Introduction and Overview

At Acxiom ("Acxiom" or "the Company") (Nasdaq: ACXM), we provide global interactive marketing services for the world's leading companies to help them solve some of their most complex marketing problems. Our products, services and thought leadership enable them to acquire new customers, retain their most valuable customers, communicate with customers in the methods and times they prefer, and make profitable marketing and business decisions. Acxiom's unmatched customer insight is achieved by blending the world's largest repository of consumer data, award-winning technology and analytics, multi-channel expertise, privacy leadership, and superior knowledge of a wide spectrum of industries. Founded in 1969, Acxiom is headquartered in Little Rock, Arkansas, with locations throughout the United States ("US") and Europe, and in Australia and China.

Highlights of the quarter ended September 30, 2009 are identified below.

· Revenue of $271.1 million, a decrease of 17.6 percent from $328.9 million in the second fiscal quarter a year ago.

· Revenue increased $15.1 million, or 5.9% compared to the first quarter of the current fiscal year. This represents the first sequential quarter revenue increase since the third quarter of fiscal 2008.

· Income from operations of $21.2 million, a $13.0 million decrease compared to $34.3 million in the second fiscal quarter last year.

· Pre-tax earnings of $16.0 million, compared to $26.0 million in the second quarter of fiscal 2009.

· Diluted earnings per share of $0.12, compared to diluted earnings per share of $0.20 in the second fiscal quarter last year.

· Operating cash flow of $60.7 million.

These highlights are not intended to be a full discussion of the Company's results for the quarter. These highlights should be read in conjunction with the following discussion of Results of Operations and Capital Resources and Liquidity and with the Company's condensed consolidated financial statements and footnotes accompanying this report.

Results of Operations

A summary of selected financial information for each of the periods reported is
presented below (dollars in millions, except per share amounts):
                                For the quarter ended                     For the six months ended
                                     September 30                               September 30
                          2009          2008         % Change         2009          2008         % Change
Revenue
Services                $   210.2     $   233.6         (10)%      $    409.5     $   470.3         (13)%
Products                     60.9          95.3         (36)%           117.6         189.7         (38)%
                        $   271.1     $   328.9         (18)%      $    527.1     $   660.0         (20)%
Total operating costs
and expenses                249.9         294.6         (15)%           493.3         600.1         (18)%
Income from
operations              $    21.2     $    34.3         (38)%      $     33.8     $    59.9         (44)%
Diluted earnings per
share                   $    0.12     $    0.20         (40)%      $     0.17     $    0.34         (50)%

Revenues
Services revenue for the quarter ended September 30, 2009 was $210.2 million. This represents a $23.4 million decrease or 10.0% when compared to the same period in the prior year. On a geographic basis, International services decreased approximately $0.5 million while US services decreased approximately $22.9 million. Excluding the impact of unfavorable exchange rate movement, International services increased $2.1 million which was due to strong performance in the United Kingdom. By line of business, revenue declined in most areas including a $22.1 million decrease in CDI and Multi-channel Marketing Services. Of the $22.1 million decline in CDI and Multi-channel Marketing Services, the Financial Services vertical accounted for a large portion of the decline. Over the last year, revenue reductions have occurred due to contract renegotiations for reduced amounts, lost contracts, volume reductions and contracts terminated because of economic issues However, for the first time in several quarters services revenue increased compared to the most recent sequential quarter. Infrastructure Management revenue was relatively flat, however it was positively impacted by the recent signing of a large new arrangement.

Services revenue for the six months ended September 30, 2009 was $409.5 million. This represents a $60.8 million decrease or 12.9% when compared to the same period in the prior year. On a geographic basis, International services decreased approximately $5.2 million while US services decreased approximately $55.5 million. Approximately $6.9 million of the International services decrease was due to unfavorable exchange rate movement. US services revenue was positively impacted by prior-year acquisitions which contributed $4.9 million to services revenue in the quarter. By line of business, revenue declined in most areas including a CDI and Multi-channel Marketing Services decrease of $47.1 million and Infrastructure Management decrease of $9.8 million. Of the $47.1 million decline in CDI and Multi-channel Marketing Services, the Financial Services vertical accounted for a large portion of the decline. Over the last year, revenue reductions have occurred due to contract renegotiations for reduced amounts, lost contracts, volume reductions and contracts terminated because of economic issues. The decline in Infrastructure Management services as well as the CDI and Multi-channel Marketing Services decline in other industry verticals was driven by similar issues.

