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EX-32.2 - EX. 32.2 CFO (JENSON) - LiveRamp Holdings, Inc.ex32-2.htm
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EX-31.1 - EX. 31.1 CEO (HOWE) - LiveRamp Holdings, Inc.ex31-1.htm
EX-31.2 - EX. 31.2 CFO (JENSON) - LiveRamp Holdings, Inc.ex31-2.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 December 31, 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 February 1, 2016 was 77,724,143.
 

 

 

ACXIOM CORPORATION AND SUBSIDIARIES
INDEX
REPORT ON FORM 10-Q
December 31, 2015
 

 
          Page No.
 Part I.  Financial Information      
  Item 1.   Financial Statements      
         
     
 
3
         
       4
         
         5
         
         6
         
       7
       8
         
         9-10
         
   Notes to Condensed Consolidated Financial Statements      11-29
         
   Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      30-45
         
   Item 3.    Quantitative and Qualitative Disclosures about Market Risk      46
         
   Item 4.    Controls and Procedures      46
         
 Part II.  Other Information      
   Item 1.    Legal Proceedings     47
           
   Item 2.    Unregistered Sales of Equity Securities and Use of  Proceeds      47 
           
   Item 6.    Exhibits      48 
       
 Signature     49
       
 Exhibit Index     50


 

 

Item 1.  Financial Statements
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
       
       
   
December 31,
2015
   
March 31,
2015
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 186,390     $ 141,010  
Trade accounts receivable, net
    140,821       126,896  
Deferred income taxes
    16,475       25,610  
Refundable income taxes
    6,899       5,239  
Restricted cash held in escrow
    -       31,000  
Other current assets
    35,918       34,975  
Assets from discontinued operations
    -       172,284  
Total current assets
    386,503       537,014  
Property and equipment, net of accumulated depreciation and amortization
    178,394       176,254  
Software, net of accumulated amortization
    58,947       68,962  
Goodwill
    497,628       497,362  
Purchased software licenses, net of accumulated amortization
    10,043       9,551  
Other assets, net
    30,049       33,281  
    $ 1,161,564     $ 1,322,424  
LIABILITIES AND EQUITY
               
Current liabilities:
               
Current installments of long-term debt
  $ 32,223     $ 32,232  
Trade accounts payable
    30,690       30,094  
Accrued expenses
               
Payroll
    46,662       36,659  
Other
    49,705       62,754  
Acquisition escrow payable
    -       31,000  
Deferred revenue
    42,681       33,620  
Liabilities from discontinued operations
    4,065       57,433  
Total current liabilities
    206,026       283,792  
Long-term debt
    168,681       247,855  
Deferred income taxes
    66,709       80,675  
Other liabilities
    15,705       6,845  
Commitments and contingencies
               
Equity:
               
Common stock
    12,988       12,794  
Additional paid-in capital
    1,071,145       1,034,526  
Retained earnings
    600,072       591,798  
Accumulated other comprehensive income
    8,141       9,413  
Treasury stock, at cost
    (987,903 )     (945,274 )
Total equity
    704,443       703,257  
    $ 1,161,564     $ 1,322,424  
See accompanying notes to condensed consolidated financial statements.
               

 

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
 
     
For the Three Months ended
December 31
 
   
2015
   
2014
 
             
Revenues
  $ 221,193     $ 208,246  
Cost of revenue
    125,735       125,807  
Gross profit
    95,458       82,439  
Operating expenses:
               
Research and development
    18,400       18,973  
Sales and marketing
    36,581       30,554  
General and administrative
    36,793       31,821  
Gains, losses and other items, net
    4,058       3,381  
Total operating expenses
    95,832       84,729  
Loss from operations
    (374 )     (2,290 )
Other income (expense):
               
Interest expense
    (1,948 )     (2,005 )
Other, net
    303       35  
Total other expense
    (1,645 )     (1,970 )
Loss from continuing operations before income taxes
    (2,019 )     (4,260 )
Income taxes
    (1,580 )     (4,597 )
Net earnings (loss) from continuing operations
    (439 )     337  
Earnings (loss) from discontinued operations, net of tax
    (971 )     3,819  
Net earnings (loss)
  $ (1,410 )   $ 4,156  
                 
Basic earnings (loss) per share:
               
Net earnings (loss) from continuing operations
  $ (0.01 )   $ 0.00  
Net earnings (loss) from discontinued operations
    (0.01 )     0.05  
Net earnings (loss)
  $ (0.02 )   $ 0.05  
                 
Diluted earnings (loss) per share:
               
Net earnings (loss) from continuing operations
  $ (0.01 )   $ 0.00  
Net earnings (loss) from discontinued operations
    (0.01 )     0.05  
Net earnings (loss)
  $ (0.02 )   $ 0.05  
                 
                 
See accompanying notes to condensed consolidated financial statements.
               


