also be priced at or above the fair market value of the common stock at the time of grant.  At September 30, 2014, there were a total of 2.2 million shares available for future grants under the plans.

Stock Option Activity
The Company granted 381,509 stock options in the six months ended September 30, 2014, exclusive of replacement options granted in connection with the LiveRamp acquisition.  The per-share weighted-average fair value of the stock options granted during the six months ended September 30, 2014 was $8.14.  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 2.5%; expected option life of 4.4 years; expected volatility of 43% and a suboptimal exercise multiple of 1.4.  The dividend yield was determined to be 0.0% since Acxiom is currently not paying dividends and there are no plans to pay dividends.  The risk-free rate was determined by reference to the U.S. Treasury securities with a term equal to the life of the options.  The expected option life is an output of the lattice model.  The expected volatility was determined by considering both the historical volatility of Acxiom stock, as well as the implied volatility of traded Acxiom options.  The suboptimal exercise multiple was determined using actual historical exercise activity of Acxiom options.
 
As part of the Company’s acquisition of LiveRamp, the Company issued replacement stock options to LiveRamp employees who had outstanding unvested stock options to purchase LiveRamp stock.  The fair value of the replacement options was determined using a customized binomial lattice model with the following assumptions:  dividend yield of 0.0% since Acxiom does not currently pay dividends; risk-free interest rates of from 1.57% to 2.54%, based on the
 
 
13

 
 
rate of U.S. Treasury securities with a term equal to the remaining term of each option; remaining terms of each option of from 6.1 to 9.7 years; expected volatility of 43%, based on both the historical volatility of Acxiom stock, as well as the implied volatility of traded Acxiom options; and a suboptimal exercise multiple of 1.4, based on actual historical exercise activity of Acxiom options.

The number of shares of each replacement option and the exercise price of each replacement option was determined by converting LiveRamp options into equivalent Acxiom options by multiplying the number of shares subject to LiveRamp options by the exchange ratio of .63774 and by dividing the exercise price for each LiveRamp option by the exchange ratio of .63774.  Once the value of each replacement option was determined, the percentage of that value which was attributed to employee service prior to the acquisition date was allocated to the purchase price of LiveRamp, and the remaining value will be expensed by the Company over the remaining vesting period of each option.  The total included in the purchase price was $7.0 million (see note 5) and the total to be expensed in the future is $23.5 million.

Option activity for the six months ended September 30, 2014 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, 2014
    4,538,518     $ 20.30              
Granted
    381,509     $ 21.17              
LiveRamp replacement stock options
    1,473,668     $ 1.37              
Exercised
    (34,465 )   $ 10.05           $ 269  
Forfeited or cancelled
    (562,484 )   $ 32.50                
Outstanding at September 30, 2014
    5,796,746     $ 14.42       5.33     $ 28,023  
 
Exercisable at September 30, 2014
    3,373,001     $ 18.18       3.29     $ 7,014  

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 the quarter and the exercise price for each in-the-money option) that would have been realized by the option holders had option holders exercised their options on September 30, 2014.  This amount changes based upon changes in the fair market value of Acxiom’s common stock.

Following is a summary of stock options outstanding and exercisable as of September 30, 2014:

   
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
                     
$    0.63 - $    8.90
 
1,464,856
 
7.79 years
 
$           1.56
 
183,530
 
$           2.64
$  11.08 - $  14.42
 
1,719,118
 
5.76 years
 
$         13.21
 
1,195,887
 
$         13.10
$  15.10 - $  19.76
 
686,167
 
1.95 years
 
$         16.38
 
686,167
 
$         16.38
$  20.44 - $  25.00
 
1,588,894
 
4.90 years
 
$         22.32
 
989,258
 
$         22.95
$  26.33 - $  29.30
 
114,530
 
0.79 years
 
$         27.94
 
114,530
 
$         27.94
$  32.85 - $  35.16
 
91,259
 
2.53 years
 
$         34.45
 
71,707
 
$         34.88
$  41.38 - $  62.06
 
131,922
 
0.88 years
 
$         41.83
 
131,922
 
$         41.83
   
5,796,746
 
5.33 years
 
$         14.42
 
3,373,001
 
$         18.18

Total expense related to stock options for the six months ended September 30, 2014 and 2013 was approximately $3.9 million and $1.1 million respectively.  Future expense for these options is expected to be approximately $27.5 million over the next four years.

Stock Appreciation Right (SAR) Activity
During the six months ended September 30, 2014, the Company granted 245,404 performance-based SARs with a value at the date of grant of $0.5 million and having an exercise price of $40.  All of the performance-based SARs granted in the current period vest subject to attainment of performance criteria established by the compensation committee of the board of directors.  The units granted in the current period may vest in a number of SARs up to 100% of the award, based on the attainment of certain revenue targets for the period from April 1, 2014 to March 31, 2017.  At vesting, the SARs will be automatically exercised, and the award recipient may receive a number of common stock shares
 
 
14

 
equal to the number of SARs that are being exercised multiplied by the quotient of (a) the final Company stock market value (up to a maximum share value of $70) minus the SAR exercise price, divided by (b) the SAR exercise price.  The SARs contain an accelerated exercise provision if the closing market price of the Company’s stock exceeds the $70 maximum share value for 20 consecutive trading days during the performance period.   The grant date value of the performance-based SARs is determined using a Monte Carlo simulation model.   

