ACXM Acxiom Holdngs (delisted)

Acxiom(R) Corporation (Nasdaq: ACXM) today announced financial results for the first quarter of fiscal 2006 ended June 30, 2005. Revenue of $310.3 million was in line with previous estimates of $310 million; diluted earnings per share of $.07 exceeded the Company's previous estimate of $.06. Operating cash flow was $61.5 million and free cash flow was $36.7 million. Acxiom will hold a conference call at 4:30 p.m. CDT today to discuss this information further. Interested parties are invited to listen to the call, which will be broadcast via the Internet at www.acxiom.com. The Company will reference presentation slides that will be available on the website prior to the call. "We are making good, steady progress on the expense reductions we announced on July 12," Company Leader Charles D. Morgan said. "We expect to meet or exceed $14 million to $16 million in savings per quarter by the end of the fiscal year through the previously announced combination of job cuts and other targeted expense reductions. All together, this should position us for a solid FY06." Highlights of Acxiom's first-quarter performance include: -- Revenue of $310.3 million, up 7 percent from $289.0 million in the first quarter a year ago. U.S. revenue grew 13 percent. Acquisitions contributed 5% of the U.S. revenue growth. International revenue was 16 percent below the same quarter a year ago. -- Diluted earnings per share of $.07, down 50 percent from $.14 the year before. -- Operating cash flow of $61.5 million and free cash flow of $36.7 million. The free cash flow of $36.7 million is a non-GAAP financial measure, and a reconciliation to the comparable GAAP measure, operating cash flow, is attached to this press release. -- The purchase of 8.3 million shares of common stock through the Company's buy-back program at a total cost of $156.6 million. -- New contracts that will deliver $15 million in annual revenue and renewals that total $39 million in annual revenue. -- Committed new deals in the pipeline that are expected to generate $74 million in annual revenue. -- Integration of recent acquisitions Digital Impact and SmartDM into a new Integrated Marketing Services Organization focused on digital marketing services. Morgan reported that Acxiom completed contracts in the quarter with several clients, two of which were particularly notable based on Acxiom's strategic goals. One was the expansion of a large, U.S.-based financial services account into the European market, and the other was new deployment of a fully grid-enabled prospect database solution for new client Juniper Bank, leveraging Acxiom's new Customer Information Infrastructure technology. Morgan also outlined three primary areas that significantly impacted Acxiom's performance compared with the first quarter of fiscal 2005: European operations down about $4 million in pretax earnings year-over-year; problems with a large client installation that cost the Company $6.7 million in profit; and lower profits in the real estate data business, resulting in a $2.2 million shortfall. "When you take all three situations together, we're talking about a negative impact of about $.09 to diluted earnings per share in the quarter," Morgan added. Outlook The Company's expectations are communicated in the Financial Road Map, which includes a chart summarizing the one-year and long-term goals as well as an explanation of the assumptions and definitions that accompany these goals. The only change to the previously released financial projections in the Financial Road Map is in the area of international revenues. As announced July 12, the estimate for fiscal 2006 international revenue was reduced to a range of $170 million to $190 million - a reduction of 10-20 percent over fiscal 2005. The financial projections stated today are based on the Company's current expectations. These projections are forward looking, and actual results may differ materially. These projections do not include the potential impact of any mergers, acquisitions, divestitures or other business combinations that may be completed in the future. About Acxiom Acxiom Corporation (Nasdaq: ACXM) integrates data, services and technology to create and deliver customer and information management solutions for many of the largest, most respected companies in the world. The core components of Acxiom's innovative solutions are Customer Data Integration (CDI) technology, data, database services, IT outsourcing, consulting and analytics, and privacy leadership. Founded in 1969, Acxiom is headquartered in Little Rock, Arkansas, with locations throughout the United States and Europe, and in Australia