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 June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ----- to ----- Commission file number 0-13163 Acxiom Corporation (Exact Name of Registrant as Specified in Its Charter) DELAWARE 71-0581897 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) P.O. Box 2000, 301 Industrial Boulevard, Conway, Arkansas 72033-2000 (Address of Principal Executive Offices) (Zip Code) (501) 336-1000 (Registrant's Telephone Number, Including Area Code) 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 The number of shares of common stock, $ 0.10 par value per share, outstanding as of August 5, 1996, was 25,563,145.
Form 10-Q PART I - FINANCIAL INFORMATION Item 1. Financial Statements Company for which report is filed: ACXIOM CORPORATION The consolidated financial statements included herein have been prepared by Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Registrant's management, however, all adjustments necessary for a fair statement of the results for the periods included herein have been made and the disclosures contained herein are adequate to make the information presented not misleading. All such adjustments are of a normal recurring nature.
Form 10-Q ACXIOM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, March 31, 1996 1996 ----------- ----------- Assets Current assets: Cash and cash equivalents $ 536,000 3,469,000 Trade accounts receivable, net 58,094,000 44,474,000 Refundable income taxes --- 1,537,000 Other current assets 6,813,000 4,534,000 ----------- ----------- Total current assets 65,443,000 54,014,000 ----------- ----------- Property and equipment 171,606,000 153,224,000 Less - Accumulated depreciation and amortization 68,783,000 64,123,000 ----------- ----------- Property and equipment, net 102,823,000 89,101,000 ----------- ----------- Software, net of accumulated amortization 13,413,000 10,524,000 Excess of cost over fair value of net assets acquired 41,191,000 13,982,000 Other assets 29,010,000 26,428,000 ----------- ----------- $ 251,880,000 194,049,000 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Short-term notes payable 1,000,000 646,000 Current installments of long-term debt 4,053,000 3,866,000 Trade accounts payable 15,907,000 13,596,000 Accrued interest 352,000 435,000 Accrued payroll and related expenses 6,980,000 5,111,000 Other accrued expenses 10,502,000 7,189,000 Advances from customers 434,000 316,000 Income taxes 1,046,000 --- ----------- ----------- Total current liabilities 40,274,000 31,159,000 ----------- ----------- Long-term debt, excluding current installments 72,544,000 26,885,000 Deferred income taxes 10,933,000 10,933,000 Deferred revenue 1,472,000 2,331,000 Stockholders' equity: Preferred stock --- --- Common stock 2,613,000 2,435,000 Additional paid-in capital 58,519,000 54,514,000 Retained earnings 68,471,000 68,978,000 Foreign currency translation adjustment (638,000) (863,000) Treasury stock, at cost (2,308,000) (2,323,000) ----------- ----------- Total stockholders' equity 126,657,000 122,741,000 ----------- ----------- Commitments and contingencies $ 251,880,000 194,049,000 =========== =========== See accompanying condensed notes to consolidated financial statements.
Form 10-Q ACXIOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) For the Three Months Ended -------------------------- June 30, -------------------------- 1996 1995 ----------- ----------- Revenue $ 93,953,000 59,182,000 Operating costs and expenses: Salaries and benefits 35,532,000 22,785,000 Computer, communications and other equipment 12,821,000 8,121,000 Data costs 18,781,000 15,500,000 Other operating costs and expenses 17,608,000 7,259,000 ----------- ----------- Total operating costs and expenses 84,742,000 53,665,000 ----------- ----------- Income from operations 9,211,000 5,517,000 ----------- ----------- Other income (expense): Interest expense (818,000) (392,000) Other, net (1,492,000) (67,000) ----------- ----------- (2,310,000) (459,000) ----------- ----------- Earnings before income taxes 6,901,000 5,058,000 Income taxes 2,656,000 1,922,000 ----------- ----------- Net earnings $ 4,245,000 3,136,000 =========== =========== Earnings per share $ 0.15 0.12 =========== =========== Weighted average shares outstanding 29,253,000 25,822,000 =========== =========== See accompanying condensed notes to consolidated financial statements.
