4.ACQUISITIONS:

Arbor and Circulate

The Company acquired all of the outstanding shares of Arbor and Circulate on November 22, 2016 and November 29, 2016, respectively. Arbor and Circulate help publishers connect people-based data to the marketing ecosystem. As a result of these acquisitions, Arbor and Circulate are now wholly-owned subsidiaries of the Company included in the Connectivity segment, and increase the scale of the Company’s omni-channel identity graph and network. The Company has included the financial results of Arbor and Circulate in the condensed consolidated financial statements from the dates of acquisition. The consideration paid for the outstanding shares and vested stock options was approximately $137.4 million, net of cash acquired of approximately $9.5 million. The consideration paid for unvested stock options had an estimated fair value of $9.2 million. These options are not part of the purchase price and will be expensed as non-cash stock compensation over the applicable vesting periods.

In connection with the Arbor acquisition, the Company agreed to pay $38.3 million to certain key employees (see “Consideration Holdback” in note 3). The consideration holdback is payable over 30 equal, monthly increments and is settleable in shares of Company common stock. The number of shares to be issued on a monthly basis will vary depending on the market price of the shares on the date of issuance and will be recorded as non-cash stock compensation expense as the shares are issued. The consideration holdback is not part of the purchase price as vesting is dependent on continued employment of the key employees.

Following the closing of Arbor, the Company granted new awards of restricted stock units to select employees of Arbor to induce them to accept employment with the Company (the “Arbor Inducement Awards”). The Arbor Inducement Awards had a grant date fair value of $10.0 million, and will vest over three years with 34% of the total vesting on the first anniversary of the closing date and 8.25% vesting each three months thereafter, subject to the employee’s continued service through each vesting date. Following the closing of Circulate, the Company granted new awards of restricted stock units to select employees of Circulate to induce them to accept employment with the Company (the “Circulate Inducement Awards”). The Circulate Inducement Awards had a grant date fair value of $10.0 million. The Circulate Inducement Awards granted to certain key employees of Circulate will vest over two years with 50% of the total vesting on the first anniversary of the closing date and 12.5% vesting each three months thereafter, subject to the employee’s continued service through each vesting date and vesting acceleration upon a qualifying termination as set forth in the applicable employee’s offer letter with the Company. The Circulate Inducement Awards granted to all other Circulate employees will vest incrementally over four years with 25% of the total vesting on the first anniversary date of the closing, and 25% vesting each 12 months thereafter, subject to the employee’s continued service through each vesting date.

On November 29, 2016, the Company delivered approximately $5.9 million of the cash consideration to an escrow agent according to the terms of the Circulate acquisition agreement. The escrow deposit is restricted as to withdrawal or use by the Company and is expected to be delivered to the sellers one year from the acquisition dates. The principal escrow amount is owned by the Company until funds are delivered to the sellers. All interest and earnings on the principal escrow amount remain property of the Company. The escrow deposit is included in other current assets (note 6), with an offsetting liability included in other accrued expenses (note 7), in the condensed consolidated balance sheet.

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



Assets acquired:
Cash	$	9,495
Trade accounts receivable		3,352
Goodwill		104,364
Intangible assets (Other assets)		41,800
Other current and noncurrent assets		278
Total assets acquired		159,289
Deferred income taxes		(8,093)
Accounts payable and accrued expenses		(4,317)
Net assets acquired		146,879
Less:
Cash acquired		9,495
Net cash paid	$	137,384

The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill and is primarily attributed to expectations of development of future technology and products, development of future customer relationships, and the Arbor and Circulate assembled workforces. The Company has allocated the goodwill to the reporting units that were expected to benefit from the acquired goodwill. The goodwill balance is not deductible for U.S. income tax purposes. The Company initially recognized the assets and liabilities acquired based on its preliminary estimates of their acquisition date fair values. As additional information becomes known concerning the acquired assets and assumed liabilities, management may make adjustments to the opening balance sheet of the acquired companies up to the end of the measurement period, which is not longer than a one-year period following the acquisition date. The determination of the fair values of the acquired assets and liabilities assumed (and the related determination of the estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgement. As of December 31, 2016, the Company has not completed its fair value analysis and calculation in sufficient detail necessary to arrive at the final estimate of the fair value. The fair values currently assigned to tangible and identifiable intangible assets acquired and liabilities assumed were based on the information that was available as of the date of the acquisition. The Company plans to finalize its accounting for the acquisitions and related estimates of the acquisition date fair values of the acquired assets and assumed liabilities prior to July 1, 2017.

The amounts allocated to other intangible assets in the table above included developed technology, customer relationships, and a trade name. Intangible assets will be amortized on a straight-line basis over the estimated useful lives of 1 to 6 years. The following table presents the components of intangible assets acquired and their estimated useful lives as of the acquisition date (dollars in thousands):


			Useful life
	Fair value		(in years)
Publisher relationships	$	24,800	6
Developed technology		9,300	2 to 4
Customer relationships		7,100	6
Trade name		600	1
Total intangible assets	$	41,800

The Company has omitted disclosures of revenue and net loss of the acquired companies from the acquisition dates of November 22, 2016 and November 29, 2016, respectively, to December 31, 2016 as the amounts are not material.

During the nine months ended December 31, 2016, the Company incurred $1.4 million of acquisition costs related to the Arbor and Circulate acquisitions, which are included in gains, losses, and other items, net on the condensed consolidated statement of operations (see note 12).

The unaudited pro forma financial information in the table below summarizes the combined results of operations for Acxiom, Arbor and Circulate for the purposes of unaudited pro forma financial information disclosure as if the companies were combined as of the beginning of fiscal 2016. The unaudited pro forma financial information for all periods presented included the business combination accounting effects resulting from these acquisitions, including amortization charges from acquired intangible assets (certain of which are preliminary), stock-based compensation charges for unvested restricted stock-based awards and stock options assumed, if any, and the related tax effects as though the aforementioned companies were combined as of the beginning of fiscal 2016. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of fiscal 2016.

The unaudited pro forma financial information for the three and nine months ended December 31, 2016 and 2015, respectively, combined the historical results of Acxiom for the three and nine months ended December 31, 2016 and 2015, and the historical results of Arbor and Circulate for the three and nine months ended September 30, 2016 and 2015 (adjusted due to differences in reporting periods) and the effects of the pro forma adjustments listed above. The unaudited pro forma financial information was as follows (dollars in thousands, except per share data):


	For the quarter ended				For the nine months ended
	December 31,				December 31,
	2016		2015		2016		2015
Revenues	$	226,012	$	221,964	$	663,096	$	627,300
Net loss	$	(3,421)	$	(6,245)	$	(4,068)	$	(9,329)
Basic loss per share	$	(0.04)	$	(0.08)	$	(0.05)	$	(0.12)
Diluted loss per share	$	(0.04)	$	(0.08)	$	(0.05)	$	(0.12)