and China. For more information, visit www.acxiom.com. This release and today's conference call contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially. Such statements may include but are not necessarily limited to the following: that with the exception of a reduction in the projected International revenue and the impact of restructuring charges, the projected revenue, operating margin, return on assets and return on invested capital, operating cash flow and free cash flow, borrowings, dividends and other metrics referred to in the Financial Road Map published on May 11, 2005 will be within the estimated ranges; that the estimations of revenue, earnings, cash flow, growth rates, restructuring charges, expense reductions and job eliminations will be within the estimated ranges; that the business pipeline and our anticipated cost structure will allow us to continue to meet or exceed revenue, cash flow and other projections. The following are important factors, among others, that could cause actual results to differ materially from these forward-looking statements: The possibility that we may incur expenses related to unsolicited proposals or others to acquire the Company; certain contracts may not be closed, or may not be closed within the anticipated time frames; the possibility that certain contracts may not generate the anticipated revenue or profitability; the possibility that negative changes in economic or other conditions might lead to a reduction in demand for our products and services; the possibility of an economic slowdown or that economic conditions in general will not be as expected; the possibility that significant customers may experience extreme, severe economic difficulty; the possibility that the integration of acquired businesses may not be as successful as planned; the possibility that the fair value of certain of our assets may not be equal to the carrying value of those assets now or in future time periods; the possibility that sales cycles may lengthen; the possibility that we may not be able to attract and retain qualified technical and leadership associates, or that we may lose key associates to other organizations; the possibility that we won't be able to properly motivate our sales force or other associates; the possibility that we won't be able to achieve cost reductions and avoid unanticipated costs; the possibility that we won't be able to continue to receive credit upon satisfactory terms and conditions; the possibility that competent, competitive products, technologies or services will be introduced into the marketplace by other companies; the possibility that we may be subjected to pricing pressure due to market conditions and/or competitive products and services; the possibility that there will be changes in consumer or business information industries and markets; the possibility that changes in accounting pronouncements may occur and may impact these projections; the possibility that we won't be able to protect proprietary information and technology or to obtain necessary licenses on commercially reasonable terms; the possibility that we may encounter difficulties when entering new markets or industries; the possibility that there will be changes in the legislative, accounting, regulatory and consumer environments affecting our business, including but not limited to litigation, legislation, regulations and customs relating to our ability to collect, manage, aggregate and use data; the possibility that data suppliers might withdraw data from us, leading to our inability to provide certain products and services; the possibility that we may enter into short-term contracts which would affect the predictability of our revenues; the possibility that the amount of ad hoc, volume-based and project work will not be as expected; the possibility that we may experience a loss of data center capacity or interruption of telecommunication links or power sources; the possibility that we may experience failures or breaches of our network and data security systems, leading to potential adverse publicity, negative customer reaction, or liability to third parties; the possibility that postal rates may increase, thereby leading to reduced volumes of business; the possibility that our clients may cancel or modify their agreements with us; the possibility that we will not successfully complete customer contract requirements on time or meet the service levels specified in the contracts, which may result in contract penalties or lost revenue; the possibility that we experience processing errors which result in credits to customers, re-performance of services or payment of damages