Form 10-Q ACXIOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended -------------------------- June 30, -------------------------- 1996 1995 ----------- ----------- Cash flows from operating activities: Net earnings $ 4,245,000 3,136,000 Non-cash operating activities: Depreciation and amortization 6,660,000 5,065,000 Loss on impairment of assets 1,000,000 --- Other, net 1,256,000 153,000 Changes in assets and liabilities: Accounts receivable (5,471,000) (167,000) Other assets 231,000 (1,202,000) Accounts payable and other liabilities (1,316,000) (455,000) ----------- ----------- Net cash provided by operating activities 6,605,000 6,530,000 ----------- ----------- Cash flows from investing activities: Sale of assets --- 131,000 Cash acquired in acquisition 21,000 1,624,000 Development of software (1,004,000) (250,000) Capital expenditures (18,740,000) (10,481,000) ----------- ----------- Net cash used by investing activities (19,723,000) (8,976,000) ----------- ----------- Cash flows from financing activities: Proceeds from debt 22,481,000 4,199,000 Payments of debt (13,516,000) (2,295,000) Sale of common stock 1,220,000 636,000 Cash dividends paid by acquired company prior to merger --- (468,000) Acquisition and retirement of common stock by acquired company prior to merger --- (1,010,000) ----------- ----------- Net cash provided by financing activities 10,185,000 1,062,000 ----------- ----------- Effect of exchange rate changes on cash --- (24,000) ----------- ----------- Net decrease in cash and short-term cash investments (2,933,000) (1,408,000) Cash and short-term cash investments at beginning of period 3,469,000 3,149,000 ----------- ----------- Cash and short-term cash investments at end of period $ 536,000 1,741,000 =========== =========== Supplemental cash flow information: Cash paid during the period for: Interest $ 901,000 740,000 Income taxes 73,000 316,000 =========== =========== See accompanying condensed notes to consolidated financial statements.
Form 10-Q ACXIOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. In April 1996, the Company purchased certain assets of Direct Media/DMI, Inc. ("DMI") for $25,000,000 and the assumption of certain liabilities of DMI. The $25,000,000 purchase price, payable in three (3) years, is collaterized by a letter of credit, and may, at DMI's option, be paid in one million shares of Acxiom common stock in lieu of cash plus accrued interest. Headquartered in Greenwich, Connecticut, DMI provides list brokerage, management, and consulting services to business-to-business and consumer list owners and mailers. At April 1, 1996 the liabilities assumed by the Company exceeded the fair value of the assets acquired from DMI by $2,673,000 (unaudited). The resulting excess of purchase price over fair value of net assets acquired of $27,673,000 is being amortized over its estimated economic life of 20 years. The acquisition has been accounted for as a purchase and the results of operations of DMI are included in the consolidated results of operations from the date of acquisition. The purchase price for DMI has been allocated as follows: Trade accounts receivable $ 7,558,000 Property and equipment 2,010,000 Excess of cost over fair value of net assets acquired 27,673,000 Other assets 1,340,000 Short-term payable to bank (11,594,000) Accounts payable and other liabilities (1,700,000) Long-term debt (287,000) ---------- $ 25,000,000 ========== The following consolidated pro forma financial information (which includes adjustments to reflect the accounting bases recognized in recording the purchase and to eliminate the effects of transactions between the Company and DMI) shows the results of the Company's operations for the quarter ended June 30, 1995 as if the purchase of DMI had occurred at the beginning of the period: Revenue $ 70,117,000 ========== Net earnings $ 4,118,000 ========== Earnings per share $ 0.15 ==========
2. On April 9, 1996, the Company issued approximately 1.7 million shares of its common stock for all of the outstanding common stock and common stock options of Pro CD, Inc. ("Pro CD"). Headquartered in Danvers, Massachusetts, Pro CD is a publisher of reference software on CD-ROM. The acquisition is accounted for as a pooling of interests. The stockholders' equity and operations of Pro CD are not material in relation to those of the Company. As such, the Company has recorded the combination by restating stockholders' equity as of April 1, 1996, without restating prior year statements of earnings to reflect the pooling of interests combination. For the year ended December 31, 1995, Pro CD had revenues and a net loss of approximately $21,675,000 and $970,000, respectively. At April 1, 1996, Pro CD's liabilities exceeded its assets by approximately $1,775,000. 3. Effective March 31, 1994 the Company sold substantially all of the assets of its former Acxiom Mailing Services operating unit ("AMS") to MorCom, Inc. ("MorCom") in exchange for the assumption of certain liabilities, $4,500,000 in cash, a mortgage note receivable, and $1,000,000 of preferred stock issued by MorCom. Additionally, the Company sold MorCom a software license to use certain applications of the Company's software. At June 30, 1996 the assets remaining on the Company's books related to this transaction were as follows: Mortgage note receivable (other assets) $ 3,912,000 Software license receivable (other assets) 640,000 Preferred stock (other assets) 1,000,000 Trade accounts receivable 491,000 --------- $ 6,043,000 In June 1996, MorCom ceased operations. The Company has established valuation reserves for the full amount of the software license receivable, preferred stock, and trade accounts receivable. The Company is currently evaluating various alternatives related to the property. Management believes that any further loss associated with this event will not be material to the financial statements.