Following is a summary of SAR activity for the six months ended September 30, 2014:
   
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, 2014
    -     $ -              
Granted
    245,404     $ 40.00              
Outstanding at September 30, 2014
    245,404     $ 40.00       2.50     $ -  
 
Exercisable at September 30, 2014
    -     $ -       -     $ -  

Total expense related to SARs for the six months ended September 30, 2014 was $0.1 million.  Future expense for these SARs is expected to be approximately $0.5 million over the next three years.

Restricted Stock Unit Activity
During the six months ended September 30, 2014, the Company granted time-vesting restricted stock units covering 1,547,185 shares of common stock with a value at the date of grant of $33.4 million, of which units related to 1,075,392 shares, with a value at date of grant of $23.7 million, were granted to former LiveRamp employees subsequent to the acquisition of LiveRamp (see note 5).  Of the restricted stock units granted in the current period, 606,423 vest in equal annual increments over four years, 911,802 vest in equal annual increments over two years, and 28,960 vest in one year.    Valuation of these units is equal to the quoted market price for the shares on the date of grant.

Non-vested time-vesting restricted stock unit activity for the six-month period ending September 30, 2014 was as follows:

   
Number
of shares
   
Weighted average fair value per
share at grant date
   
Weighted-average remaining contractual term (in years)
 
Outstanding at March 31, 2014
    1,078,029     $ 18.46       2.17  
Granted
    1,547,185     $ 21.59          
Vested
    (387,629 )   $ 17.62          
Forfeited or cancelled
    (117,505 )   $ 21.05          
Outstanding at September 30, 2014
    2,120,080     $ 20.76       2.33  

During the six months ended September 30, 2014, the Company granted performance-based restricted stock units covering 249,816 shares of common stock with a value at the date of grant of $4.8 million.  All of the performance-based restricted stock units granted in the current period vest subject to attainment of performance criteria established by the compensation committee of the board of directors.  The units granted in the current period may vest in a number of shares from zero to 200% of the award, based on the attainment of an earnings-per-share target for fiscal 2017, with a modifier based on the total shareholder return of Acxiom stock compared to total shareholder return of a group of peer companies established by the compensation committee of the board of directors for the period from April 1, 2014 to March 31, 2017.  The value of the performance units is determined using a Monte Carlo simulation model.  


 
15 

 

Non-vested performance-based restricted stock unit activity for the six-month period ending September 30, 2014 was as follows:

   
Number
of shares
   
Weighted average fair value per
share at grant date
   
Weighted-average remaining contractual term (in years)
 
Outstanding at March 31, 2014
    1,066,828     $ 14.19       0.91  
Granted
    249,816     $ 19.09          
Vested
    (523,378 )   $ 9.64          
Forfeited or cancelled
    (21,490 )   $ 23.69          
Outstanding at September 30, 2014
    771,776     $ 18.60       1.40  

Total expense related to all restricted stock units in the six months ended September 30, 2014 and 2013 was approximately $7.8 million and $5.8 million respectively.  Future expense for these restricted stock units is expected to be approximately $44.9 million over the next four years.

Other Performance Unit Activity
During the six months ended September 30, 2014, the Company granted 201,464 performance-based units with a value at the date of grant of $1.0 million.  All of the performance-based units granted in the current period vest subject to attainment of performance criteria established by the compensation committee of the board of directors.  The units granted in the current period may vest in a number of units up to 100% of the award, based on the attainment of certain revenue targets for the period from April 1, 2014 to March 31, 2017.  At vesting, the award recipient may receive a number of common stock shares equal to the number of units vested multiplied by a share price factor.  The share price factor modifies the final number of common shares awarded based on the Company’s stock price having a range of 0% at a $40 Company stock price, or below, to 100% at a $70 Company stock price. The units also contain an accelerated exercise provision if the closing market price of the Company’s stock exceeds the $70 maximum share value for 20 consecutive trading days during the performance period.   The grant date value of the performance-based units is determined using a Monte Carlo simulation model.  

Following is a summary of other performance unit activity for the six months ended September 30, 2014:
   
Number
of shares
   
Weighted average fair value per
share at grant date
   
Weighted-average remaining contractual term (in years)
 
Outstanding at March 31, 2014
    -     $ -        
Granted
    201,464     $ 5.18        
Outstanding at September 30, 2014
    201,464     $ 5.18       2.50  

Total expense related to other performance units for the six months ended September 30, 2014 was $0.1 million.  Future expense for these performance units is expected to be approximately $0.9 million over the next three years.

4.           DISCONTINUED OPERATIONS:

On May 30, 2014, the Company substantially completed the sale of its U.K. call center operation, 2Touch, to Parseq Ltd., a European business process outsourcing service provider.  Some assets of the 2Touch operation are subject to a second closing, expected to occur during the current fiscal year.  The business qualified for treatment as discontinued operations during the first quarter of the current fiscal year.  The results of operations, cash flows, and the balance sheet amounts pertaining to 2Touch have been classified as discontinued operations in the condensed consolidated financial statements.