 
 

 


ACXIOM CORPORATION AND SUBSIDIARIES
(Unaudited)
(Dollars in thousands, except per share amounts)
 
     
For the Nine Months ended
December 31
 
   
2015
   
2014
 
             
Revenues
  $ 625,433     $ 599,177  
Cost of revenue
    364,756       366,329  
Gross profit
    260,677       232,848  
Operating expenses:
               
Research and development
    57,489       55,121  
Sales and marketing
    100,334       85,410  
General and administrative
    100,055       102,794  
Gains, losses and other items, net
    8,098       11,342  
Total operating expenses
    265,976       254,667  
Loss from operations
    (5,299 )     (21,819 )
Other income (expense):
               
Interest expense
    (5,789 )     (5,774 )
Other, net
    666       (234 )
Total other expense
    (5,123 )     (6,008 )
Loss from continuing operations before income taxes
    (10,422 )     (27,827 )
Income taxes
    (3,456 )     (10,322 )
Net loss from continuing operations
    (6,966 )     (17,505 )
Earnings from discontinued operations, net of tax
    15,240       12,513  
Net earnings (loss)
  $ 8,274     $ (4,992 )
                 
Basic earnings (loss) per share:
               
Net loss from continuing operations
  $ (0.09 )   $ (0.23 )
Net earnings from discontinued operations
    0.20       0.16  
Net earnings (loss)
  $ 0.11     $ (0.06 )
                 
Diluted earnings (loss) per share:
               
Net loss from continuing operations
  $ (0.09 )   $ (0.23 )
Net earnings from discontinued operations
    0.20       0.16  
Net earnings (loss)
  $ 0.11     $ (0.06 )
                 
                 
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
December 31
 
   
2015
   
2014
 
             
Net earnings (loss)
  $ (1,410 )   $ 4,156  
Other comprehensive income (loss):
               
Change in foreign currency translation adjustment
    255       (2,399 )
Unrealized gain (loss) on interest rate swap
    217       (93 )
Other comprehensive income (loss)
    472       (2,492 )
Comprehensive income (loss)
  $ (938 )   $ 1,664  
                 
                 
                 
                 
                 
                 
                 
See accompanying notes to condensed consolidated financial statements.
               






 

 


ACXIOM CORPORATION AND SUBSIDIARIES
(Unaudited)
(Dollars in thousands)
 
     
For the Nine Months ended
December 31
 
   
2015
   
2014
 
             
Net earnings (loss)
  $ 8,274     $ (4,992 )
Other comprehensive income (loss):
               
Change in foreign currency translation adjustment
    (1,418 )     (4,293 )
Unrealized gain (loss) on interest rate swap
    146       (5 )
Other comprehensive loss
    (1,272 )     (4,298 )
Comprehensive income (loss)
  $ 7,002     $ (9,290 )
                 
                 
                 
                 
                 
                 
                 
See accompanying notes to condensed consolidated financial statements.
               

 

 


ACXIOM CORPORATION AND SUBSIDIARIES
NINE MONTHS ENDED DECEMBER 31, 2015
(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
 
       897,825
 
90
 
11,347
 
-
 
-
 
(282,157)
 
(5,094)
   
6,343
Tax impact of stock options, warrants and restricted stock
 
-
 
-
 
839
 
-
 
-
 
-
 
-
   
839
Non-cash share-based compensation from continuing operations
 
46,693
 
5
 
23,524
 
-
 
-
 
-
 
-
   
23,529
Non-cash share-based compensation from discontinued operations
 
-
 
-
 
1,008
 
-
 
-
 
-
 
-
   
1,008
Restricted stock units vested
 
991,964
 
99
 
(99)
 
-
 
-
 
-
 
-
   
-
Acquisition of treasury stock
 
-
 
-
 
-
 
-
 
-
 
(1,902,116)
 
(37,535)
   
(37,535)
Comprehensive loss:
                                 
Foreign currency translation
 
-
 
-
 
-
 
-
 
(1,418)
 
-
 
-
   
(1,418)
Unrealized gain on interest rate swap
 
-
 
-
 
-
 
-
 
146
 
-
 
-
   
146
Net earnings
 
-
 
-
 
-
 
8,274
 
-
 
-
 
-
   
8,274
Balances at December 31, 2015
 
129,875,279
 
$12,988
 
$   1,071,145
 
$600,072
 
$    8,141
 
(52,286,997)
 
$(987,903)
   
$704,443
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
                                   
 
See accompanying notes to condensed consolidated financial statements

 

 

ACXIOM CORPORATION AND SUBSIDIARIES
(Unaudited)
(Dollars in thousands)
 
     
For the Nine Months ended
December 31
 
   
2015
   
2014
 
Cash flows from operating activities:
           