4. Long term debt consists of the following: June 30, March 31, 1996 1996 Unsecured revolving credit agreement $ 34,476,000 11,995,000 Convertible note, payable April 30, 1999 together with interest at 3.12%; collateralized by letter of credit; convertible at maturity into 1 million shares of common stock 25,000,000 --- 9.75% Senior Notes, due May 1, 2000, payable in annual installments of $2,143,000 each May 1; Interest is payable semiannually 8,571,000 10,714,000 8.94% note payable due in monthly installments of principal and interest of $50,000 with remaining balance due June 30, 1997; collateralized by real estate 4,208,000 4,264,000 Other notes and capital lease obligations payable 4,342,000 3,778,000 ---------- ---------- Total long term debt 76,597,000 30,751,000 Less current installments 4,053,000 3,866,000 ---------- ---------- Long-term debt, excluding current installments $ 72,544,000 $ 26,885,000 ========== ========== Subsequent to June 30, 1996 the unsecured credit agreement was increased to provide for revolving loans up to $50,000,000 and now expires on July 30, 2001. The 8.94% note payable which is due June 30, 1997 continues to be classified as long-term debt because the Company intends to use available funding under the credit agreement to refinance the note on a long-term basis.
5. Earnings per share computations are based upon the weighted average number of shares outstanding, including the dilutive effect of stock options and warrants and the convertible debt issued for the purchase of DMI, all of which are considered common stock equivalents. For purposes of calculating earnings per share, the interest expense on the convertible note is eliminated. The calculation of earnings per share for the periods presented is as follows: For the Three Months Ended ------------------------------ June 30, 1996 June 30, 1995 ------------- ------------- Net earnings $ 4,245,000 $ 3,136,000 Interest expense (net of tax effect) 120,000 --- ---------- ---------- Adjusted net earnings $ 4,365,000 $ 3,136,000 ========== ========== Earnings per share $ .15 $ .12 ==== ==== Weighted average shares outstanding 29,253,000 25,822,000 ========== ========== 6. On July 25, 1995, a customer of the Company, Highlights for Children, Inc. (Highlights"), filed a demand for arbitration with the American Arbitration Association. The demand alleges, among other things, breaches of express warranties in connection with a software license agreement for the Company's GS/2000 software product. The demand seeks compensatory damages of approximately $22,000,000 and punitive damages of $44,000,000 plus attorneys' fees and costs. The Company believes that the action is substantially without merit. Highlights is and has been using the GS/2000 software in the daily operation of its business for over three years. Highlights accepted the software as operational as of September 1, 1993 and paid the final license fee payment. Acxiom's software license fee and other related fees invoiced to Highlights for the GS/2000 software totaled approximately $2,000,000. The Company intends to vigorously defend the arbitration claim. Management believes that the ultimate outcome of the arbitration case will result in a final settlement which would not be material to the financial statements and which would be substantially lower than the amount noted above. The Company is involved in various other claims and legal actions in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position or its expected future consolidated results of operations. 7. Trade accounts receivable are presented net of allowances for doubtful accounts, returns, and credits of $4,489,000 and $1,880,000 at June 30, 1996 and March 31, 1996, respectively.
Form 10-Q Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Consolidated revenue was a record $93,953,000 for the quarter ended June 30, 1996, a 59% increase over revenue of $59,182,000 for the same quarter a year ago. Excluding the effects of the Pro CD and DMI acquisitions which were completed effective April 1, 1996, revenue was up 38% over the prior year. By industry sector, the direct marketing industry revenue grew 168% including the additional revenue from DMI, and information and communications revenue grew 118%, which includes the additional revenue from Pro CD. Financial services revenue grew 13% and insurance revenue grew 19% while the media/publishing industry sector was flat compared to the prior year. Operating costs and expenses increased 58% compared to the same quarter a year ago. Salaries and benefits increased 56%, but after adjusting for the effects of the acquisitions noted above, the increase was only 28%, principally as a result of new contracts with The Polk Company ("Polk") and Trans Union Marketing Services. Computer, communications and other equipment costs were up 58%, primarily attributable to the new contracts noted above. Data costs were up 21%, reflecting increased revenue under the Allstate contract. Other operating costs and expenses were up 143% or $10,349,000. After adjusting for the impact of the acquisitions noted above, the increase is 52% or $3.8 million which principally relates to higher facility costs on newly constructed facilities and volume-related increases. Income from operations was 10% of revenue compared to 9% for the first quarter of the prior year. Interest expense increased due to increased levels of debt during the quarter when compared to the year earlier period. Other expense in the quarter included a charge of $1,000,000 for the write-off of the preferred stock investment in MorCom (see discussion below). The Company's effective income tax rate was 38.5% for the quarter, compared to 38% for the first quarter in the prior year. The Company expects the actual effective rate for the full fiscal year to remain in the 37-39% range. Net earnings for the quarter increased 35% over the previous year. Earnings per share increased 25% on a 13% increase in the weighted average number of shares outstanding. The increase in the number of shares from the same period in the prior year is primarily due to the acquisitions of Pro CD and DMI during the first quarter of this year. Capital Resources and Liquidity Working capital at June 30, 1996 was $25,169,000 compared to $22,855,000 at March 31, 1996. At June 30, 1996 the Company had arranged for a temporary increase in its revolving credit agreement from $30,000,000 to $40,000,000, giving the Company total available credit lines of $41,000,000 of which $35,476,000 was outstanding. Subsequent to June 30, 1996 the Company has completed the negotiation of a new $50,000,000 revolving credit agreement. As the new revolving credit agreement has a 5-year life, the Company has continued to classify the entire balance as long-term debt.