to customers; the possibility that the services of the United States Postal Service, their global counterparts and other delivery systems may be disrupted; and the possibility that we may be affected by other competitive factors. With respect to the Financial Road Map, all of the above factors apply, along with the following which were assumptions made in creating the Financial Road Map: that the U.S. and global economies will continue to improve at a moderate pace; that global growth will continue to be strong and that globalization trends will continue to grow at an increasing pace; that Acxiom's computer and communications related expenses will continue to fall as a percentage of revenue; that the Customer Information Infrastructure (CII) grid-based environment Acxiom has begun to implement will continue to be implemented successfully over the next 3-4 years and that the new CII infrastructure will continue to provide increasing operational efficiencies; that the acquisitions of companies operating primarily outside of the United States will be successfully integrated and that significant efficiencies will be realized from this integration; relating to operating cash flow and free cash flow, that sufficient operating and capital lease arrangements will continue to be available to the Company to provide for the financing of most of its computer equipment and that software suppliers will continue to provide financing arrangements for most of the software purchases; relating to revolving credit line balance, that free cash flow will meet expectations and that the Company will continue to use free cash flow to pay down bank debt, buy back stock and fund dividends; relating to annual dividends, that the Board of Directors will continue to approve quarterly dividends and will vote to increase dividends over time; relating to diluted shares, that the Company will meet its cash flow expectations and that potential dilution created through the issuance of stock options and warrants will be mitigated by continued stock repurchases in accordance with the Company's stock repurchase program. With respect to the provision of products or services outside our primary base of operations in the United States, all of the above factors apply, along with the difficulty of doing business in numerous sovereign jurisdictions due to differences in culture, laws and regulations. Other factors are detailed from time to time in our periodic reports and registration statements filed with the United States Securities and Exchange Commission. We believe that we have the product and technology offerings, facilities, associates and competitive and financial resources for continued business success, but future revenues, costs, margins and profits are all influenced by a number of factors, including those discussed above, all of which are inherently difficult to forecast. We undertake no obligation to update the information contained in this press release, including the Financial Road Map or any other forward-looking statement. Acxiom is a registered trademark of Acxiom Corporation. -0- *T ACXIOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except earnings per share) For the Three Months Ended June 30, --------------------------- 2005 2004 --------------------------- Revenue: Services 238,499 207,847 Data 71,772 81,147 ------------- ------------- Total revenue 310,271 288,994 Operating costs and expenses: Cost of revenue Services 195,969 163,549 Data 48,885 51,819 ------------- ------------- Total cost of revenue 244,854 215,368 Selling, general and administrative 52,080 48,529 Gains, losses and nonrecurring items, net (1,637) (344) ------------- ------------- Total operating costs and expenses 295,297 263,553 ------------- ------------- Income from operations 14,974 25,441 ------------- ------------- Other income (expense): Interest expense (5,162) (5,070) Other, net 891 409 ------------- ------------- Total other income (expense) (4,271) (4,661) ------------- ------------- Earnings before income taxes 10,703 20,780 Income taxes 4,064 7,896 ------------- ------------- Net earnings 6,639 12,884 ============= ============= Earnings per share: Basic 0.07 0.15 ============= ============= Diluted 0.07 0.14 ============= ============= ACXIOM CORPORATION AND SUBSIDIARIES CALCULATION OF EARNINGS PER SHARE (Unaudited) (In thousands, except earnings per share) For the Three Months Ended June 30, -------------------------- 2005 2004 ------------- ------------ Basic earnings per share: Numerator - net earnings 6,639 12,884 Denominator - weighted-average shares outstanding 91,044 86,084 ------------- ------------ Basic earnings