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EX-31.1 - EX. 31.1 CEO (HOWE) - LiveRamp Holdings, Inc.ex31-1.htm
EX-32.2 - EX 32.2 CFO (JENSON) - LiveRamp Holdings, Inc.ex32-2.htm
EX-31.2 - EX 31.2 CFO (JENSON) - LiveRamp Holdings, Inc.ex31-2.htm
EX-32.1 - EX 32.1 CEO (HOWE) - LiveRamp Holdings, Inc.ex32-1.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, 2015
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 2, 2015 was 77,873,928.
 

 

 

ACXIOM CORPORATION AND SUBSIDIARIES
INDEX
REPORT ON FORM 10-Q
September 30, 2015
 

 
          Page No.
 Part I.  Financial Information      
  Item 1.   Financial Statements      
         
   Condensed Consolidated Balance Sheets    
 
3
         
   Condensed Consolidated Statements of Operations      4
         
   Condensed Consolidated Statements of Operations      5
         
   Condensed Consolidated Statements of Comprehensive Income (Loss)      6
         
   Condensed Consolidated Statements of Comprehensive Income (Loss)      7
         
       8
         
   Condensed Consolidated Statements of Cash Flows      9-10
         
   Notes to Condensed Consolidated Financial Statements      11-33
         
   Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      34-48
         
   Item 3.    Quantitative and Qualitative Disclosures about Market Risk      49
         
   Item 4.    Controls and Procedures      49
         
 Part II.  Other Information      
   Item 1.    Legal Proceedings      50
           
   Item 2.    Unregistered Sales of Equity Securities and Use of  Proceeds     50 
           
   Item 6.    Exhibits     51 
       
 Signature     52
       
 Exhibit Index     53

 
 

 

ACXIOM CORPORATION AND SUBSIDIARIES
(Unaudited)
(Dollars in thousands)
   
September 30,
2015
   
March 31,
2015
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 180,945     $ 141,010  
Trade accounts receivable, net
    135,894       126,896  
Deferred income taxes
    15,511       25,610  
Refundable income taxes
    5,097       5,239  
Restricted cash held in escrow
    130       31,000  
Other current assets
    37,807       34,975  
Assets from discontinued operations
    2,000       172,284  
Total current assets
    377,384       537,014  
Property and equipment, net of accumulated depreciation and amortization
    176,168       176,254  
Software, net of accumulated amortization
    59,975       68,962  
Goodwill
    495,843       497,362  
Purchased software licenses, net of accumulated amortization
    13,037       9,551  
Other assets, net
    30,214       33,281  
    $ 1,152,621     $ 1,322,424  
LIABILITIES AND EQUITY
               
Current liabilities:
               
Current installments of long-term debt
  $ 32,205     $ 32,232  
Trade accounts payable
    40,798       30,094  
Accrued expenses
               
Payroll
    32,684       36,659  
Other
    46,019       62,754  
Acquisition escrow payable
    130       31,000  
Deferred revenue
    36,051       33,620  
Liabilities from discontinued operations
    2,436       57,433  
Total current liabilities
    190,323       283,792  
Long-term debt
    176,744       247,855  
Deferred income taxes
    70,875       80,675  
Other liabilities
    10,703       6,845  
Commitments and contingencies
               
Equity:
               
Common stock
    12,957       12,794  
Additional paid-in capital
    1,059,087       1,034,526  
Retained earnings
    601,482       591,798  
Accumulated other comprehensive income
    7,669       9,413  
Treasury stock, at cost
    (977,219 )     (945,274 )
Total equity
    703,976       703,257  
    $ 1,152,621     $ 1,322,424  
See accompanying notes to condensed consolidated financial statements.
               

 

 

ACXIOM CORPORATION AND SUBSIDIARIES
(Unaudited)
(Dollars in thousands, except per share amounts)
 
     
For the Three Months ended
September 30
 
   
2015
   
2014
 
             
Revenues
  $ 207,345     $ 204,248  
Cost of revenue
    121,312       122,845  
Gross profit
    86,033       81,403  
Operating expenses:
               
Research and development
    19,078       19,798  
Sales and marketing
    34,259       28,842  
General and administrative
    31,519       38,373  
Gains, losses and other items, net
    3,233       833  
Total operating expenses
    88,089       87,846  
Loss from operations
    (2,056 )     (6,443 )
Other income (expense):
               
Interest expense
    (1,956 )     (1,821 )
Other, net
    59       (163 )
Total other expense
    (1,897 )     (1,984 )
Loss from continuing operations before income taxes
    (3,953 )     (8,427 )
Income taxes
    (2,608 )     (1,326 )
Net loss from continuing operations
    (1,345 )     (7,101 )
Earnings from discontinued operations, net of tax
    12,068       5,557  
Net earnings (loss)
  $ 10,723     $ (1,544 )
                 
Basic earnings (loss) per share:
               
Net loss from continuing operations
  $ (0.02 )   $ (0.09 )
Net earnings from discontinued operations
    0.15       0.07  
Net earnings (loss)
  $ 0.14     $ (0.02 )
                 
Diluted earnings (loss) per share:
               
Net loss from continuing operations
  $ (0.02 )   $ (0.09 )
Net earnings from discontinued operations
    0.15       0.07  
Net earnings (loss)
  $ 0.14     $ (0.02 )
                 
                 
Some earnings (loss) per share amounts may not add due to rounding.
               
See accompanying notes to condensed consolidated financial statements.
               