Prior to receiving the discontinued operations classification, the 2Touch business unit was included in the Other services segment in the Company’s segment results.  However, beginning in the first quarter of the current fiscal year, the 2Touch business unit was excluded from segment results and segregated as discontinued operations.


 
16 

 

Summary results of operations of the 2Touch business unit for the three and six months ended September 30, 2014 and 2013, respectively, are segregated and included in earnings (loss) from discontinued operations, net of tax, in the condensed consolidated statements of operations and are as follows (dollars in thousands):

   
For the quarter ended
September 30
   
For the six months ended
September 30
 
   
2014
   
2013
   
2014
   
2013
 
Revenues
  $ 1,478     $ 8,494     $ 7,240     $ 17,509  
                                 
Earnings (loss) from discontinued operations before income taxes
  $ (48 )   $ 404     $ 295     $ 1,018  
Loss on sale of discontinued operations before income taxes
    -       -       (1,875 )     -  
Income taxes
    -       (22 )     -       -  
Earnings (loss) from discontinued operations, net of tax
  $ (48 )   $ 426     $ (1,580 )   $ 1,018  
                                 

The carrying amounts of the major classes of assets and liabilities of the 2Touch business unit are segregated and included in assets from discontinued operations and liabilities from discontinued operations in the condensed consolidated balance sheets and are as follows (dollars in thousands):

   
September 30,
2014
   
March 31,
 2014
 
Trade accounts receivable, net
  $ 719     $ 6,451  
Other current assets
    -       881  
Other assets, net
    233       -  
Assets from discontinued operations
  $ 952     $ 7,332  
                 
Trade accounts payable and accrued expenses
  $ -     $ 4  
Accrued payroll and related expenses
    144       1,790  
Other accrued expenses
    1,472       2,350  
Deferred revenue
    55       106  
Liabilities from discontinued operations
  $ 1,671     $ 4,250  
                 

5.           ACQUISITIONS

On July 1, 2014, the Company acquired all of the outstanding shares of LiveRamp, Inc. (“LiveRamp”), a leading service provider for onboarding customer data into digital marketing applications.  As a result of this transaction, LiveRamp is now a wholly-owned subsidiary of the Company.  The Company acquired LiveRamp to, among other things, provide clients with solutions for bringing offline customer data online with better matching, more connectivity, and faster onboarding.  The Company has included the financial results of LiveRamp in the condensed consolidated financial statements from the date of acquisition.  LiveRamp is included in the Marketing and data services segment.  The acquisition date fair value of the consideration transferred for LiveRamp was approximately $272.7 million which consisted of the following (dollars in thousands):

   
July 1, 2014
 
Cash, net of $12.0 million cash acquired
  $ 234,672  
Restricted cash held in escrow
    31,000  
Fair value of stock options issued included in purchase price
    6,978  
Total fair value of consideration transferred
  $ 272,650  
         
The fair value of the stock options issued by the Company was determined using a binomial lattice approach (see note 3).  The total fair value of the stock options issued was $30.5 million of which $7.0 million was allocated to the purchase consideration and $23.5 million was allocated to future services and will be expensed over the remaining service periods on a straight-line basis.

 
17

 
On the acquisition date, the Company delivered $31.0 million of cash to an escrow agent according to the terms of the purchase agreement.  The cash is restricted as to withdrawal or use by the Company and is expected to be delivered to the LiveRamp sellers one year from the acquisition date.  The escrowed cash can be used to reimburse the Company for any indemnification claims against the sellers, as described in the purchase agreement.  The principal escrow amount is owned by the Company until funds are delivered to the LiveRamp sellers.  All interest and earnings on the principal escrow amount remain property of the Company.  The restricted cash is reported as restricted cash held in escrow, with an offsetting liability reported as acquisition escrow payable, on the condensed consolidated balance sheet.

The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the date of the acquisition (dollars in thousands):

   
July 1, 2014
 
Assets acquired:
     
Cash
  $ 12,016  
Trade accounts receivable
    5,206  
Deferred tax assets
    10,444  
Goodwill
    215,967  
Developed technology (Software)
    40,000  
Other intangible assets (Other assets, net)
    26,500  
Other current and noncurrent assets
    1,307  
      311,440  
Deferred tax liabilities
    (21,820 )
Accounts payable, accrued expenses and deferred revenue
    (4,954 )
Net assets acquired
    284,666  
Less:
       
Cash acquired
    12,016  
Net purchase price allocated
  $ 272,650  
Less:
       
Fair value of stock options issued included in purchase price
    6,978  
Net cash paid
  $ 265,672  
         
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill and is primarily attributed to expectations to continue to develop future technology and products related to the onboarding of customer data into digital marketing applications, development of future customer relationships, and LiveRamp’s assembled workforce.  The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on preliminary calculations and valuations and on management’s estimates and assumptions and are based on the information that was available as of the date of the acquisition.  The Company believes that the information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but certain items such as current and noncurrent income taxes payable and deferred taxes may be subject to change as additional information is received and certain tax returns are finalized.  Therefore, the provisional measurements of fair value shown above are subject to change.  Any adjustments required will result in adjustment to goodwill.  The Company expects to finalize the valuation as soon as practicable, but not later than the end of the current fiscal year.  The goodwill balance is not deductible for U.S. income tax purposes.
 