Net earnings (loss)
  $ 8,274     $ (4,992 )
Less: Earnings from discontinued operations, net of tax
    (15,240 )     (12,513 )
Adjustments to reconcile net loss to net cash from provided by operating activities:
               
Depreciation and amortization
    63,221       54,687  
Loss (gain) on disposal and impairment of goodwill and other assets
    938       (275 )
Deferred income taxes
    (4,856 )     (2,020 )
Non-cash share-based compensation expense
    23,529       20,100  
Changes in operating assets and liabilities:
               
Accounts receivable, net
    (15,238 )     9,573  
Other assets
    (1,820 )     1,409  
Deferred costs
    (823 )     (316 )
Accounts payable and other liabilities
    3,182       (26,679 )
Deferred revenue
    9,205       (7,215 )
Net cash provided by operating activities
    70,372       31,759  
 
Cash flows from investing activities:
               
Capitalized software development costs
    (10,360 )     (14,985 )
Capital expenditures
    (33,822 )     (42,352 )
Data acquisition costs
    (1,135 )     (1,497 )
Net cash paid in acquisitions
    (5,386 )     (265,672 )
Net cash used in investing activities
    (50,703 )     (324,506 )
 
Cash flows from financing activities:
               
Payments of debt
    (79,183 )     (18,254 )
Sale of common stock, net of stock acquired for withholding taxes
    6,343       (807 )
Excess tax benefits from stock-based compensation
    2,022       -  
Acquisition of treasury stock
    (37,535 )     (9,868 )
Net cash used in financing activities
    (108,353 )     (28,929 )
Net cash used in continuing operations
    (88,684 )     (321,676 )
 
Cash flows from discontinued operations:
               
Net cash provided by operating activities
    10,277       38,773  
Net cash provided by (used in) investing activities
    124,506       (6,250 )
Net cash used in financing activities
    (206 )     (1,561 )
Net cash provided by discontinued operations
    134,577       30,962  
 
Net cash provided by (used in) continuing and discontinued operations
    45,893       (290,714 )
Effect of exchange rate changes on cash
    (513 )     (981 )
Net change in cash and cash equivalents
    45,380       (291,695 )
Cash and cash equivalents at beginning of period
    141,010       418,586  
 
Cash and cash equivalents at end of period
  $ 186,390     $ 126,891  
                 


 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Dollars in thousands)
 
     
For the Nine Months ended
December 31
 
   
2015
   
2014
 
 
Supplemental cash flow information:
           
Cash paid during the period for:
           
Interest
  $ 6,220     $ 6,200  
Income taxes
    6,004       538  
Payments on capital leases and installment payment arrangements
    269       3,249  
Prepayment of debt
    55,000       -  
Other debt payments
    24,120       16,566  
 
 
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 (the “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 quarterly report and the accompanying condensed consolidated financial statements should be read in connection with the 2015 Annual Report.  The financial information contained in this quarterly 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 (“U.S. GAAP”).  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 and made several changes in an effort to bring added transparency to its reporting. 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. The following is a summary of the reclassifications for the quarter and year-to-date periods ended December 31, 2014:

Additional categories of operating costs and expenses in the Consolidated Statement of Operations:  The Company has segregated research and development costs previously reported as a component of cost of revenue and has separated selling, general and administrative into sales and marketing and general and administrative.  In addition, the Company added a gross profit subtotal to its Consolidated Statements of Operations.

Reclassification of operating costs and expenses:  The Company previously classified all account management functions (which include activities supporting existing client relationships and managing client service activities, as well as responsibilities for existing client contract extensions and up-sell) and all IT project management activities as cost of revenue.  As the Company is now disaggregating its operating results into more granular categories of costs, and as a result of activities during fiscal 2015 to clarify and segregate account management roles between those supporting existing client relationships and those focused on existing contract extensions and upsell and IT project management roles between client-facing and internal projects, certain costs are presented in a new category.  Account management costs supporting contract extension and upsell are now classified as sales and marketing, and internal IT project management costs are now classified as general and administrative.  Accordingly, prior year amounts have been reclassified to conform to the current presentation.

Operating costs and expenses are now classified in the following categories in the Consolidated Statements of Operations:

·  
Cost of revenue includes all direct costs of sales such as data and other third party costs directly tied to revenue.  Cost of revenue also includes operating expenses for each of the Company’s operations cost centers such as client services, account management, agency, consulting, IT, data acquisition, and product operations.  Finally, cost of revenue includes amortization of internally developed software.

 
11

 
·  
Research and development includes operating expenses for the Company’s engineering and product/project management functions supporting research, new development, and related product enhancement.

·  
Sales and marketing includes operating expenses for the Company’s sales, marketing, and product marketing cost centers.

·  
General and administrative represents operating expenses for all corporate costs centers, including finance, human resources, legal, corporate IT, and the corporate office.