 

 


ACXIOM CORPORATION AND SUBSIDIARIES
(Unaudited)
(Dollars in thousands, except per share amounts)
 
     
For the Six Months ended
September 30
 
   
2015
   
2014
 
             
Revenues
  $ 404,240     $ 390,931  
Cost of revenue
    239,021       235,935  
Gross profit
    165,219       154,996  
Operating expenses:
               
Research and development
    39,089       36,148  
Sales and marketing
    63,753       55,342  
General and administrative
    63,262       75,074  
Gains, losses and other items, net
    4,040       7,961  
Total operating expenses
    170,144       174,525  
Loss from operations
    (4,925 )     (19,529 )
Other income (expense):
               
Interest expense
    (3,841 )     (3,769 )
Other, net
    363       (269 )
Total other expense
    (3,478 )     (4,038 )
Loss from continuing operations before income taxes
    (8,403 )     (23,567 )
Income taxes
    (1,876 )     (5,725 )
Net loss from continuing operations
    (6,527 )     (17,842 )
Earnings from discontinued operations, net of tax
    16,211       8,694  
Net earnings (loss)
  $ 9,684     $ (9,148 )
                 
Basic earnings (loss) per share:
               
Net loss from continuing operations
  $ (0.08 )   $ (0.23 )
Net earnings from discontinued operations
    0.21       0.11  
Net earnings (loss)
  $ 0.12     $ (0.12 )
                 
Diluted earnings (loss) per share:
               
Net loss from continuing operations
  $ (0.08 )   $ (0.23 )
Net earnings from discontinued operations
    0.21       0.11  
Net earnings (loss)
  $ 0.12     $ (0.12 )
                 
                 
Some earnings (loss) per share amounts may not add due to rounding.
               
See accompanying notes to condensed consolidated financial statements.
               


 

 


ACXIOM CORPORATION AND SUBSIDIARIES
(Unaudited)
(Dollars in thousands)
 
     For the Three Months ended
September 30
 
   
2015
   
2014
 
             
Net earnings (loss)
  $ 10,723     $ (1,544 )
Other comprehensive income (loss):
               
Change in foreign currency translation adjustment
    (2,392 )     (2,811 )
Unrealized gain (loss) on interest rate swap
    (81 )     239  
Other comprehensive loss
    (2,473 )     (2,572 )
Comprehensive income (loss)
  $ 8,250     $ (4,116 )
                 
                 
                 
                 
                 
                 
                 
See accompanying notes to condensed consolidated financial statements.
               






 

 


ACXIOM CORPORATION AND SUBSIDIARIES
(Unaudited)
(Dollars in thousands)
 
     
For the Six Months ended
September 30
 
   
2015
   
2014
 
             
Net earnings (loss)
  $ 9,684     $ (9,148 )
Other comprehensive income (loss):
               
Change in foreign currency translation adjustment
    (1,674 )     (1,894 )
Unrealized gain (loss) on interest rate swap
    (70 )     88  
Other comprehensive loss
    (1,744 )     (1,806 )
Comprehensive income (loss)
  $ 7,940     $ (10,954 )
                 
                 
                 
                 
                 
                 
                 
See accompanying notes to condensed consolidated financial statements.
               

 

 

ACXIOM CORPORATION AND SUBSIDIARIES
(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, 2015
 
127,938,797
 
$12,794
 
$1,034,526
 
$    591,798
 
$    9,413
 
(50,102,724)
 
$(945,274)
   
$703,257
Employee stock awards, benefit plans and other issuances
 
653,289
 
75
 
8,711
 
-
 
-
 
(262,967)
 
(4,684)
   
4,102
Tax impact of stock options, warrants and restricted stock
 
-
 
-
 
(552)
 
-
 
-
 
-
 
-
   
(552)
Non-cash share-based compensation from continuing operations
 
33,758
 
4
 
15,479
 
-
 
-
 
-
 
-
   
15,483
Non-cash share-based compensation from discontinued operations
 
-
 
-
 
1,007
 
-
 
-
 
-
 
-
   
1,007
Restricted stock units vested
 
940,391
 
84
 
(84)
 
-
 
-
 
-
 
-
   
-
Acquisition of treasury stock
 
-
 
-
 
-
 
-
 
-
 
(1,439,420)
 
(27,261)
   
(27,261)
Comprehensive loss:
                                 
Foreign currency translation
 
-
 
-
 
-
 
-
 
(1,674)
 
-
 
-
   
(1,674)
Unrealized loss on interest rate swap
 
-
 
-
 
-
 
-
 
(70)
 
-
 
-
   
(70)
Net income
 
-
 
-
 
-
 
9,684
 
-
 
-
 
-
   
9,684
Balances at September 30, 2015
 
129,566,235
 
$12,957
 
$   1,059,087
 
$601,482
 
$    7,669
 
(51,805,111)
 
$(977,219)
   
$703,976
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
 
See accompanying notes to condensed consolidated financial statements

 

 



ACXIOM CORPORATION AND SUBSIDIARIES
(Unaudited)
(Dollars in thousands)
 
     
For the Six Months ended
September 30
 
   
2015
   
2014
 
Cash flows from operating activities:
           
Net earnings (loss)
  $ 9,684     $ (9,148 )
Less: Earnings from discontinued operations, net of tax
    (16,211 )     (8,694 )
Adjustments to reconcile net loss to net cash from provided by (used in) operating activities:
               
Depreciation and amortization
    42,410       34,177  
Loss (gain) on disposal or impairment of assets
    890       (207 )
Deferred income taxes
    284       (6,022 )
Non-cash share-based compensation expense
    15,483       11,650  
Changes in operating assets and liabilities:
               
Accounts receivable, net
    (9,281 )     10,551  
Other assets
    (1,198 )     5,368  
Deferred costs
    (823 )     (211 )
Accounts payable and other liabilities
    (10,336 )     (28,090 )
Deferred revenue
    2,452       (10,505 )
Net cash provided by (used in) operating activities
    33,354       (1,131 )
 