The fair value of trade accounts receivable is comprised of $5.0 million of gross accounts receivable, of which an immaterial amount is expected to be uncollectible, and $0.2 million of unbilled revenue.  The amounts allocated to other intangible assets in the table above include developed technology, customer relationships, and a trade name.  Intangible assets will be amortized on a straight-line basis over the estimated useful lives of 2 to 6 years. The following table presents the components of intangible assets acquired and their estimated useful lives as of the acquisition date (dollars in thousands):

   
Fair value
   
Useful life
 (in years)
 
Developed technology
  $ 40,000       4  
Customer relationship
    25,000       6  
Trade name
    1,500       2  
Total intangible assets subject to amortization
  $ 66,500          
                 


 
18 

 


The amounts of revenue and loss of LiveRamp included in the Company’s condensed consolidated statement of operations from the acquisition date of July 1, 2014 to September 30, 2014 are as follows (dollars in thousands):

Revenues
  $ 7,433  
Net loss
  $ (4,925 )
         
The $4.9 million net loss reported above includes pretax expenses of $3.7 million of intangible asset amortization associated with acquired LiveRamp intangible assets and $5.0 million of non-cash share-based compensation expense.

Following are the Company’s supplemental consolidated results on an unaudited pro forma basis, as if the LiveRamp acquisition had taken place at the beginning of each of the fiscal years presented (dollars in thousands):

   
For the quarter ended
September 30
   
For the six months ended
September 30
 
   
2014
   
2013
   
2014
   
2013
 
Revenues
  $ 260,037     $ 272,147     $ 508,960     $ 532,880  
Net earnings (loss) attributable to Acxiom
  $ (1,544 )   $ 4,648     $ (14,519 )   $ 12,767  
Diluted earnings per share
  $ (0.02 )   $ 0.06     $ (0.19 )   $ 0.17  
                                 
These pro forma results are based on estimates and assumptions, which we believe are reasonable.  They are not the results that would have been realized had we been a combined company during the periods presented and are not necessarily indicative of our consolidated results of operations in future periods.  The pro forma results include adjustments primarily related to purchase accounting adjustments, including amortization expense of $3.7 million per quarter related to acquired intangible assets, stock-based compensation expense of approximately $5.0 million per quarter related to unvested stock options and restricted stock units issued to former LiveRamp employees, and the related income tax effects as though the acquisition occurred as of the beginning of the Company’s fiscal years 2014 and 2015.

During the six months ended September 30, 2014, the Company incurred $0.8 million of acquisition costs related to the purchase of LiveRamp.  The costs are included in gains, losses, and other items, net on the statement of operations.

6.           OTHER CURRENT AND NONCURRENT ASSETS:

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

   
September 30,
2014
   
March 31,
 2014
 
Prepaid expenses
  $ 43,405     $ 40,339  
Assets of non-qualified retirement plan
    13,646       13,900  
Other miscellaneous assets
    322       245  
Other current assets
  $ 57,373     $ 54,484  

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

   
September 30,
2014
   
March 31,
 2014
 
Acquired intangible assets, net
  $ 25,431     $ 281  
Deferred data acquisition costs
    3,634       4,502  
Deferred expenses
    12,247       16,143  
Other miscellaneous noncurrent assets
    3,903       3,551  
Noncurrent assets
  $ 45,215     $ 24,477  

The acquired intangible assets noted above represent customer relationship and trade name intangibles acquired through purchase acquisitions, net of accumulated amortization, of which $25.3 million relates to the LiveRamp acquisition in the current fiscal quarter (see note 5).


 
19 

 

7.           GOODWILL:

Goodwill is measured and tested for impairment on an annual basis in the first quarter of the Company’s fiscal year in accordance with applicable accounting standards, or more frequently if indicators of impairment exist.  Triggering events for interim impairment testing include indicators such as adverse industry or economic trends, restructuring actions, downward revisions to projections of financial performance, or a sustained decline in market capitalization.  The performance of the impairment test involves a two-step process.  The first step requires comparing the estimated fair value of a reporting unit to its net book value, including goodwill.  A potential impairment exists if the estimated fair value of the reporting unit is lower than its net book value.  The second step of the impairment test involves assigning the estimated fair value of the reporting unit to its identifiable assets, with any residual fair value being assigned to goodwill.  If the carrying value of an individual indefinite-lived intangible asset (including goodwill) exceeds its estimated fair value, such asset is written down by an amount equal to the excess, and a corresponding amount is recorded as a charge to operations for the period in which the impairment test is completed.  Completion of the Company’s annual impairment test during the quarter ended June 30, 2014 indicated no potential impairment of its goodwill balances.

The carrying amount of goodwill, by operating segment, at September 30, 2014, and the changes in those balances are presented in the following table.

(dollars in thousands)
 
 
Marketing and Data Services
   
IT Infrastructure Management
   
Total
 
Balance at March 31, 2014
  $ 286,876     $ 71,508     $ 358,384  
LiveRamp acquisition
    215,967       -       215,967  
Change in foreign currency translation adjustment
    (883 )     -       (883 )
Balance at September 30, 2014
  $ 501,960     $ 71,508     $ 573,468  

Goodwill by component included in Marketing and Data Services as of September 30, 2014 is US, $482.7 million; Australia, $12.5 million; China, $6.0 million; and Brazil, $0.8 million.