per share 0.07 0.15 ============= ============ Diluted earnings per share: Numerator: Net earnings 6,639 12,884 Interest expense on convertible bonds (net of tax benefit) - 1,017 ------------- ------------ 6,639 13,901 ------------- ------------ Denominator: Weighted-average shares outstanding 91,044 86,084 Dilutive effect of common stock options and warrants 2,752 3,954 Dilutive effect of convertible debt - 9,589 ------------- ------------ 93,796 99,627 ------------- ------------ Diluted earnings per share 0.07 0.14 ============= ============ ACXIOM CORPORATION AND SUBSIDIARIES REVENUES BY SEGMENT (Unaudited) (Dollars in thousands) For the Three Months Ended June 30, --------------------------- 2005 2004 ------------- ------------- US Services & Data 265,434 235,552 International Services & Data 44,837 53,442 ------------- ------------- Total Revenue 310,271 288,994 ============= ============= US Supplemental Information: Services & Data Excluding IT Mgmt 178,632 172,283 IT Management Services 86,802 63,269 ------------- ------------- 265,434 235,552 ============= ============= International Supplemental Information: Services & Data Excluding IT Mgmt 44,837 53,442 IT Management Services - - ------------- ------------- 44,837 53,442 ============= ============= ACXIOM CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) June 30, March 31, 2005 2005 ----------- ----------- Assets ---------- Current assets: Cash and cash equivalents $10,889 $4,185 Trade accounts receivable, net 236,333 250,653 Deferred income taxes 31,502 31,415 Refundable income taxes 1,165 1,345 Other current assets 48,658 46,034 ----------- ----------- Total current assets 328,547 333,632 ----------- ----------- Property and equipment 625,650 581,918 Less - accumulated depreciation and amortization 283,941 258,532 ----------- ----------- Property and equipment, net 341,709 323,386 ----------- ----------- Software, net of accumulated amortization 65,988 57,135 Goodwill 446,327 354,182 Purchased software licenses, net of accumulated amortization 158,030 157,999 Unbilled and notes receivable, excluding current portions 21,395 20,410 Deferred costs, net 93,299 88,851 Data acquisition costs 44,840 48,915 Other assets, net 25,620 15,369 ----------- ----------- $1,525,755 $1,399,879 =========== =========== Liabilities and Stockholders' Equity ---------------------------------------- Current liabilities: Current installments of long-term obligations 76,706 83,005 Trade accounts payable 63,624 63,295 Accrued payroll and related expenses 23,635 27,435 Other accrued expenses 87,309 74,635 Deferred revenue 111,049 115,892 ----------- ----------- Total current liabilities 362,323 364,262 ----------- ----------- Long-term obligations: Long-term debt and capital leases, net of current installments 374,162 104,210 Software and data licenses, net of current installments 33,687 37,494 ----------- ----------- Total long-term obligations 407,849 141,704 ----------- ----------- Deferred income taxes 82,716 79,079 Commitments and contingencies Stockholders' equity: Common stock 10,535 10,440 Additional paid-in capital 609,122 588,156 Retained earnings 365,763 363,556 Accumulated other comprehensive loss 3,989 12,616 Treasury stock, at cost (316,542) (159,934) ----------- ----------- Total stockholders' equity 672,867 814,834 ----------- ----------- $1,525,755 $1,399,879 =========== =========== ACXIOM CORPORATION AND SUBSIDIARIES RECONCILIATION OF FREE CASH FLOW TO OPERATING CASH FLOW (Unaudited) (Dollars in thousands) Qtr ended Qtr ended Qtr ended Qtr ended Yr ended 6/30/2002 9/30/2002 12/31/2002 3/31/2003 3/31/2003 Net cash provided by operating activities 60,243 53,446 76,992 63,112 253,793 Proceeds received from disposition of assets 45 155 - 93 293 Capitalized software (8,652) (8,958) (8,726) (8,237) (34,573) Capital expenditures (1,916) (3,000) (5,893) (2,403) (13,212) Deferral of costs (3,240) (4,108) (3,796) (3,883) (15,027) Proceeds from sale and leaseback transaction - 7,729 - - 7,729 --------------------------------------------------- Free cash flow 46,480 45,264 58,577 48,682 199,003 =================================================== Qtr ended Qtr ended Qtr ended Qtr ended Yr ended 6/30/2003 9/30/2003 12/31/2003 3/31/2004 3/31/2004 Net cash provided by operating activities 48,125 49,909 79,282 82,567 259,883 Proceeds received from disposition of assets 506 192 39 2,046 2,783 Capitalized software (6,335) (7,296) (6,510) (7,703) (27,844) Capital expenditures (1,588) (3,036) (7,637) (9,917) (22,178) Deferral of costs (6,026) (4,006) (5,312) (9,537) (24,881) --------------------------------------------------- Free cash flow 34,682 35,763 