Cash flows from investing activities:
               
Capitalized software development costs
    (6,733 )     (10,577 )
Capital expenditures
    (23,120 )     (32,140 )
Data acquisition costs
    (711 )     (1,103 )
Net cash paid in acquisitions
    -       (265,672 )
Net cash used in investing activities
    (30,564 )     (309,492 )
 
Cash flows from financing activities:
               
Payments of debt
    (71,138 )     (9,756 )
Sale of common stock, net of stock acquired for withholding taxes
    4,102       (2,487 )
Income tax impact of stock options, warrants and restricted stock
    (552 )     -  
Acquisition of treasury stock
    (27,261 )     (9,868 )
Net cash used in financing activities
    (94,849 )     (22,111 )
Net cash used in continuing operations
    (92,059 )     (332,734 )
 
Cash flows from discontinued operations:
               
Net cash provided by operating activities
    9,715       28,857  
Net cash provided by (used in) investing activities
    122,831       (3,330 )
Net cash used in financing activities
    (206 )     (1,102 )
Net cash provided by discontinued operations
    132,340       24,425  
 
Net cash provided by (used in) continuing and discontinued operations
    40,281       (308,309 )
Effect of exchange rate changes on cash
    (346 )     (469 )
Net change in cash and cash equivalents
    39,935       (308,778 )
Cash and cash equivalents at beginning of period
    141,010       418,586  
 
Cash and cash equivalents at end of period
  $ 180,945     $ 109,808  
                 


 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Dollars in thousands)
 
     
For the Six Months ended
September 30
 
   
2015
   
2014
 
 
Supplemental cash flow information:
           
Cash paid during the period for:
           
Interest
  $ 4,337     $ 5,391  
Income taxes
    5,266       356  
Payments on capital leases and installment payment arrangements
    269       2,319  
Prepayment of debt
    55,000       -  
Other debt payments
    16,075       8,539  
 
 
See accompanying notes to condensed consolidated financial statements.
               
                 
                 
                 
                 


 
10 

 

ACXIOM CORPORATION AND SUBSIDIARIES
(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, 2015 (“2015 Annual Report”), as filed with the Commission on May 27, 2015.  This report and the accompanying condensed consolidated financial statements should be read in connection with the 2015 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, 2016.

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 2015 Annual Report.

Reclassifications

During the quarter ended June 30, 2015, the Company reviewed its classification of expenses in its statement of operations. Previously, the Company reported cost of revenue in operating costs and expenses. Additionally, the Company has separated operating expenses formerly classified as components of cost of revenue and selling, general and administrative into research and development, sales and marketing, and general and administrative. The classification of these operating expenses, as well as the addition of gross profit, more closely reflects the classification within the Company’s industry and will result in an improved financial statement presentation. Expenses for prior periods have been reclassified to conform to the current-year presentation. The reclassifications had no effect on loss from operations, loss from continuing operations before income taxes, or net loss.

During fiscal 2015, the Company completed the sale of its U.K. call center operation, 2Touch, to Parseq Ltd., a European business process outsourcing service provider.  The business qualified for treatment as discontinued operations during fiscal 2015.  Accordingly, the results of operations, 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.  Refer to Note 4, Discontinued Operations, for more information regarding the sale.

On May 20, 2015, the Company announced it had entered into a definitive agreement to sell its IT Infrastructure Management business (“ITO”) to Charlesbank Capital Partners and M/C Partners.  The sale was completed on July 31, 2015.  Beginning in the first quarter of the current fiscal year, the Company began reporting the results of operations, cash flows, and the balance sheet amounts pertaining to ITO as a component of discontinued operations in the condensed consolidated financial statements.  Prior to the discontinued operations classification, the ITO business unit was included in the IT Infrastructure Management segment in the Company’s segment results.   Refer to Note 4, Discontinued Operations, for more information regarding the sale.

Unless otherwise indicated, information in these notes to the condensed consolidated financial statements relates to continuing operations.

New Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (FASB) issued an update, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  This update changed the requirements for determining whether a component is included in discontinued operations and required expanded disclosures that provide readers of financial statements with more information about the assets, liabilities, revenues, and expenses of discontinued operations.  The update was effective for Acxiom at the beginning of the current fiscal year.  The update did not have a material impact on the Company’s condensed consolidated financial statements.

 
11 

 
New Accounting Pronouncements Not Yet Adopted

In May 2014, the FASB issued an update, Revenue from Contracts with Customers.  This update supersedes all existing revenue recognition guidance under U.S. generally accepted accounting principles, as well as some cost guidance and guidance on certain gains and losses.  The effective date for the update has been deferred until fiscal 2019 for Acxiom, with early application allowed for fiscal 2018.  Application of the new update may either be applied retrospectively to all periods reported, with certain practical expedients allowed, or retrospectively with the cumulative effect of initial application recognized at the date of initial application.  The Company has not yet assessed the impact of implementation of the new guidance, nor determined which implementation method to use.