In order to estimate the fair value for each of the components, management uses an income approach based on a discounted cash flow model together with valuations based on an analysis of public company market multiples and a similar transactions analysis.

The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined by using a weighted average cost of capital (“WACC”). The WACC considers market and industry data as well as company-specific risk factors for each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business. Management, considering industry and company-specific historical and projected data, develops growth rates and cash flow projections for each reporting unit. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates.

The public company market multiple method is used to estimate values for each of the components by looking at market value multiples to revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) for selected public companies that are believed to be representative of companies that marketplace participants would use to arrive at comparable multiples for the individual component being tested.  These multiples are then used to develop an estimated value for each respective component.

The similar transactions method compares multiples based on acquisition prices of other companies believed to be those that marketplace participants would use to compare to the individual component being tested.  Those multiples are then used to develop an estimated value for that component.

In order to arrive at an estimated value for each component, management uses a weighted-average approach to combine the results of each analysis.  Management believes that using multiple valuation approaches and then weighting them appropriately is a technique that a marketplace participant would use.

 
20

 
As a final test of the annual valuation results, the total of the values of the components is reconciled to the actual market value of Acxiom common stock as of the valuation date.  Management believes the resulting control premium is reasonable compared to historical control premiums observed in actual transactions.

Goodwill is tested for impairment at the reporting unit level, which is defined as either an operating segment or one step below an operating segment, known as a component.  At April 1, 2014, Acxiom’s segments were the Marketing and data services segment and the IT Infrastructure management segment.  Because the Marketing and data services segment contains both U.S. and International components, and there are differences in economic characteristics between the components in the different geographic regions, management tested a total of five components at the beginning of the year.  The goodwill amounts as of April 1, 2014 included in each component tested were:  U.S. Marketing and data services, $266.7 million; Australia Marketing and data services, $13.3 million; China Marketing and data services, $6.0 million; Brazil Marketing and data services, $0.9 million; and U.S. Infrastructure management, $71.5 million.

As of April 1, 2014, each of the components had an estimated fair value in excess of its carrying value, indicating no impairment.  All of the components had an excess fair value exceeding 35%, except for U.S. Infrastructure management.  The fair value of the U.S. Infrastructure management segment has decreased by a significant amount since the prior annual test as a result of client contract terminations.  If the U.S. Infrastructure management segment experiences additional client losses in the future, this could lead to a further deterioration in value, which could lead to an impairment in the future.

Management believes that the estimated valuations it arrived at are reasonable and consistent with what other marketplace participants would use in valuing the Company’s components.  However, management cannot give any assurance that these market values will not change in the future.  For example, if discount rates demanded by the market increase, this could lead to reduced valuations under the income approach.  If the Company’s projections are not achieved in the future, this could lead management to reassess their assumptions and lead to reduced valuations under the income approach.  If the market price of the Company’s stock decreases, this could cause the Company to reassess the reasonableness of the implied control premium, which might cause management to assume a higher discount rate under the income approach which could lead to reduced valuations.  If future similar transactions exhibit lower multiples than those observed in the past, this could lead to reduced valuations under the similar transactions approach.  And finally, if there is a general decline in the stock market and particularly in those companies selected as comparable to the Company’s components, this could lead to reduced valuations under the public company market multiple approach.  The Company’s next annual impairment test will be performed during the first quarter of fiscal 2016.  The fair value of the Company’s components could deteriorate which could result in the need to record impairment charges in future periods.  The Company continues to monitor potential triggering events including changes in the business climate in which it operates, attrition of key personnel, the volatility in the capital markets, the Company’s market capitalization compared to its book value, the Company’s recent operating performance, and the Company’s financial projections.  The occurrence of one or more triggering events could require additional impairment testing, which could result in impairment charges.

8.           LONG-TERM DEBT:

Long-term debt consists of the following (dollars in thousands):
   
September 30,
2014
   
March 31,
 2014
 
Term loan credit agreement
  $ 285,000     $ 292,500  
Capital leases and installment payment obligations on land, buildings and equipment payable in monthly payments of principal plus interest at rates ranging from approximately 4% to 8%; remaining terms up to eight years
    8,905       12,990  
Other debt and long-term liabilities
    11,082       12,120  
Total long-term debt and capital leases
    304,987       317,610  
Less current installments
    34,118       28,567  
Long-term debt, excluding current installments
  $ 270,869     $ 289,043  
                 

The Company’s amended and restated credit agreement provides for (1) term loans up to an aggregate principal amount of $300 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 $300 million.

 
21

 
The term loan agreement is payable in quarterly installments of $7.5 million through September 2017, followed by quarterly installments of $11.3 million through June 2018, with a final payment of $161.3 million due October 9, 2018.  The revolving loan commitment expires October 9, 2018.

Term loan and revolving credit facility borrowings bear interest at LIBOR or at an alternative base rate plus a credit spread.  At September 30, 2014, the LIBOR credit spread was 2.00%.  There were no revolving credit borrowings outstanding at September 30, 2014 or March 31, 2014.  The weighted-average interest rate on term loan borrowings at September 30, 2014 was 2.3%.  Outstanding letters of credit at September 30, 2014 were $2.2 million.