Products revenue for the quarter ended September 30, 2009 was $60.9 million. This represents a $34.4 million decrease or 36.1% when compared to the same period in the prior year. During the fourth quarter of fiscal 2009, a large pass-through data contract was amended and as such the revenue is no longer reported on a gross basis. Excluding the pass-through revenue related to this contract, products revenue was down $12.9 million, or 17.5%. The International operations declined $7.2 million of which $1.2 million was due to the impact of exchange rates. International operations were impacted by much lower ad hoc and project activity. The remaining $5.7 million decline was due to contract renegotiations for reduced amounts, lost contracts, volume reductions and contracts terminated because of economic issues in US industry verticals.

Products revenue for the six months ended September 30, 2009 was $117.6 million. This represents a $72.2 million decrease or 38.0% when compared to the same period in the prior year. Excluding the pass-through revenue related to the amended data contract, products revenue was down $28.4 million, or 19.5%. The International operations declined $17.4 million of which $3.9 million was due to the impact of exchange rates. International operations were impacted by much lower ad hoc and project activity. The remaining $11.0 million decline was due to contract renegotiations for reduced amounts, lost contracts, volume reductions and contracts terminated because of economic issues in US industry verticals.

Operating Costs and Expenses
The following table presents the Company's operating costs and expenses for each
of the periods presented (dollars in millions):

                                For the quarter ended                     For the six months ended
                                     September 30                               September 30
                          2009          2008         % Change         2009          2008         % Change
Cost of revenue
Services                $   165.8     $   181.0         (8)%       $    325.4     $   359.8         (10)%
Products                     46.1          77.0         (40)%            92.0         154.8         (41)%
Total cost of revenue   $   211.9     $   258.0         (18)%      $    417.4     $   514.6         (19)%
Selling, general and
Administrative               38.0          39.0         (3)%             75.6          88.4         (15)%
Gains, losses and
other items, net                -          (2.4 )       100%              0.3          (2.9 )       111%
Total operating costs
and expenses            $   249.9     $   294.6         (15)%      $    493.3     $   600.1        (18) %

                              For the quarter ended           For the six months ended
                                   September 30                     September 30
                               2009             2008           2009               2008
Gross profit margin
Services                        21.1%            22.5%          20.6%              23.5%
Products                         24.2            19.2           21.7               18.4
Total gross profit margin       21.8%            21.6%          20.8%              22.0%
Operating profit margin          7.8%            10.4%          6.4%               9.1%

Cost of services revenue of $165.8 million for the quarter ending September 30, 2009 represents a decrease of $15.2 million compared to the same quarter a year ago. Gross margin for services revenue decreased from 22.5% to 21.1%. Cost of services revenue of $325.4 million for the six months ended September 30, 2009 represents a decrease of $34.5 million compared to the same period a year ago. Gross margin for services revenue decreased from 23.5% to 20.6%. Margin decline was due to significant revenue declines in the current fiscal year. Operating expenses have been reduced significantly as revenues have declined. However, due to the reduction in volume-based revenue, margins have suffered. The margin impact on this volume-based business has been mitigated by efficiency improvements in data processing and delivery operations.

Cost of products revenue of $46.1 million for the quarter ending September 30, 2009 represents a decrease of $30.9 million compared to the same quarter a year ago. Products revenue gross margins increased from 19.2% a year ago to 24.2% in this quarter. Excluding pass-through data and related costs in the prior year of $21.5 million, product costs actually decreased approximately 16.9% and margins on non-pass-through products decreased to 24.2% from 24.8% a year ago. Cost of products revenue of $92.0 million for the six months ending September 30, 2009 represents a decrease of $62.7 million compared to the same six-month period a year ago. Products revenue gross margins increased from 18.4% a year ago to 21.7%. Excluding pass-through data and related costs in the prior year of $43.8 million, product costs actually decreased approximately 17.1% and margins on non-pass-through products decreased to 21.7% from 23.9% a year ago. Although costs have been reduced significantly, the fixed cost structure of the product segment impacts margins to a greater extent as revenue declines.

Selling, general, and administrative expenses were $38.0 million for the quarter ended September 30, 2009. This represents a $1.0 million decrease over the prior-year quarter. As a percent of total revenue, these expenses were 14.0% compared to 11.9% a year ago. Selling, general, and administrative expenses were $75.6 million for the six months ended September 30, 2009. This represents a $12.9 million decrease over the prior-year period. As a percent of total revenue, these expenses are 14.3% compared to 13.4% a year ago. Current year expenses reflect ongoing cost savings initiated in fiscal 2009.