 
12 

 


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
 
   
2015
   
2014
   
2015
   
2014
 
Basic earnings (loss) per share:
                       
Net loss from continuing operations
  $ (1,345 )   $ (7,101 )   $ (6,527 )   $ (17,842 )
Net earnings from discontinued operations
    12,068       5,557       16,211       8,694  
Net earnings (loss)
  $ 10,723     $ (1,544 )   $ 9,684     $ (9,148 )
                                 
Basic weighted-average shares outstanding
    77,960       77,123       77,939       76,978  
Basic earnings (loss) per share:
                               
Continuing operations
  $ (0.02 )   $ (0.09 )   $ (0.08 )   $ (0.23 )
Discontinued operations
  $ 0.15     $ 0.07     $ 0.21     $ 0.11  
Net earnings (loss)
  $ 0.14     $ (0.02 )   $ 0.12     $ (0.12 )
                                 
Diluted earnings (loss) per share:
                               
Basic weighted-average shares outstanding
    77,960       77,123       77,939       76,978  
Dilutive effect of common stock options, warrants, and restricted stock as computed under the treasury stock method
    -       -       -       -  
Diluted weighted-average shares outstanding
    77,960       77,123       77,939       76,978  
Diluted earnings (loss) per share:
                               
Continuing operations
  $ (0.02 )   $ (0.09 )   $ (0.08 )   $ (0.23 )
Discontinued operations
  $ 0.15     $ 0.07     $ 0.21     $ 0.11  
Net earnings (loss)
  $ 0.14     $ (0.02 )   $ 0.12     $ (0.12 )
                                 
Some earnings (loss) per share amounts may not add due to rounding.

Due to the net loss from continuing operations incurred by the Company during the quarter and six months ended September 30, 2015, the dilutive effect of options, warrants and restricted stock units covering 1.4 million shares of common stock in each period was excluded from the diluted earnings (loss) per share calculations since the impact on the calculations was anti-dilutive.

Additional options and warrants to purchase shares of common stock and restricted stock units, including performance-based restricted stock units not meeting performance criteria, that were outstanding during the periods presented but were not included in the computation of diluted earnings (loss) per share because the effect was anti-dilutive are shown below (in thousands, except per share amounts):
 
   
For the quarter ended
September 30
 
For the six months ended
September 30
   
2015
 
2014
 
2015
 
2014
Number of shares outstanding under options, warrants and restricted stock units
 
1,946
 
3,446
 
1,915
 
1,813
Range of exercise prices for options and warrants
 
$2.58-$62.06
 
$19.02-$62.06
 
$2.58-$62.06
 
$21.17-$62.06
                 


 
13 

 


Stockholders’ Equity

On August 29, 2011, the board of directors adopted a common stock repurchase program.  That program was subsequently modified and expanded, most recently on May 19, 2015.  Under the modified common stock repurchase program, the Company may purchase up to $300.0 million of its common stock through the period ending December 31, 2016. During the six months ended September 30, 2015, the Company repurchased 1.4 million shares of its common stock for $27.3 million.  Through September 30, 2015, the Company had repurchased 14.3 million shares of its stock for $229.7 million, leaving remaining capacity of $70.3 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,
2015
   
March 31,
2015
 
Foreign currency translation
  $ 7,938     $ 9,612  
Unrealized loss on interest rate swap
    (269 )     (199 )
    $ 7,669     $ 9,413  


 
14 

 


3.           SHARE-BASED COMPENSATION:

Share-based Compensation Plans

The Company has stock option and equity compensation plans for which a total of 24.8 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.  On May 8, 2015, the Company’s compensation committee, acting on behalf of the full board of directors, approved an amendment to one of the Company’s equity compensation plans which would permit the issuance of an additional 4.1 million shares under the plan.  That amendment received shareholder approval at the August 18, 2015 annual shareholders’ meeting.  The amendment brings the total number of shares of the Company’s common stock available for issuance under its stock option and equity compensation plans to 28.9 million shares. At September 30, 2015, there were a total of 5.7 million shares available for future grants under the plans.

Stock Option Activity
The Company granted 445,785 stock options, having a per-share weighted-average fair value of $6.48, in the six months ended September 30, 2015.  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 2.2%; expected option life of 4.5 years; expected volatility of 40% 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 common 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.
 
 
Option activity for the six months ended September 30, 2015 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, 2015
    4,870,219     $ 15.10              
Granted
    445,785     $ 17.84              
Exercised
    (438,979 )   $ 10.16           $ 3,012  
Forfeited or cancelled
    (693,809 )   $ 25.71                
Outstanding at September 30, 2015
    4,183,216     $ 14.15       5.21     $ 27,586  
 
Exercisable at September 30, 2015
    2,858,695     $ 14.72       3.72     $ 17,874  

The ending balances 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, 2015.  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, 2015:

     
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          953,132  
6.35 years
  $   1.69          502,923     $ 1.71  
$ 11.08 - $ 14.42       1,229,467  
4.56 years
  $ 13.17       1,116,140     $ 13.16  
$ 15.10 - $ 19.76          866,027  
5.77 years
  $ 17.14          442,448     $ 16.52  
$ 20.44 - $ 25.00       1,039,737  
4.77 years
  $ 21.88          716,996     $ 22.18  
$ 26.33 - $ 62.06            94,853  
1.73 years
  $ 40.00            80,188     $ 41.31  
          4,183,216  
5.21 years
  $ 14.15       2,858,695     $ 14.72  

Total expense related to stock options for the six months ended September 30, 2015 and 2014 was approximately $5.9 million and $3.9 million, respectively.  Future expense for these options is expected to be approximately $13.6 million over the next four years.

 
15 

 
Stock Appreciation Right (SAR) Activity
Following is a summary of SAR activity for the six months ended September 30, 2015:
   
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, 2015
    245,404     $ 40.00              
Outstanding at September 30, 2015
    245,404     $ 40.00       1.50     $ -  
 
Exercisable at September 30, 2015
    -     $ -       -     $ -  

Total expense related to SARs for the six months ended September 30, 2015 and 2014 was $0.1 million in both periods.  Future expense for these SARs is expected to be approximately $0.3 million over the next two years.