The term loan allows for 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 the term loan, the Company is required to maintain certain debt-to-cash flow and debt service coverage ratios, among other restrictions.  At September 30, 2014, 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).

On March 10, 2014, the Company entered into an interest rate swap agreement.  The agreement provides for the Company to pay interest through March 10, 2017 at a fixed rate of 0.98% plus the applicable credit spread on $50.0 million notional amount, while receiving interest for the same period at the LIBOR rate on the same notional amount.  The LIBOR rate as of September 30, 2014 was 0.23%.  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 September 30, 2014.  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 September 30, 2014, the hedge relationship still qualified as an effective hedge under applicable accounting standards.  Consequently, all changes in fair value of the derivative will be deferred and recorded in other comprehensive income (loss) 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 gain of $0.1 million since inception is recorded in other comprehensive income (loss).  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 September 30, 2014.

9.           ALLOWANCE FOR DOUBTFUL ACCOUNTS:

Trade accounts receivable are presented net of allowances for doubtful accounts, returns and credits of $4.9 million at September 30, 2014 and March 31, 2014.

10.           SEGMENT INFORMATION:

The Company reports segment information consistent with the way management internally disaggregates its operations to assess performance and to allocate resources.  We regularly review our segments and the approach used by management to evaluate performance and allocate resources.  Prior to the current fiscal year, the Company’s business segments consisted of Marketing and data services, IT Infrastructure management, and Other services.  The Other services segment consisted solely of the Company’s UK fulfillment business, 2Touch.  On May 30, 2014, the Company substantially completed the sale of 2Touch to Parseq Ltd., a European business process outsourcing service provider (see Note 4 for further details).  As a result, in the current fiscal year, the 2Touch business unit is excluded from segment results and reported as discontinued operations.  The Marketing and data services segment includes the Company’s global lines of business for Customer Data Integration (CDI), Consumer Insight Solutions, Marketing Management Services (including the Audience Operating System), and E-mail Fulfillment and Agency Services.  The Marketing and data services segment also includes the recently acquired LiveRamp subsidiary.  The IT Infrastructure management segment develops and delivers IT outsourcing and transformational solutions.

Company management uses the revenues and income (loss) from operations of the remaining two operating segments, among other factors, for performance evaluation and resource allocation.  The Company’s calculation of segment
 
 
22

 
income (loss) from operations does not include inter-company transactions and allocates all corporate expenses, excluding those reported as impairments or gains, losses and other items, as well as certain business separation and transformation expenses.

The following tables present information by business segment (dollars in thousands):

   
For the quarter ended
September 30
   
For the six months ended
September 30
 
   
2014
   
2013
   
2014
   
2013
 
Revenue:
                       
Marketing and data services
  $ 204,248     $ 200,952     $ 390,931     $ 388,745  
IT Infrastructure management
    55,789       66,825       111,321       136,210  
Total revenue
  $ 260,037     $ 267,777     $ 502,252     $ 524,955  
                                 
Income (loss) from operations:
                               
Marketing and data services
  $ 9,397     $ 16,030     $ 19,669     $ 28,727  
IT Infrastructure management
    4,130       11,967       8,869       22,728  
Corporate
    (10,220 )     (8,770 )     (29,709 )     (8,770 )
Income (loss) from operations
  $ 3,307     $ 19,227     $ (1,171 )   $ 42,685  
                                 
                                 

11.           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 six months ended September 30, 2014 (dollars in thousands):

   
Associate-related reserves
   
Ongoing
contract costs
   
Total
 
Continuing operations reserves:
                 
Balance at March 31, 2014
  $ 6,542     $ 10,217     $ 16,759  
Payments
    (6,392 )     (1,876 )     (8,268 )
Charges and adjustments
    4,884       2,530       7,414  
Balance at September 30, 2014
  $ 5,034     $ 10,871     $ 15,905  
                         
Discontinued operations reserves:
                       
Charges and adjustments
    273       -       273  
Balance at September 30, 2014
  $ 273     $ -     $ 273  
                         
The above balances from continuing operations are included in accrued expenses and other liabilities on the condensed consolidated balance sheet.  The above balances from discontinued operations are included in liabilities from discontinued operations on the condensed consolidated balance sheet.

Restructuring Plans

In the six months ended September 30, 2014, the Company recorded a total of $7.6 million in restructuring charges and adjustments included in gains, losses and other items in the condensed consolidated statement of operations.  The expense included severance and other associate-related charges of $4.9 million, lease accruals of $2.5 million, and asset write offs of $0.2 million.

The associate-related accruals of $4.9 million relate to the termination of associates in the United States, Europe, and China and include an increase of $1.0 million to the fiscal 2014 restructuring plan.  Of the amount accrued for 2015, $2.5 million remained accrued as of September 30, 2014.  These costs are expected to be paid out in fiscal 2015.

The lease accruals of $2.5 million were evaluated under the accounting standards which govern exit costs.  These accounting standards require 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 properties.  The Company has ceased using certain leased office facilities.  The Company intends to attempt to sublease the
 
 
23

 
facilities to the extent possible.  The Company established a liability for the fair value of the remaining lease payments, partially offset by the estimated sublease payments to be received over the course of the leases.  The fair value of
these liabilities is based on a net present value model using a credit-adjusted risk-free rate.  The liability will be paid out over the remainder of the leased properties’ terms, which continue through June 2017.  Actual sublease terms may differ from the estimates originally made by the Company.  Any future changes in the estimates or in the actual sublease income could require future adjustments to the liabilities, which would impact net income in the period the adjustment is recorded.  The remaining amount accrued at September 30, 2014 is $2.1 million.