59,862 57,456 187,763 =================================================== Qtr ended Qtr ended Qtr ended Qtr ended Yr ended 6/30/2004 9/30/2004 12/31/2004 3/31/2005 3/31/2005 Net cash provided by operating activities 34,714 61,742 82,805 67,753 247,014 Capitalized software (4,107) (4,721) (5,706) (5,760) (20,294) Capital expenditures (1,823) (4,813) (3,132) (4,562) (14,330) Deferral of costs (9,610) (11,113) (15,502) (17,203) (53,428) --------------------------------------------------- Free cash flow 19,174 41,095 58,465 40,228 158,962 =================================================== Qtr ended 6/30/2005 Net cash provided by operating activities 61,476 Capitalized software (5,673) Capital expenditures (2,929) Deferral of costs (16,192) ---------- Free cash flow 36,682 ========== ACXIOM CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) For the Three Months Ended June 30, ---------------------------- 2005 2004 ---------------------------- Cash flows from operating activities: Net earnings 6,639 12,884 Non-cash operating activities: Depreciation and amortization 55,534 43,997 Loss (gain) on disposal or impairment of assets, net 43 - Deferred income taxes 3,635 8,849 Non-cash stock compensation expense 298 - Changes in operating assets and liabilities: Accounts receivable 17,297 (18,661) Other assets (17,945) (1,012) Accounts payable and other liabilities (4,025) (8,833) Merger, integration and impairment costs - (2,510) -------------- ------------- Net cash provided by operating activities 61,476 34,714 -------------- ------------- Cash flows from investing activities: Capitalized software (5,673) (4,107) Capital expenditures (2,929) (1,823) Deferral of costs (16,192) (9,610) Payments received from investments 721 284 Net cash paid in acquisitions (106,719) (5,560) -------------- ------------- Net cash used by investing activities (130,792) (20,816) -------------- ------------- Cash flows from financing activities: Proceeds from debt 281,706 38,926 Payments of debt (54,130) (60,560) Dividends paid (4,432) (3,449) Sale of common stock 13,527 19,317 Acquisition of treasury stock (160,354) (10,971) -------------- ------------- Net cash used by financing activities 76,317 (16,737) -------------- ------------- Effect of exchange rate changes on cash (297) (302) -------------- ------------- Net decrease in cash and cash equivalents 6,704 (3,141) Cash and cash equivalents at beginning of period 4,185 14,355 -------------- ------------- Cash and cash equivalents at end of period 10,889 11,214 ============== ============= Supplemental cash flow information: Cash paid (received) during the period for: Interest 4,397 3,334 Income taxes 190 100 Payments on capital leases and installment payment arrangements 19,929 13,259 Payments on software and data license liabilities 10,938 11,696 Noncash investing and financing activities: Enterprise software licenses acquired under software obligation 2,161 2,685 Acquisition of property and equipment under capital lease and installment payment arrangements 26,458 20,498 Construction of assets under construction loan 3,654 6,788 ============== ============= ACXIOM CORPORATION Financial Road Map(1) ------------------------- (as of June 30, 2005) ----------- ----------- ---------- ---------- Long-Term Actual Actual Target Goals Fiscal Q1 Fiscal Fiscal Fiscal Years Ending March 31, 2005(3) 2006(4) 2006 2009 ----------- ----------- ---------- ---------- U.S. Revenue Growth 9.0% 12.7% 13% to 15% 7% to 10% (CAGR) U.S. Revenue $1,011 $265 $1,140 to million million $1,160 mil - International Revenue -10% to 5% to 8% Growth 152.9% -16.1% -20% (CAGR) International Revenue $213 $45 million $170 to million $190 mil - U.S. Operating Margin 11.5% to 15% to 18% 11.3% 6.2% 12.5% International Operating 4.5% to 12% to 15% Margin 3.9% -3.1% 6.5% Return on Assets (2) 9.2% 8.0% 9% to 10% 10% to 14% Return on Invested 11% to 12% 13% to 18% Capital (2) 11.0% 9.7% Operating Cash Flow $247 $61 million $250 to $270 to million $270 mil $300 mil Free Cash Flow $159 $37 million $160 to $170 to million $180 mil $200 mil Revolving Credit Line $11 million $271 $200 to less than Balance million $375 mil $300 mil Dividends Per Share $0.24 to $0.17 $0.05 $0.20 $0.28 ------------------------- (1) Assumptions and definitions are defined on the following schedule: "Financial Road Map assumptions and definitions" (2) ROA and ROIC are calculated on a trailing 4 quarters basis. (3) Results for the trailing 4 quarters ending March 31, 2005 include $1.0 million income included in gains, losses & nonrecurring items and $3.6 million in expense related to vesting of stock options. (4) Results for the trailing 4 quarters ending June 30, 2005 include $2.3 million income included in gains, losses & nonrecurring items and $3.6 million in expense related to vesting of stock options. ACXIOM CORPORATION Financial Road Map Assumptions and Definitions --------------------------------------------------- Assumptions ----------- 1. The effective tax rate is projected to be approximately 38% for future years. 