Restricted Stock Unit Activity
During the six months ended September 30, 2015, the Company granted time-vesting restricted stock units covering 1,057,236 shares of common stock with a value at the date of grant of $19.2 million.  Of the restricted stock units granted in the current period, 730,379 vest in equal annual increments over four years, 36,934 vest in equal annual increments over two years, 47,383 vest in one year, and 242,540 vest in equal quarterly increments starting 15 months after grant date.    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, 2015 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, 2015
    2,053,179     $ 20.40       1.95  
Granted
    1,057,236     $ 18.17          
Vested
    (879,557 )   $ 20.10          
Forfeited or cancelled
    (121,444 )   $ 19.63          
Outstanding at September 30, 2015
    2,109,414     $ 19.45       2.40  

During the six months ended September 30, 2015, the Company granted performance-based restricted stock units covering 340,219 shares of common stock with a value at the date of grant of $6.2 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 2018, with a modifier based on the total shareholder return of Acxiom common 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, 2015 to March 31, 2018.  The value of the performance-based restricted stock units is determined using a Monte Carlo simulation model.

Non-vested performance-based restricted stock unit activity for the six-month period ending September 30, 2015 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, 2015
    389,310     $ 21.12       1.57  
Granted
    340,219     $ 18.23          
Forfeited or cancelled
    (66,204 )   $ 20.32          
Outstanding at September 30, 2015
    663,325     $ 19.72       1.78  

 
16 

 
Total expense related to all restricted stock units in the six months ended September 30, 2015 and 2014 was approximately $8.5 million and $7.6 million, respectively.  Future expense for these restricted stock units is expected to be approximately $42.0 million over the next four years.

Other Performance Unit Activity
Following is a summary of other performance-based unit activity for the six months ended September 30, 2015:

   
Number
of shares
   
Weighted-average fair value per
share at grant date
   
Weighted-average remaining contractual term (in years)
 
Outstanding at March 31, 2015
    312,575     $ 5.23        
Granted
    323,080     $ 2.94        
Outstanding at September 30, 2015
    635,655     $ 4.07       1.81  

During the six months ended September 30, 2015, the Company granted 323,080 performance-based units with a value at the date of grant of $0.9 million.  All of the performance-based units granted 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 Company common stock share price targets for the period from July 1, 2015 to June 30, 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 on the date of vesting and ranges from 0% at a $25 Company stock price, or below, to 100% at a $55 Company stock price. The grant date value of the performance-based units is determined using a Monte Carlo simulation model.  

Total expense related to other performance units for the six months ended September 30, 2015 and 2014 was $0.4 million and $0.1 million, respectively.  Future expense for these performance units is expected to be approximately $1.9 million over the next three years.

Share-based Compensation Plan Activity Related to Discontinued Operations
The share-based compensation plan activity related to the ITO discontinued operations was not material. On the July 31, 2015 closing date of the ITO disposition, the Company accelerated the vesting of all 71,914 restricted stock units held by associates of the discontinued operations.  At September 30, 2015, associates of the discontinued operations held 15,886 stock options to purchase the Company’s common stock. Total share-based compensation expense related to discontinued operations for the six months ended September 30, 2015 and 2014 was $1.0 million and $0.3 million, respectively.

 
17 

 


4.           DISCONTINUED OPERATIONS:

IT Infrastructure Management business

On May 20, 2015, the Company announced it had entered into a definitive agreement to sell its ITO business to Charlesbank Capital Partners and M/C Partners.  The sale was completed on July 31, 2015.  Beginning in the first quarter of the current fiscal year, the Company began reporting the results of operations, cash flows, and the balance sheet amounts pertaining to ITO as a component of discontinued operations in the condensed consolidated financial statements.  Prior to the discontinued operations classification, the ITO business unit was included in the IT Infrastructure Management segment in the Company’s segment results.

At the closing of the transaction, the Company received total consideration of $131.3 million ($140.0 million stated sales price less closing adjustments and transaction costs of $8.7 million). The Company may also receive up to a maximum of $50 million in contingent payments in future periods through 2020 subject to certain performance metrics of ITO.  As the receipt of contingent payments under this provision is uncertain, any future receipts will be recorded upon resolution of the contingency as a component of income from discontinued operations.  In addition, the Company has the right to participate in distributions of the divested entity above a defined amount. The Company reported a gain of $10.4 million on the sale, which is included in earnings from discontinued operations, net of tax.

The Company also entered into an agreement to amend its credit agreement.  The effectiveness of the amendments contained in the agreement were conditioned on, among other things, the closing of the ITO disposition.  Once the ITO disposition was completed and the amendment became fully effective, certain financial covenants in the credit agreement were modified for the fiscal quarters ending on September 30, 2015, December 31, 2015 and March 31, 2016 (see Note 8).  Additionally the Company is not entitled to declare or pay any dividends during this time and share repurchases will be limited to no more than $100 million depending on the Company’s leverage ratio.  After March 31, 2016, the financial covenants and dividend and share repurchase limitations will return to the requirements in the credit agreement in effect prior to the amendment.  In addition, the amendment revised certain definitions in the credit agreement to clarify the effect of acquisitions and dispositions on certain financial covenants.

On July 31, 2015, the Company applied $55.0 million of proceeds from the sale to repay outstanding Company indebtedness in order to comply with the Company’s existing credit agreement (see Note 8).  The Company allocated interest expense associated with the $55.0 million repayment of Company indebtedness to the ITO discontinued operating business.  Allocated interest expense for the quarters ended September 30, 2015 and 2014 was $0.1 and $0.3 million, respectively.  Allocated interest expense for the six months ended September 30, 2015 and 2014 was $0.4 million and $0.6 million, respectively.  The Company plans to use the remaining proceeds from the sale to fund expansion of its common stock repurchase program and for general corporate purposes.