In fiscal 2014, the Company recorded a total of $17.8 million in restructuring charges and adjustments included in gains, losses and other items in the consolidated statement of operations.  The expense included severance and other associate-related charges of $14.0 million and lease accruals of $3.8 million.

The associate-related accruals of $14.0 million relate to the termination of associates in the United States, Australia, China, and Europe.  As noted above, this accrual was increased by $1.0 million in fiscal 2015 as a result of additional associate terminations.  Of the amount accrued, $2.4 million remained accrued as of September 30, 2014.  These costs are expected to be paid out in fiscal 2015.

The lease accruals of $3.8 million were evaluated under the accounting standards which govern exit costs.  These accounting standards require 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 Company has ceased using a portion of a certain leased office facility.  The Company intends to attempt to sublease the facility space to the extent possible.  The Company established a liability for the fair value of the remaining lease payments, partially offset by the estimated sublease payments to be received over the course of the lease.  The fair value of this liability is based on a net present value model using a credit-adjusted risk-free rate.  The liability will be paid out over the remainder of the leased property’s term, which continues through November 2021.  Actual sublease terms may differ from the estimates originally made by the Company.  Any future changes in the estimates or in the actual sublease income could require future adjustments to the liability for this lease, which would impact net income in the period the adjustment is recorded.  The remaining amount accrued at September 30, 2014 is $3.2 million.

As part of its restructuring plans in fiscal 2013, the Company recorded $2.8 million of severance and other associate-related payments in restructuring charges and adjustments included in gains, losses and other items in the consolidated statement of operations.  The accruals relate to the termination of associates in the United States, Australia, and Europe.  Of the amount recorded, $0.1 million remained accrued as of September 30, 2014.  These costs are expected to be paid out in fiscal 2015.

As part of its restructuring plans in fiscal 2012, the Company recorded lease accruals of $2.6 million in restructuring charges and adjustments included in gains, losses and other items in the consolidated statement of operations.  The lease accruals were evaluated under the accounting standards which govern exit costs.  These liabilities will be paid out over the remainder of the leased properties’ terms, of which the longest continues through July 2019.  Actual sublease terms may differ from the estimates originally made by the Company.  Any future changes in the estimates or in the actual sublease income could require future adjustments to the liability for these leases, which would impact net income in the period the adjustment is recorded.  The remaining amount accrued at September 30, 2014 is $0.7 million.

As part of its restructuring plans in fiscal 2008 and 2009, the Company recorded lease accruals included in gains, losses and other items in the consolidated statement of operations.  The lease accruals were evaluated under the accounting standards which govern exit costs.  These liabilities will be paid out over the remainder of the leased properties’ terms, of which the longest continues through November 2021.  Any future changes in the estimates or in the actual sublease income could require future adjustments to the liability for these leases, which would impact net income in the period the adjustment is recorded.  The remaining amount accrued at September 30, 2014 is $4.8 million.


 
24 

 


Gains, Losses and Other Items

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

   
For the quarter ended
September 30
   
For the six months ended
September 30
 
   
2014
   
2013
   
2014
   
2013
 
Restructuring plan charges and adjustments
    889       3,384       7,561       3,384  
LiveRamp acquisition-related costs
    40       -       820       -  
Legal contingencies
    -       3,200       -       3,200  
    $ 929     $ 6,584     $ 8,381     $ 6,584  

12.           COMMITMENTS AND CONTINGENCIES:

Legal Matters

The Company is involved in various claims and legal proceedings. Management routinely assesses the likelihood of adverse judgments or outcomes to these matters, as well as ranges of probable losses, to the extent losses are reasonably estimable. The Company records accruals for these matters to the extent that management concludes a loss is probable and the financial impact, should an adverse outcome occur, is reasonably estimable. These accruals are reflected in the Company’s condensed consolidated financial statements. In management’s opinion, the Company has made appropriate and adequate accruals for these matters and management believes the probability of a material loss beyond the amounts accrued to be remote; however, the ultimate liability for these matters is uncertain, and if accruals are not adequate, an adverse outcome could have a material effect on the Company’s consolidated financial condition or results of operations.  The Company maintains insurance coverage above certain limits.  Listed below is one matter pending against the Company and one of its subsidiaries for which the potential exposure is considered material to the Company’s condensed consolidated financial statements.

A putative class action is pending against the Company, AISS (which was sold to another company in fiscal 2012), and Acxiom Risk Mitigation, Inc., a Colorado corporation and wholly-owned subsidiary of Acxiom (now known as Acxiom Identity Solutions, LLC), in the United States District Court for the Eastern District of Virginia.  This action seeks to certify nationwide classes of persons who requested a consumer file from any Acxiom entity from 2007 forward; who were the subject of an Acxiom report sold to a third party that contained information not obtained directly from a governmental entity and who did not receive a timely copy of the report; who were the subject of an Acxiom report and about whom Acxiom adjudicated the hire/no hire decision on behalf of the employer; who, from 2010 forward, disputed an Acxiom report and Acxiom did not complete the investigation within 30 days; or who, from 2007 forward,  were the subject of an Acxiom report for which no permissible purpose existed. The complaint alleges various violations of the Fair Credit Reporting Act. The parties have reached a tentative settlement agreement and the Company has accrued $3.7 million as its estimate of its probable loss associated with this matter.  The Company believes the chances of additional loss are remote.