The following table summarizes the reclassification activity for the three months ended December 31, 2014 (dollars in thousands):
   
As previously reported1
   
Category expansion
   
Account management reclass
   
IT reclass and other
   
As currently reported
 
Cost of revenue
  $ 162,521     $ (18,973 )   $ (15,454 )   $ (2,287 )   $ 125,807  
Research and development
  $ -     $ 18,973     $ -     $ -     $ 18,973  
Selling, general and administrative
  $ 44,634     $ (44,634 )   $ -     $ -     $ -  
Sales and marketing
  $ -     $ 15,342     $ 15,454     $ (242 )   $ 30,554  
General and administrative
  $ -     $ 29,292     $ -     $ 2,529     $ 31,821  
                                         
1 Adjusted for discontinued operations

The following table summarizes the reclassification activity for the nine months ended December 31, 2014 (dollars in thousands):
   
As previously reported1
   
Category expansion
   
Account management reclass
   
IT reclass and other
   
As currently reported
 
Cost of revenue
  $ 474,294     $ (55,121 )   $ (45,436 )   $ (7,408 )   $ 366,329  
Research and development
  $ -     $ 55,121     $ -     $ -     $ 55,121  
Selling, general and administrative
  $ 135,360     $ (135,360 )   $ -     $ -     $ -  
Sales and marketing
  $ -     $ 40,216     $ 45,436     $ (242 )   $ 85,410  
General and administrative
  $ -     $ 95,144     $ -     $ 7,650     $ 102,794  
1 Adjusted for discontinued operations
                                       
 
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 update ASU No. 2014-08, 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.

 
12

 
In September 2015, the FASB issued update ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. This update eliminates the requirement for an acquirer to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment, including the impact on prior periods, be recognized in the reporting period in which the adjustment is identified. In addition, separate presentation on the face of the income statement or disclosure in the notes is required regarding the portion of the adjustment recorded in the current period earnings (loss) that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The Company has early adopted this update, as permitted, beginning in the current quarter ended December 31, 2015.  There was no impact on the Company’s financial condition and earnings (loss) as a result of adopting this guidance.  Because adoption of the guidance is prospective, the impact of ASU 2015-16 on the Company’s financial condition and earnings (loss) will depend upon the nature of any measurement period adjustments identified in future periods.

New Accounting Pronouncements Not Yet Adopted

In May 2014, the FASB issued update ASU 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP, as well as some cost guidance and guidance on certain gains and losses. The core principle of the new guidance is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The guidance defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation, among others. The effective date for the update has been deferred until fiscal 2019 for the Company, with early application allowed for fiscal 2018.  Adoption of the update may be applied using either of two methods: (i) retrospective application of ASU 2014-09 to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective application of ASU 2014-09 with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. We are currently evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.

In April 2015, the FASB issued update ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The existing recognition and measurement guidance for debt issuance costs is not affected by the new guidance. The update is effective for the Company beginning in fiscal year 2017 and must be applied on a retrospective basis to all periods presented. Because this guidance impacts presentation only, the adoption of the new requirements of ASU 2015-03 will not have any impact on our consolidated financial position or results of operations.  Under ASU 2015-03, unamortized debt issuance costs of $3.0 million would be reclassified from other assets, net to a reduction of long-term debt as of December 31, 2015.

In November 2015, the FASB issued update ASU 2015-17, Balance Sheet Classification of Deferred Taxes, as part of its U.S. GAAP simplification initiative. This update requires entities to present deferred tax assets (DTAs) and deferred tax liabilities (DTLs) as noncurrent in a classified balance sheet, thus simplifying the current guidance which requires entities to separately present DTAs and DTLs as current or noncurrent in a classified balance sheet. The update may be applied either prospectively or retrospectively and is effective for the Company at the beginning of fiscal year 2018 and early adoption is allowed. We are currently evaluating the impact of our pending adoption of ASU 2015-17 on our condensed consolidated financial statements.



 
13 

 


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

Earnings (Loss) Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
   
For the quarter ended
December 31
   
For the nine months ended
December 31
 
   
2015
   
2014
   
2015
   
2014
 
                         
Net earnings (loss) from continuing operations
  $ (439 )   $ 337     $ (6,966 )   $ (17,505 )
Net earnings (loss) from discontinued operations
    (971 )     3,819       15,240       12,513  
Net earnings (loss)
  $ (1,410 )   $ 4,156     $ 8,274     $ (4,992 )
                                 
Basic earnings (loss) per share:
                               
Basic weighted-average shares outstanding
    77,831       77,039       77,903       76,998  
Basic earnings (loss) per share:
                               
Continuing operations
  $ (0.01 )   $ 0.00     $ (0.09 )   $ (0.23 )
Discontinued operations
  $ (0.01 )   $ 0.05     $ 0.20     $ 0.16  
Net earnings (loss)
  $ (0.02 )   $ 0.05     $ 0.11     $ (0.06 )
                                 