 
18 

 


Summary results of operations of ITO for the quarter and six months ended September 30, 2015 and 2014, respectively, are segregated and included in earnings from discontinued operations, net of tax, in the condensed consolidated statements of operations.  The following is a reconciliation of the major classes of line items constituting earnings from discontinued operations, net of tax (dollars in thousands):
   
For the quarter ended
September 30
   
For the six months ended
September 30
 
   
2015
   
2014
   
2015
   
2014
 
Major classes of line items constituting earnings from discontinued operations, net of tax:
                       
Revenues
  $ 16,830     $ 55,789     $ 69,410     $ 111,321  
Cost of revenue
    10,269       42,745       50,837       85,849  
Gross profit
    6,561       13,044       18,573       25,472  
Operating expenses:
                               
Sales and marketing
    194       822       1,192       1,376  
General and administrative
    2,285       2,374       6,053       5,316  
Gain on sale of discontinued operations
    (10,360 )     -       (10,360 )     -  
Gains, losses and other items, net
    -       96       -       420  
Total operating expenses
    (7,881 )     3,292       (3,115 )     7,112  
Income from discontinued operations
    14,442       9,752       21,688       18,360  
Interest expense
    (117 )     (575 )     (681 )     (1,199 )
Other, net
    (227 )     47       (230 )     (259 )
Earnings from discontinued operations before income taxes
    14,098       9,224       20,777       16,902  
Income taxes
    2,030       3,619       4,566       6,628  
Earnings from discontinued operations, net of tax
  $ 12,068     $ 5,605     $ 16,211     $ 10,274  
                                 

The carrying amounts of the major classes of assets and liabilities of ITO are segregated and included in assets from discontinued operations and liabilities from discontinued operations in the condensed consolidated balance sheets. The following is a reconciliation of the major classes of assets and liabilities of the discontinued operations (dollars in thousands):
   
September 30,
2015
   
March 31,
 2015
 
Trade accounts receivable, net
  $ -     $ 35,743  
Deferred income taxes
    -       2,762  
Other current assets
    2,000       10,707  
Property and equipment, net of accumulated depreciation and amortization
    -       44,336  
Goodwill
    -       71,508  
Purchased software licenses, net of accumulated amortization
    -       3,943  
Other assets, net
    -       3,173  
Assets from discontinued operations
  $ 2,000     $ 172,172  
                 
Current installments of long-term debt
  $ -     $ 653  
Trade accounts payable
    -       8,857  
Accrued expenses
    1,522       7,480  
Deferred revenue
    -       3,658  
Long-term debt
    -       6,684  
Deferred income taxes
    -       22,716  
Other liabilities
    -       6,377  
Liabilities from discontinued operations
  $ 1,522     $ 56,425  
                 
ITO is a provider of managed hosting and cloud infrastructure services, optimized for mid-tier enterprises.  The Company entered into certain agreements with ITO in which support services, including data center co-location services, will be provided from the Company to ITO, and from ITO to the Company upon the sale of that business.   Additionally, the Company entered into certain other agreements with ITO to provide or receive leased office space. The terms of these agreements range from several months to the longest of which continues through July 2020.   The agreements generally provide cancellation provisions, without penalty, at various times throughout the term.  Cash inflows and outflows related to the agreements included in cash flows from operating activities in the condensed consolidated statements of cash flows were $0.7 million and $0.1 million, respectively, for both the quarter and six months ended September 30, 2015. Revenues and expenses related to the agreements included in loss from continued operations in the consolidated statements of operations were $1.2 million and $1.2 million, respectively, for both the quarter and six months ended September 30, 2015.

 
19 

 
U.K. call center operation

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 were subject to a second closing, which occurred in March 2015, resulting in the complete disposal of the operation.  The 2Touch business qualified for treatment as discontinued operations beginning in the first quarter of fiscal 2015.  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.

Summary results of operations of the 2Touch business unit for the quarter and six months ended September 30, 2015 and 2014 are segregated and included in earnings 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
 
   
2015
   
2014
   
2015
   
2014
 
Revenues
  $ -     $ 1,478     $ -     $ 7,240  
                                 
Earnings (loss) from discontinued operations before income taxes
  $ -     $ (48 )   $ -     $ 295  
Loss on sale of discontinued operations before income taxes
    -       -       -       (1,875 )
Income taxes
    -       -       -       -  
Loss from discontinued operations, net of tax
  $ -     $ (48 )   $ -     $ (1,580 )

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 consolidated balance sheets and are as follows (dollars in thousands):
   
September 30,
2015
   
March 31,
2015
 
Trade accounts receivable, net
  $ -     $ 112  
Assets from discontinued operations
  $ -     $ 112  
                 
Other accrued expenses
  $ 914     $ 1,008  
Liabilities from discontinued operations
  $ 914     $ 1,008  
                 


 
20 

 


5.           OTHER CURRENT AND NONCURRENT ASSETS:

Other current assets consist of the following (dollars in thousands):
   
September 30,
2015
   
March 31,
 2015
 
Prepaid expenses
  $ 24,984     $ 20,684  
Assets of non-qualified retirement plan
    12,752       14,174  
Other miscellaneous assets
    71       117  
Other current assets
  $ 37,807     $ 34,975  

Other noncurrent assets consist of the following (dollars in thousands):
   
September 30,
2015
   
March 31,
 2015
 
Acquired intangible assets, net
  $ 20,430     $ 22,902  
Deferred data acquisition costs
    1,918       2,347  
Deferred expenses
    4,395       5,078  
Other miscellaneous noncurrent assets
    3,471       2,954  
Noncurrent assets
  $ 30,214     $ 33,281  



 
21 

 


6.           GOODWILL:

As discussed in Note 10 – Segment Information, during the first quarter of fiscal year 2016, the Company changed its organizational structure which resulted in a change of operating segments and reporting units. As a result, goodwill was re-allocated to the new reporting units using a relative fair value approach. In addition, the Company completed an assessment of any goodwill impairment for all reporting units as described below.