2. Interest rates are assumed to increase slightly over the current levels. 3. The Company will utilize all of its tax loss carry forwards and begin to pay income taxes during FY06. 4. The Company will pay incentives under its bonus plan commensurate with its business performance. If the Company attains its business plan for fiscal 2006 the total would be approximately $13 million and should grow in future years. 5. The Company will maintain a relatively constant mix of business for each of its three business segments. 6. Foreign exchange rates will remain at approximately the current levels. 7. Stock repurchases will be in amounts that yield the highest shareholder return considering all other uses for the available cash. 8. Diluted outstanding shares will increase slightly to reflect the impact of in-the-money options as the stock price increases. 9. Long-term goals are based on the Company's current assessment of opportunities and are subject to change. There are risks associated with obtaining these goals which are explained under forward looking statements in the press release accompanying this Financial Road Map. Acxiom disclaims any obligation to update the information contained in this Financial Road Map. Definitions ----------- 1. Revenue Growth is defined as the percentage growth compared to the previous corresponding fiscal year or comparable period. 2. Operating Margin is defined as the income from operations as a percentage of revenue. 3. Return on Assets (ROA) is defined as income from operations divided by average total assets for the trailing four quarters. 4. Return on Invested Capital (ROIC) is defined as income from operations adjusted for the implied interest expense included in operating leases divided by the trailing four quarters' average invested capital. The implied interest adjustment for operating leases is calculated by multiplying the average quarterly balances of the present value of operating leases ((beginning balance + ending balance)/2) x an 8% implied interest rate on the leases. Average invested capital is defined as the trailing four-quarter average of the ending quarterly balances for total assets less cash, less non-interest bearing liabilities, plus the present value of operating leases. 5. Operating Cash Flow is as shown on the Company's cash flow statement. 6. Free Cash Flow is defined as cash flow from operating activities less cash flow from investing activities excluding net cash paid or received for acquisitions and divestitures, joint ventures and investments. 7. Revolving Credit Line Balance is defined as actual funds borrowed under the Company's revolving line of credit facility at the end of the period. 8. Dividends Per Share is defined as the sum of the dividends for that period. ACXIOM CORPORATION Reconciliation of Non-GAAP Measurements --------------------------------------- (Dollars in thousands) -------- -------- ------------------- ------------------- Actual Actual Target Long-Term Goals Years Ending Fiscal Q1 Fiscal Fiscal 2006 Fiscal 2009 March 31, 2005 2006 -------- -------- ------------------- ------------------- Free Cash Flow -------------- Net cash provided by operating activities 247,014 61,476 250,000 270,000 270,000 300,000 Proceeds received from disposition of assets 0 0 0 0 0 0 Capitalized software (20,294) (5,673) (20,000) (20,000) (25,000) (25,000) Capital expendi- tures (14,330) (2,929) (15,000) (15,000) (20,000) (20,000) Deferral of costs (53,428) (16,192) (55,000) (55,000) (55,000) (55,000) -------- -------- -------- -------- -------- -------- Free cash flow 158,962 36,682 160,000 to 180,000 170,000 to 200,000 ======== ======== ======== ======== ======== ======== Free cash flow as defined by the Company may not be comparable to similarly titled measures reported by other companies. Management of the Company has included free cash flow in this Financial Road Map because although free cash flow does not represent the amount of money available for the Company's discretionary spending since certain obligations of the Company must be funded out of free cash flow, management believes that it provides investors with a useful alternative measure of liquidity by allowing an assessment of the amount of cash available for general corporate and strategic