Diluted earnings (loss) per share:
                               
Basic weighted-average shares outstanding
    77,831       77,039       77,903       76,998  
Dilutive effect of common stock options, warrants, and restricted stock as computed under the treasury stock method
    -       1,263       -       -  
Diluted weighted-average shares outstanding
    77,831       78,302       77,903       76,998  
Diluted earnings (loss) per share:
                               
Continuing operations
  $ (0.01 )   $ 0.00     $ (0.09 )   $ (0.23 )
Discontinued operations
  $ (0.01 )   $ 0.05     $ 0.20     $ 0.16  
Net earnings (loss)
  $ (0.02 )   $ 0.05     $ 0.11     $ (0.06 )
                                 
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 nine months ended December 31, 2015, the dilutive effect of options, warrants and restricted stock units covering 1.5 and 1.4 million shares, respectively, of common stock in each period was excluded from the diluted loss per share calculations since the impact on the calculations was anti-dilutive.  Due to the net loss from continuing operations incurred by the Company during the nine months ended December 31, 2014, the dilutive effect of options, warrants and restricted stock units covering 1.3 million shares of common stock was excluded from the diluted loss per share calculation since the impact on the calculation was anti-dilutive.


 
14 

 


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
December 31
   
For the nine months ended
December 31
 
   
2015
   
2014
   
2015
   
2014
 
Number of shares outstanding under options, warrants and restricted stock units
    1,112       2,012       1,751       1,838  
Range of exercise prices for options and warrants
  $ 17.49-$62.06     $ 18.78-$62.06     $ 17.49-$62.06     $ 19.18-$62.06  
                                 
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 nine months ended December 31, 2015, the Company repurchased 1.9 million shares of its common stock for $37.5 million.  Through December 31, 2015, the Company had repurchased 14.8 million shares of its stock for $240.0 million, leaving remaining capacity of $60.0 million under the stock repurchase program.

Accumulated Other Comprehensive Income

The following table presents the accumulated balances for each component of other comprehensive income (dollars in thousands):
   
December 31,
2015
   
March 31,
2015
 
Foreign currency translation
  $ 8,194     $ 9,612  
Unrealized loss on interest rate swap
    (53 )     (199 )
    $ 8,141     $ 9,413  

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 the 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 stockholder approval at the August 18, 2015 annual stockholders’ 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 December 31, 2015, there were a total of 5.5 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 nine months ended December 31, 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.
 
 

 
15 

 


Option activity for the nine-month period ended December 31, 2015 was:
   
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
    (625,256 )   $   8.63           $  7,048  
Forfeited or cancelled
    (781,791 )   $ 27.11                
Outstanding at December 31, 2015
    3,908,957     $ 14.04       5.11     $ 28,178  
 
Exercisable at December 31, 2015
    2,678,043     $ 14.27       3.68     $ 18,885  

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 December 31, 2015.  This amount changes based upon changes in the fair market value of Acxiom’s common stock.

A summary of stock options outstanding and exercisable as of December 31, 2015 is presented below:
   
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
 
   809,387
 
6.31 years
 
$           1.70
 
  439,366
 
$           1.69
$  11.08 - $  14.42
 
1,204,258
 
4.37 years
 
$         13.18
 
1,090,931
 
$         13.16
$  15.10 - $  19.76
 
   851,168
 
5.60 years
 
$         17.15
 
   436,121
 
$         16.57
$  20.44 - $  25.00
 
1,024,502
 
4.58 years
 
$         21.87
 
   701,761
 
$         22.18
$  26.33 - $  62.06
 
     19,642
 
7.83 years
 
$         32.83
 
       9,864
 
$         32.80
   
3,908,957
 
5.11 years
 
$         14.04
 
2,678,043
 
$         14.27

Total expense related to stock options for the nine months ended December 31, 2015 and 2014 was approximately $8.0 million and $7.0 million, respectively.  Future expense for these options is expected to be approximately $11.4 million over the next four years.

Stock Appreciation Right (“SAR”) Activity
SAR activity for the nine-month period ended December 31, 2015 was:
   
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 December 31, 2015
 
245,404
 
$           40.00
 
1.25
 
$           -
 
 
Exercisable at December 31, 2015
-
 
     $ 
   
     
-
 
  $           -

Total expense related to SARs for the nine months ended December 31, 2015 and 2014 was $0.1 million in both periods.  Future expense for these SARs is expected to be approximately $0.2 million over the next two years.

Restricted Stock Unit Activity
During the nine months ended December 31, 2015, the Company granted time-vesting restricted stock units covering 1,231,173 shares of common stock with a value at the date of grant of $23.1 million.  Of the restricted stock units granted in the current period, 879,664 vest in equal annual increments over four years, 51,587 vest in equal annual increments over two years, 57,382 vest in one year, and 242,540 vest in equal quarterly increments starting 15 months after the date of grant.  Valuation of these units is equal to the quoted market price for the shares on the date of grant.