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, 2015 indicated no potential impairment of its goodwill balances.

Each quarter the Company considers whether indicators of impairment exist such that additional impairment testing may be necessary.  During the quarter ended September 30, 2015, triggering events occurred which required the Company to test the recoverability of goodwill associated with its Brazil Marketing Services and Audience Solutions reporting unit.  The triggering event was the announced closure of the Company’s Brazil operation.  In addition to testing the recoverability of goodwill, the Company also tested certain other long-lived assets in this unit for impairment.  The results of the two-step test indicated complete impairment of the goodwill as well as impairment for certain other long-lived assets.  The amount of impairment was $0.7 million, included in gains, losses and other items, net in the condensed consolidated statement of operations, of which $0.5 million was goodwill and $0.2 million related to other long-lived assets, primarily property and equipment.

The carrying amount of goodwill, by operating segment, at September 30, 2015, and the changes in those balances are presented in the following table (dollars in thousands).
   
Marketing Services and Audience Solutions
   
Connectivity
   
Total
 
Balance at March 31, 2015
  $ 402,645     $ 94,717     $ 497,362  
                         
Impairment
    (502 )             (502 )
Change in foreign currency translation adjustment
    (832 )     (185 )     (1,017 )
Balance at September 30, 2015
  $ 401,311     $ 94,532     $ 495,843  

Goodwill by component included in the Marketing Services and Audience Solutions segment as of September 30, 2015 is: U.S., $388.6 million; and Asia/Pacific (APAC), $12.7 million.  Goodwill by component included in the Connectivity segment as of September 30, 2015 is: U.S., $91.1 million; and APAC, $3.4 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.

 
22 

 
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.

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.


 
23 

 


7.           PROPERTY AND EQUIPMENT:

Property and equipment of the Company’s continuing operations, some of which has been pledged as collateral for long-term debt, is summarized as follows (dollars in thousands):

   
September 30,
2015
   
March 31,
2015
 
Land
  $ 6,737     $ 6,737  
Buildings and improvements
    218,760       202,439  
Data processing equipment
    244,774       245,538  
Office furniture and other equipment
    39,302       51,007  
      509,573       505,721  
Less accumulated depreciation and amortization
    333,405       329,467  
    $ 176,168     $ 176,254  

Depreciation expense on property and equipment (including amortization of property and equipment under capitalized leases) was $9.9 million and $7.3 million for the quarters ended September 30, 2015 and 2014, respectively.  Depreciation expense on property and equipment (including amortization of property and equipment under capitalized leases) was $19.8 million and $16.6 million for the six months ended September 30, 2015 and 2014, respectively.



 
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8.           LONG-TERM DEBT:

Long-term debt consists of the following (dollars in thousands):
   
September 30,
2015
   
March 31,
 2015
 
Term loan credit agreement
  $ 200,000     $ 270,000  
Capital leases and installment payment obligations on buildings and equipment payable in monthly payments of principal plus interest at a rate of approximately 4%
    -       63  
Other debt and long-term liabilities
    8,949       10,024  
Total long-term debt and capital leases
    208,949       280,087  
Less current installments
    32,205       32,232  
Long-term debt, excluding current installments
  $ 176,744     $ 247,855  
                 

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.

The term loan 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 $106.3 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, 2015, the LIBOR credit spread was 2.00%.  There were no revolving credit borrowings outstanding at September 30, 2015 or March 31, 2015.  The weighted-average interest rate on term loan borrowings at September 30, 2015 was 2.5%.  Outstanding letters of credit at September 30, 2015 were $2.1 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, 2015, 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 May 19, 2015, the Company entered into an agreement to further amend its credit agreement.  The effectiveness of the amendments contained in the agreement were conditioned on, among other things, the closing of the ITO disposition that occurred on July 31, 2015 (see Note 4).  Once the ITO disposition was completed and the amendment became fully effective, certain financial covenants in the credit agreement were modified for the fiscal quarters ending on September 30, 2015, December 31, 2015 and March 31, 2016.  Additionally the Company is not entitled to declare or pay any dividends during this time and share repurchases will be limited to no more than $100 million depending on the Company’s leverage ratio.  After March 31, 2016, the financial covenants and dividend and share repurchase limitations will return to the requirements in the credit agreement in effect prior to the amendment.  In addition, the amendment revises certain definitions in the credit agreement to clarify the effect of acquisitions and dispositions on certain financial covenants.

On July 31, 2015, the Company applied $55.0 million of proceeds from the ITO disposition to repay outstanding Company indebtedness in order to comply with the Company’s existing credit agreement.  The Company allocated interest expense associated with the $55.0 million repayment of Company indebtedness to the ITO discontinued operating business.  Allocated interest expense for the quarter ended September 30, 2015 and 2014 was $0.1 million and $0.3 million, respectively.  Allocated interest expense for the six months ended September 30, 2015 and 2014 was $0.4 million and $0.6 million, respectively.

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, 2015 was 0.33%.  The swap was entered into as a cash flow hedge against LIBOR
 
 
25 

 
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, 2015.  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, 2015, 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 condensed consolidated statement of operations.  The fair market value of the derivative was zero at inception and an unrealized loss of $0.3 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 condensed consolidated 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, 2015.


 
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9.           ALLOWANCE FOR DOUBTFUL ACCOUNTS:

Trade accounts receivable are presented net of allowances for doubtful accounts, returns and credits of $4.6 million at September 30, 2015 and $4.4 million at March 31, 2015.


 
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10.           SEGMENT INFORMATION:

The Company reports segment information consistent with the way management internally disaggregates its operations to assess performance and to allocate resources.