purposes, including debt payments, after funding operating activities and capital expenditures, capitalized software expenses and deferred costs. The above table reconciles free cash flow to cash provided by operating activities, the nearest comparable GAAP measure. ---------------------------------------------------------------------- Return on Assets (ROA) and Actual Fiscal 2005 Actual Q1 Fiscal 2006 Return on Invested Capital ---------- ---------- ---------- ---------- (ROIC)(5) ROA ROIC ROA ROIC -------------------------- ---------- ---------- ---------- ---------- Numerator: Income from operations 122,192 122,192 111,725 111,725 Add implied interest on operating leases (1) 13,903 12,426 ---------- ---------- ---------- ---------- 122,192 136,095 111,725 124,151 ---------- ---------- ---------- ---------- Denominator: Average total assets (2) 1,321,122 1,321,122 1,389,045 1,389,045 Less average cash (3) (11,858) (11,777) Less average non- interest bearing current liabilities (4) (246,280) (261,365) Plus average present value of operating leases (1) 168,734 160,529 ---------- ---------- ---------- ---------- 1,321,122 1,231,717 1,389,045 1,276,432 ---------- ---------- ---------- ---------- Return on invested capital 9.2% 11.0% 8.0% 9.7% ========== ========== ========== ========== Return on Assets (ROA) Target Fiscal 2006 and Return on Invested --------------------------------------------- Capital (ROIC)(5) ROA ROIC ------------------------ ---------------------- ---------------------- Numerator: Income from operations 141,000 160,000 141,000 160,000 Add implied interest on operating leases (1) 14,200 14,200 ---------- ---------- ---------- ---------- 141,000 160,000 155,200 174,200 ---------- ---------- ---------- ---------- Denominator: Average total assets (2) 1,542,000 1,552,000 1,542,000 1,552,000 Less average cash (3) (6,300) (12,700) Less average non- interest bearing current liabilities (4) (280,000) (280,200) Plus average present value of operating leases (1) 180,000 179,500 ---------- ---------- ---------- ---------- 1,542,000 1,552,000 1,435,700 1,438,600 ---------- ---------- ---------- ---------- Return on invested capital 9% to 10% 11% to 12% ========== ========== ========== ========== Return on Assets (ROA) Long-Term Goals Fiscal 2009 and Return on Invested --------------------------------------------- Capital (ROIC)(5) ROA ROIC ------------------------ ---------------------- ---------------------- Numerator: Income from operations 191,000 272,000 191,000 272,000 Add implied interest on operating leases (1) 19,000 19,000 ---------- ---------- ---------- ---------- 191,000 272,000 210,000 291,000 ---------- ---------- ---------- ---------- Denominator: Average total assets (2) 1,840,000 1,938,000 1,840,000 1,938,000 Less average cash (3) (214,800) (285,100) Less average non- interest bearing current liabilities (4) (290,000) (291,500) Plus average present value of operating leases (1) 237,000 237,000 ---------- ---------- ---------- ---------- 1,840,000 1,938,000 1,572,200 1,598,400 ---------- ---------- ---------- ---------- Return on invested capital 10% to 14% 13% to 18% ========== ========== ========== ========== Notes ------ (1) Average present value of operating leases is the average for the trailing 4 quarter ends of the present value of future payments on operating leases, discounted at 8% which is the assumed implicit interest rate included in the leases. The implied interest added to the numerator is the 8% assumed interest charge on the average quarterly balance ((beginning + Ending) / 2) of the present value of the leases. (2) Average total assets is the average of the GAAP amount for the trailing 4 quarter ends. (3) Average cash is the average of the GAAP amount for the trailing 4 quarter ends. (4) Average non-interest bearing current liabilities is the average for the trailing 4 quarter ends of all current liabilities excluding the current portion of long-term debt. (5) ROA and ROIC figures are calculated on a trailing 4 quarters basis. Return on Invested Capital (ROIC) as defined by the Company, may not be comparable to similarly titled measures reported by other companies. Management of the Company has included ROIC in this Financial Road Map because it measures the capital efficiency of our business. ROIC does not consider whether the business is financed with debt or equity; rather ROIC calculates a return on all capital invested in the business. The above table reconciles ROIC to a ROA calculation using GAAP numbers. The Company uses ROIC in a number of ways, including pricing analysis, capital expenditure evaluation, and merger and acquisition valuation. *T