 
16 

 


Non-vested time-vesting restricted stock unit activity for the nine-month period ended December 31, 2015 was:
   
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
    1,231,173     $ 18.76          
Vested
    (920,050 )   $ 20.12          
Forfeited or cancelled
    (176,784 )   $ 19.46          
Outstanding at December 31, 2015
    2,187,518     $ 19.67       2.24  

During the nine months ended December 31, 2015, the Company granted performance-based restricted stock units covering 347,125 shares of common stock with a value at the date of grant of $6.4 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 nine-month period ended December 31, 2015 was:
   
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
    347,125     $ 18.32          
Forfeited or cancelled
    (87,759 )   $ 19.88          
Outstanding at December 31, 2015
    648,676     $ 19.79       1.54  

Total expense related to all restricted stock units in the nine months ended December 31, 2015 and 2014 was approximately $13.9 million and $12.7 million, respectively.  Future expense for these restricted stock units is expected to be approximately $39.2 million over the next four years.

Other Performance Unit Activity
Other performance-based unit activity for the nine-month period ended December 31, 2015 was:
   
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 December 31, 2015
    635,655     $ 4.07       1.55  

During the nine months ended December 31, 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.  

 
17

 
Total expense related to other performance units for the nine months ended December 31, 2015 was $0.6 million.  Total expense related to other performance units for the nine months ended December 31, 2014 was not material.  Future expense for these performance units is expected to be approximately $1.6 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 December 31, 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 nine months ended December 31, 2015 and 2014 was $1.0 million and $0.4 million, respectively.

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 $131.0 million ($140.0 million stated sales price less closing adjustments and transaction costs of $9.0 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 $9.3 million on the sale, inclusive of working capital and other contingency resolutions during the current quarter, which is included in earnings from discontinued operations, net of tax.

The Company also entered into an agreement to amend its credit agreement (see Note 9 – Long-Term Debt).  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 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 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 9 – Long-Term Debt).  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 nine months ended December 31, 2015 and 2014 was $0.4 million and $1.0 million, respectively.  Allocated interest expense for the quarter ended December 31, 2014 was $0.3 million.  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 nine months ended December 31, 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 table 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
December 31
   
For the nine months ended
December 31
 
   
2015
   
2014
   
2015
   
2014
 
Major classes of line items constituting earnings from discontinued operations, net of tax:
                       
Revenues
  $ -     $ 52,194     $ 69,410     $ 163,515  
Cost of revenue
    -       41,207       50,837       127,056  
Gross profit
    -       10,987       18,573       36,459  
Operating expenses:
                               
Sales and marketing
    -       541       1,192       1,917  
General and administrative
    -       2,169       6,053       7,485  
Loss (gain) on sale of discontinued operations
    1,011       -       (9,349 )     -  
Gains, losses and other items, net
    -       795       -       1,215  
Total operating expenses
    1,011       3,505       (2,104 )     10,617  
Income (loss) from discontinued operations
    (1,011 )     7,482       20,677       25,842  
Interest expense
    -       (605 )     (681 )     (1,804 )
Other, net
    -       (68 )     (230 )     (327 )
Earnings (loss) from discontinued operations before income taxes
    (1,011 )     6,809       19,766       23,711  
Income taxes
    (490 )     2,672       4,076       9,300  
Earnings (loss) from discontinued operations, net of tax
  $ (521 )   $ 4,137     $ 15,690     $ 14,411  
                                 

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 table is a reconciliation of the major classes of assets and liabilities of the discontinued operations (dollars in thousands):
   
December 31,
2015
   
March 31,
 2015
 
Trade accounts receivable, net
  $ -     $ 35,743  
Deferred income taxes
    -       2,762  
Other current assets
    -       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
  $ -     $ 172,172  
                 
Current installments of long-term debt
  $ -     $ 653  
Trade accounts payable
    -       8,857  
Accrued expenses
    2,728       7,480  
Deferred revenue
    -       3,658  
Long-term debt
    -       6,684  
Deferred income taxes
    -       22,716  
Other liabilities
    -       6,377  
Liabilities from discontinued operations
  $ 2,728     $ 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
 
 
 
19

 
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 related to the agreements, included in cash flows from operating activities in the condensed consolidated statements of cash flows, were $2.0 million and $2.7 million, respectively, for the quarter and nine months ended December 31, 2015.  Cash outflows related to the agreements, included in cash flows from operating activities in the condensed consolidated statements of cash flows, were $2.4 million and $2.5 million, respectively, for the quarter and nine months ended December 31, 2015.  Revenues related to the agreements, included in loss from continued operations in the condensed consolidated statements of operations, were $1.8 million and $2.9 million, respectively, for the quarter and nine months ended December 31, 2015. Expenses related to the agreements, included in loss from continued operations in the condensed consolidated statements of operations, were $1.8 million and $3.0 million, respectively, for the quarter and nine months ended December 31, 2015.
 