During the first quarter of fiscal 2016, the Company realigned its organizational structure to better reflect its business strategy. On May 20, 2015, the Company entered into a definitive agreement to sell its ITO business to Charlesbank Capital Partners and M/C Partners to more sharply focus on growing our Marketing & Data Services businesses. The sale was completed on July 31, 2015.  As a result of this transaction and the organizational realignment, information that our chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance changed. Thus, beginning in fiscal year 2016, the Company began reporting its financial performance based on the following new segments: Marketing Services and Audience Solutions, and Connectivity. Prior period amounts have been adjusted to conform to the way the Company internally managed and monitored segment performance during the current fiscal year.

Revenue and cost of revenue are generally directly attributed to the segments. Certain revenue contracts are allocated among the segments based on the relative value of the underlying products and services. Cost of revenue is directly charged in most cases and allocated in certain cases based upon proportional usage.

Operating expenses are attributed to the segment groups as follows:

·  
Research and development expenses are primarily directly recorded to each segment group based on identified products supported.
·  
Sales and marketing expenses are primarily directly recorded to each segment group based on products supported and sold.
·  
General and administrative expenses, including costs of legal, information technology, human resources, finance, and integration and restructuring costs, are generally not allocated to the segments unless directly attributable.
·  
Gains, losses and other items, net are not allocated to the segment groups.
 
The following tables present information by business segment (dollars in thousands).  The prior-year segment information has been restated to conform to the new segment presentation:
 
 
 
For the quarter ended
September 30
   
For the six months ended
September 30
 
   
2015
   
2014
   
2015
   
2014
 
Revenues:
                       
Marketing Services and Audience Solutions
  $ 185,101     $ 190,776     $ 361,377     $ 373,125  
Connectivity
    22,224       13,472       42,863       17,806  
Total revenues
  $ 207,345     $ 204,248     $ 404,240     $ 390,931  
                                 
Gross profit:
                               
Marketing Services and Audience Solutions
  $ 76,030     $ 82,652     $ 148,049     $ 159,876  
Connectivity
    10,081       (1,249 )     18,690       (4,880 )
Corporate
    (78 )     -       (1,520 )     -  
Total gross profit
  $ 86,033     $ 81,403     $ 165,219     $ 154,996  
                                 
Income (loss) from operations:
                               
Marketing Services and Audience Solutions
  $ 41,586     $ 52,302     $ 79,873     $ 98,523  
Connectivity
    (10,192 )     (20,277 )     (18,217 )     (34,538 )
Corporate
    (33,450 )     (38,468 )     (66,581 )     (83,514 )
Total loss from operations
  $ (2,056 )   $ (6,443 )   $ (4,925 )   $ (19,529 )
                                 
                                 


 
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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, 2015 (dollars in thousands):

   
Associate-related reserves
   
Ongoing
contract costs
   
Total
 
Continuing operations:
                 
Balance at March 31, 2015
  $ 7,211     $ 5,228     $ 12,439  
Charges and adjustments
    2,921       -       2,921  
Payments
    (7,060 )     (1,489 )     (8,549 )
Balance at September 30, 2015
  $ 3,072     $ 3,739     $ 6,811  
                         
Discontinued operations:
                       
Balance at March 31, 2015
          $ 8,422          
Charges and adjustments
                       
Disposal
            (7,946 )        
Payments
            (476 )        
Balance at September 30, 2015
          $ -          
                         
The above balances from continuing operations are included in accrued expenses and other liabilities on the condensed consolidated balance sheet.

Restructuring Plans

In the six months ended September 30, 2015, the Company recorded a total of $3.3 million in restructuring charges and adjustments included in gains, losses and other items, net in the condensed consolidated statement of operations.  The expense included severance and other associate-related charges of $2.9 million and leasehold improvement write offs of $0.4 million.

The associate-related accruals of $2.9 million relate to the termination of associates in the United States and Brazil and include a decrease of $0.1 million to the fiscal 2015 restructuring plan.  Of the amount accrued for 2016, $1.6 million remained accrued as of September 30, 2015.  These costs are expected to be paid out in fiscal 2016.

In fiscal 2015, the Company recorded a total of $21.8 million in restructuring charges and adjustments included in gains, losses and other items, net in the consolidated statement of operations.  The expense included severance and other associate-related charges of $13.3 million, lease accruals of $6.5 million, and the write-off of leasehold improvements of $2.0 million.

The associate-related accruals of $13.3 million related to the termination of associates in the United States, Europe, Australia, and China and included an increase of $0.7 million to the fiscal 2014 restructuring plan.  Of the amount accrued for 2015, $1.5 million remained accrued as of September 30, 2015.  These costs are expected to be paid out in fiscal 2016.

The lease accruals of $6.5 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 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 November 2025.  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 earnings (loss) in the period the adjustment is recorded.  Of the amount accrued for 2015, $3.6 million remained accrued as of September 30, 2015.


 
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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
 
   
2015
   
2014
   
2015
   
2014
 
Restructuring plan charges and adjustments
  $ 2,499     $ 793     $ 3,302     $ 7,141  
LiveRamp acquisition-related costs
    -       40       -       820  
Impairment of goodwill and other assets
    706       -       706       -  
Other
    28       0       32       -  
    $ 3,233     $ 833     $ 4,040     $ 7,961  


 
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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 are matters pending, or which were 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 was pending against the Company, Acxiom Information Security Systems (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 sought 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 alleged various violations of the Fair Credit Reporting Act.  The Company had previously accrued $3.7 million as its estimate of its probable loss associated with the matter.  In April 2015, the parties executed a settlement agreement resolving the matter.  On August 7, 2015, the Court granted final approval of the settlement agreement.  Acxiom has paid $3.6 million, which represents its share of the settlement amount.  The Company believes the chances of additional loss are remote.

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 related to continuing operations over the next 25 years of $92.8 million.