In the opinion of management, the ultimate disposition of this matter will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Commitments

The Company leases data processing equipment, office furniture and equipment, land and office space under noncancellable operating leases.  The Company has a future commitment for lease payments over the next 26 years of $123.4 million.

In connection with the disposal of certain assets, the Company guaranteed a lease for the buyer of the assets.  This guarantee was made by the Company primarily to facilitate favorable financing terms for the third party.  Should the third party default, the Company would be required to perform under this guarantee.  At September 30, 2014 the Company’s maximum potential future payments under this guarantee were $1.3 million.


 
25 

 


13.           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 rate for the current fiscal year is impacted by losses in foreign jurisdictions.  The Company does not record a tax benefit for certain of these losses due to uncertainty of future benefit.

14.           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 September 30, 2014, 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 (loss) 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 the lowest level of input that is significant to the fair value measurements. The Company assigned assets and liabilities to the hierarchy in the accounting standards, which is 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 September 30, 2014 (dollars in thousands):

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                       
Other current assets
  $ 13,646     $ -     $ -     $ 13,646  
Total assets
  $ 13,646     $ -     $ -     $ 13,646  
                                 


 
26 

 


PART I.  FINANCIAL INFORMATION
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction and Overview

Acxiom is an enterprise data, analytics and software-as-a-service company.  For over 40 years, Acxiom has been an innovator in harnessing the powerful potential of data to strengthen connections between people, businesses and their partners.  We focus on creating better connections that enable better living for people and better results for the businesses who serve them.

Founded in 1969, Acxiom is headquartered in Little Rock, Arkansas, USA and serves clients around the world from locations in the United States, Europe, South America and the Asia-Pacific region.

On May 30, 2014, the Company substantially completed the sale of its U.K. call center operation, 2Touch, to Parseq Ltd., a European business process outsourcing service provider.  Some assets of the 2Touch operation are subject to a second closing, expected to occur during the current fiscal year.  The business qualified for treatment as discontinued operations during the current fiscal year.  Accordingly, the results of operations, including the loss on the sale, cash flows, and the balance sheet amounts pertaining to 2Touch, for all periods reported, have been classified as discontinued operations in the condensed consolidated financial statements.  Unless otherwise indicated, we refer to captions such as revenues, earnings, and earnings per share from continuing operations attributable to the Company simply as “revenues”, “earnings”, and “earnings per share” throughout this Management’s Discussion and Analysis.  Similarly, discussion of other matters in our condensed consolidated financial statements relates to continuing operations unless otherwise indicated.

On July 1, 2014, the Company completed the acquisition of LiveRamp, Inc. (LiveRamp), a service provider for onboarding customer data into digital marketing applications.  As a result of this transaction, LiveRamp is now a wholly-owned subsidiary of the Company.  Under the terms of the merger agreement, the Company paid $265.7 million, net of cash acquired, in cash for all outstanding LiveRamp shares.  The purchase price for the acquisition also included certain replacement stock options issued to LiveRamp employees.

Prior to the current fiscal year, the Company’s business segments consisted of Marketing and data services, IT Infrastructure management, and Other services.  The Other services segment consisted solely of the Company’s UK fulfillment business, 2Touch.  As a result of the 2Touch disposal in the current fiscal quarter, the 2Touch business unit is excluded from segment results and segregated as discontinued operations.  The Marketing and data services segment includes the Company’s global lines of business for Customer Data Integration (CDI), Consumer Insight Solutions, Marketing Management Services (including the Audience Operating System), and E-mail Fulfillment and Agency Services.  The Marketing and data services segment also includes the recently acquired LiveRamp subsidiary.  The IT Infrastructure management segment develops and delivers IT outsourcing and transformational solutions.

Notable results and events of the quarter ended September 30, 2014 are identified below.
 
·  
Revenue of $260.0 million, a 2.9% decrease from $267.8 million in the same quarter a year ago.
 
·  
Total operating expenses of $256.7 million, a 3.3% increase from $248.6 million in the same quarter a year ago.
 
·  
Total operating costs and expenses include $0.9 million of charges recorded in gains, losses and other, net, stock-based compensation expense of $7.9 million recorded in cost of revenue and selling, general and administrative expenses, intangible asset amortization expense of $3.8 million recorded in cost of revenue, and business separation and transformation expenses of $9.3 million recorded in selling, general and administrative expenses.
 
·  
Net loss from continuing operations of $1.5 million, compared to net earnings from continuing operations of $9.4 million in the same quarter a year ago.
 
The summary above is intended to identify to the reader some of the more significant events and transactions of the Company during the fiscal quarter ended September 30, 2014.  However, this is not intended to be a full discussion of the Company’s results for the quarter.  This should be read in conjunction with the following discussion of Results of Operations and Capital Resources and Liquidity and with the Company’s condensed consolidated financial statements and footnotes accompanying this report.