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 nine months ended December 31, 2015 and 2014 are segregated and included in earnings (loss) from discontinued operations, net of tax, in the condensed consolidated statements of operations and consists of (dollars in thousands):
   
For the quarter ended
December 31
   
For the nine months ended
December 31
 
   
2015
   
2014
   
2015
   
2014
 
Revenues
  $ -     $ 1,250     $ -     $ 8,490  
                                 
Operating expenses, excluding loss on sale of discontinued operations
  $ 450     $ 1,568     $ 450     $ 8,513  
Loss on sale of discontinued operations
    -       -       -       1,875  
Loss from discontinued operations before income taxes
  $ (450 )   $ (318 )   $ (450 )   $ (1,898 )
 
Income taxes
    -       -       -       -  
Loss from discontinued operations, net of tax
  $ (450 )   $ (318 )   $ (450 )   $ (1,898 )

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 consists of (dollars in thousands):
   
December 31,
2015
   
March 31,
2015
 
Trade accounts receivable, net
  $ -     $ 112  
Assets from discontinued operations
  $ -     $ 112  
                 
Other accrued expenses
  $ 1,337     $ 1,008  
Liabilities from discontinued operations
  $ 1,337     $ 1,008  
                 


 
20 

 


5.           ACQUISITIONS

On December 1, 2015, the Company acquired certain addressable television net assets from The Allant Group, Inc.  The acquisition provides the Company additional consumer insight capabilities that enable clients to more effectively reach their television channel customer base and audiences.  The Company paid approximately $5.4 million in cash.  The Company has omitted pro forma disclosures related to this acquisition as the pro forma effect of this acquisition is not material.  The results of operation for the acquisition are included in the Company’s consolidated results beginning December 1, 2015.

The following table presents the purchase price allocation related to assets acquired and liabilities assumed (dollars in thousands):
   
December 1, 2015
 
Assets acquired:
     
Accounts receivable
  $ 499  
Developed technology
    2,700  
Other intangible assets
    1,400  
Goodwill
    1,377  
      5,976  
Accounts payable
    (590 )
Net cash paid
  $ 5,386  

The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed were based on preliminary calculations and valuations using management’s estimates and assumptions and were based on the information that was available as of the date of acquisition. The Company expects to finalize the valuation as soon as practical.

6.           OTHER CURRENT AND NONCURRENT ASSETS:

Other current assets consist of the following (dollars in thousands):
   
December 31,
2015
   
March 31,
 2015
 
Prepaid expenses
  $ 23,078     $ 20,684  
Assets of non-qualified retirement plan
    12,731       14,174  
Other miscellaneous assets
    109       117  
Other current assets
  $ 35,918     $ 34,975  

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

   
December 31,
2015
   
March 31,
 2015
 
Acquired intangible assets, net
  $ 20,594     $ 22,902  
Deferred data acquisition costs
    1,836       2,347  
Deferred expenses
    4,246       5,078  
Other miscellaneous noncurrent assets
    3,373       2,954  
Noncurrent assets
  $ 30,049     $ 33,281  
                 



 
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7.           GOODWILL:

As discussed in Note 11 – 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.

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.

During the quarter ended December 31, 2015, management determined that results for the Asia/Pacific (“APAC”) component were lower than had been projected in the previous goodwill test in part due to an economic slowdown in Asia. Management further determined that the failure of the APAC component to meet expectations, combined with the expectation that future projections would also be lowered, constituted a triggering event, requiring an interim goodwill impairment test. The impairment test indicated a reduced fair value, but the fair value is still in excess of the carrying value resulting in no impairment. Management believes that the estimated valuations it arrived at are reasonable and consistent with what other marketplace participants would use in valuing the APAC component. However, management cannot give any assurances that the values will not change in the future. For example, if the APAC projections are not achieved in the future or if there are strategic changes related to the reporting unit, this could lead management to reassess their assumptions and lead to reduced valuations under the income approach. The Company continues to monitor potential triggering events including changes in the APAC business climate, the volatility of the APAC capital markets, and the APAC component’s recent operating performance and projections. The occurrence of one or more triggering events could require additional impairment testing, which could result in impairment charges.

As discussed in Note 11 – Segment Information, during the quarter ended December 31, 2015, the Company expanded its operating segments and reporting units. As a result, goodwill was reallocated to the new reporting units using a relative fair value approach.


 
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This table sets forth the carrying amount of goodwill, by operating segment, at December 31, 2015, and the changes in those balances (dollars in thousands).
   