In addition, the Company continues to classify as long-term debt the note payable, totaling $4,208,000, which is due in full on June 30, 1997 because it is the Company's intention to pay this loan with additional proceeds from the revolving credit agreement. The Company's debt-to-capital ratio (capital defined as long-term debt plus stockholders' equity) was 36% at June 30, 1995 compared to 18% at March 31, 1996. The increase in the ratio is due to the issuance of a convertible note in the amount of $25,000,000 for the purchase of DMI as well as additional funding drawn on the revolving credit agreement during the quarter. Cash provided by operating activities was $6,605,000 for the three months ended June 30, 1996 compared to $6,530,000 for the same period a year earlier. In the current quarter, $19,723,000 was used by investing activities and $10,185,000 was provided by financing activities. Investing activities included $18,740,000 in capital expenditures compared to $10,481,000 in the prior year's quarter. A significant amount of the first quarter capital expenditures related to the acquisition of data center equipment for the Polk data center outsourcing contract. Management expects capital expenditures to be substantially lower in the second quarter of the fiscal year. Financing activities included paying off short-term bank debt incurred when the Company acquired DMI and proceeds from additional borrowings under the revolving credit agreement. While the Company does not have any material contractual commitments for capital expenditures, additional investments in facilities and computer equipment will continue to be necessary to support the anticipated growth of the business. In addition, new outsourcing or facilities management contracts frequently require substantial up-front capital expenditures in order to acquire existing assets. Management believes that the combination of existing working capital, anticipated funds to be generated through future operations and the Company's available credit lines is sufficient to meet the Company's current operating needs as well as to fund the anticipated levels of capital expenditures. If additional funds are required, the Company would use existing credit lines to generate cash, followed by either additional borrowings to be secured by the Company's assets or the issuance of additional equity securities in either public or private offerings. Management believes that the Company has significant unused capacity to raise capital which could be used to support future growth. Effective March 31, 1994 the Company sold substantially all of the assets of its former Acxiom Mailing Services unit ("AMS") in exchange for the assumption of certain liabilities, $4,500,000 in cash, a mortgage note receivable, and $1,000,000 of preferred stock issued by the buyer, MorCom, Inc. Additionally the Company sold MorCom a software license to use certain of the Company's software. In June, 1996, MorCom ceased operations. The Company has established valuation reserves for the full amount of the software license receivable, preferred stock, and trade accounts receivable and is currently evaluating various alternatives related to the property. Management believes that any further loss associated with this event will not be material to the financial statements.
Form 10-Q ACXIOM CORPORATION PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of the Company was held on July 24, 1996. The following matters were voted upon at the meeting: (1) Shareholders approved the election of three directors. Voting results for each individual nominee were as follows: William T. Dillard II, 21,421,690 votes for and 185,218 withheld; Harry C. Gambill, 21,418,167 votes for and 188,741 withheld; and Walter V. Smiley, 21,605,513 votes for and 1,395 withheld. (2) Shareholders approved an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of common stock, $.10 par value per share, from 60,000,000 to 200,000,000, with 18,708,820 votes for, 3,183,989 votes against, 478,931 votes withheld, and no broker non-votes. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 3(i) Amended and Restated Certificate of Incorporation 10 Amended and Restated Key Associate Stock Option Plan of Acxiom Corporation 27 Financial Data Schedule (b) Reports on Form 8-K filed during the first quarter: A report was filed on May 14, 1996, as amended by a Form 8-K/A filed on July 12, 1996, which reported the acquisition of substantially all of the assets and assumption of certain liabilities of Direct Media/DMI, Inc.
Form 10-Q ACXIOM CORPORATION AND SUBSIDIARIES SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Acxiom Corporation Dated: August 13, 1996 By: /s/ Robert S. Bloom ---------------------------------- (Signature) Robert S. Bloom Chief Financial Officer (Chief Accounting Officer)
EXHIBIT INDEX Exhibits to Form 10-Q Exhibit Number Exhibit 3(i) Amended and Restated Certificate of Incorporation 10 Amended and Restated Key Associate Stock Option Plan of Acxiom Corporation 27 Financial Data Schedule