Marketing
Services and Audience Solutions
   
Marketing
Services
   
Audience
Solutions
   
Connectivity
   
Total
 
Balance at March 31, 2015
  $ 402,645     $ -     $ -     $ 94,717     $ 497,362  
                                         
Impairment
    (502 )     -       -       -       (502 )
Reallocation of segments
    (402,143 )     124,627       277,516       -       -  
Acquisition of addressable television assets of Allant
    -       -       1,377       -       1,377  
Change in foreign currency translation adjustment
    -       (291 )     (219 )     (99 )     (609 )
Balance at December 31, 2015
  $ -     $ 124,336     $ 278,674     $ 94,618     $ 497,628  

Goodwill by component included in each segment as of December 31, 2015 was:
   
Marketing
Services
   
Audience
Solutions
   
Connectivity
   
Total
 
U.S.
  $ 116,594     $ 273,430     $ 91,164     $ 481,188  
APAC
    7,742       5,244       3,454       16,440  
Balance at December 31, 2015
  $ 124,336     $ 278,674     $ 94,618     $ 497,628  

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.

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 

 

8.           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 below (dollars in thousands):
   
December 31,
2015
   
March 31,
2015
 
Land
  $ 6,737     $ 6,737  
Buildings and improvements
    219,846       202,439  
Data processing equipment
    254,597       245,538  
Office furniture and other equipment
    39,082       51,007  
      520,262       505,721  
Less accumulated depreciation and amortization
    341,868       329,467  
    $ 178,394     $ 176,254  

Depreciation expense on property and equipment (including amortization of property and equipment under capitalized leases) was $10.0 million and $9.2 million for the quarters ended December 31, 2015 and 2014, respectively.  Depreciation expense on property and equipment (including amortization of property and equipment under capitalized leases) was $29.8 million and $25.8 million for the nine months ended December 31, 2015 and 2014, respectively.

9.           LONG-TERM DEBT:

Long-term debt consists of the following (dollars in thousands):
   
December 31,
2015
   
March 31,
 2015
 
Term loan credit agreement
  $ 192,500     $ 270,000  
Other debt and long-term liabilities
    8,404       10,087  
Total long-term debt and capital leases
    200,904       280,087  
Less current installments
    32,223       32,232  
Long-term debt, excluding current installments
  $ 168,681     $ 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 December 31, 2015, the LIBOR credit spread was 2.00%.  There were no revolving credit borrowings outstanding at December 31, 2015 or March 31, 2015.  The weighted-average interest rate on term loan borrowings at December 31, 2015 was 2.6%.  Outstanding letters of credit at December 31, 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 December 31, 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 – Discontinued Operations).  Once the ITO disposition was completed and the amendment became fully effective, certain financial covenants in the credit agreement were modified
 
 
24

 
for the 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 rights and 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 December 31, 2014 was $0.3 million.  Allocated interest expense for the nine months ended December 31, 2015 and 2014 was $0.4 million and $1.0 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 December 31, 2015 was 0.54%.  The swap was entered into as a cash flow hedge against LIBOR interest rate movements on the term loan.  The Company assesses the effectiveness of the hedge based on the hypothetical derivative method.  There was no ineffectiveness for the period ended December 31, 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 December 31, 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 $0.1 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 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 December 31, 2015.

10.           ALLOWANCE FOR DOUBTFUL ACCOUNTS:

Trade accounts receivable are presented net of allowances for doubtful accounts, returns and credits of $5.4 million at December 31, 2015 and $4.4 million at March 31, 2015.

11.           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, with plans to report Marketing Services and Audience Solutions as separate segments in the future. During the third quarter of fiscal 2016, the operational and financial activities to separate Marketing Services and Audience Solutions were completed and as a result are now reported as separate operating segments. Prior period amounts have been adjusted to conform to the way the Company internally managed and monitored segment performance during the current fiscal quarter.


 
25 

 


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, excluding non-cash stock compensation expense and purchased intangible asset amortization, is directly charged in most cases and allocated in certain cases based upon proportional usage.

Operating expenses, excluding non-cash stock compensation expense and purchased intangible asset amortization, 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 are generally not allocated to the segments unless directly attributable.
·  
Gains, losses and other items, net are not allocated to the segment groups.
 
We do not track our assets by operating segments. Consequently, it is not practical to show assets by operating segment.

The following table presents 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
December 31
   
For the nine months ended
December 31
 
   
2015
   
2014
   
2015
   
2014
 
Revenues:
                       
Marketing Services
  $ 115,725     $ 114,403     $ 336,430     $ 336,441  
Audience Solutions
    77,046       75,933       217,718       227,020  
Connectivity
    28,422       17,910       71,285       35,716  
Total operating segment revenues
  $ 221,193     $ 208,246     $ 625,433     $ 599,177