Other Income (Expense)
Interest expense for the quarter ended September 30, 2009 was $5.4 million compared to $8.6 million a year ago due primarily to a $21.0 million decline in the average term loan debt balance and a decline of approximately 170 basis points on the term loan average interest rate. Interest expense for the six months ended September 30, 2009 was $10.9 million compared to $18.1 million a year ago due primarily to a $22.0 million decline in the average term loan debt balance and a decline of approximately 175 basis points on the term loan average interest rate.

Other expense decreased to $0.1 million in the six months ended September 30, 2009. The prior year included a $1.1 million gain from a real estate joint venture.

Income taxes
The anticipated effective tax rate for fiscal 2010 is 40.5%. The prior-year rate was 39%.

Capital Resources and Liquidity

Working Capital and Cash Flow
Working capital at September 30, 2009 totaled $211.5 million compared to $204.5 million at March 31, 2009. Total current assets decreased $11.3 million due to decreases in cash and cash equivalents of $9.5 million, refundable income taxes of $4.6 million, and trade accounts receivable of $2.2 million; offset by an increase in other current assets of $5.1 million. Current liabilities decreased $18.3 million due to decreases in deferred revenue of $4.9 million and payroll accruals of $20.4 million; offset by increases in changes in current installments of long-term debt of $2.7 million and trade accounts payable of $4.5 million. The Company made a $30 million pre-payment on its term loan during the quarter ended September 30, 2009.

Accounts receivable days sales outstanding ("DSO") was 62 days at September 30, 2009 and was 56 days at March 31, 2009, and is calculated as follows (dollars in thousands):

                                              September 30,      March 31,
                                                  2009              2009
Numerator - trade accounts receivable, net   $       182,612     $  184,814
Denominator:
Quarter revenue                                      271,105        295,509
Number of days in quarter                                 92             90
Average daily revenue                        $         2,947     $    3,283
Days sales outstanding                                    62             56

Net cash provided by operating activities for the current year declined 33.3% to $76.9 million. The decrease in net earnings of $12.9 million, decrease in depreciation and amortization of $22.9 million and decrease in change in other assets of $17.4 million was offset by an increase in changes in accounts receivable of $13.1 million.

Investing activities used $35.1 million in cash in the current year. This included capitalization of data acquisition costs of $8.8 million and capitalization of software development costs of $4.8 million. Capital expenditures were $21.9 million for the current year. Additionally, the Company received $0.4 million in refunded cash from an escrow account set up for the acquisition of Precision Marketing. The Company acquired $10.4 million of property under capital leases. Payments under these arrangements will be reflected in future cash flows as payments of debt. Prior-year investing activities included $2.6 million cash received from investments, $24.2 million from the sale of assets and $2.0 million received from the sale and license of software.

Cash flows from financing activities include payments of debt of $55.1 million, including capital lease payments of $15.3 million, software license payments of $5.7 million, other debt payments of $4.1 million and a term loan debt prepayment of $30.0 million. Financing activities also include $2.7 million in proceeds from the sale of stock and $0.3 million for the payment for shares of treasury stock that were purchased in fiscal 2009. Prior-year financing activities also included dividends paid of $9.3 million.

Credit and Debt Facilities
Effective September 15, 2006, the Company entered into an amended and restated credit agreement allowing (1) term loans up to an aggregate principal amount of $600 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 $200 million. On September 15, 2006, the Company borrowed the entire amount of the term loan. The term loan is payable in quarterly principal installments of $1.5 million through September 2011, followed by quarterly principal installments of $111.4 million through September 2012. The term loan also allows prepayments before maturity. Revolving loan commitments and all borrowings of revolving loans mature on September 15, 2011. 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. At September 30, 2009 there were no revolving credit borrowings outstanding. Borrowings under the revolving credit agreement bear interest at LIBOR plus 1.5%, an alternative base rate, or at the federal funds rate plus 2.25%.

Off-Balance Sheet Items and Commitments
The Company has entered into synthetic operating lease facilities for computer equipment and furniture ("Leased Assets"). These synthetic operating lease facilities are accounted for as operating leases under GAAP and are treated as capital leases for income tax reporting purposes. Lease terms under the computer equipment and furniture facility range from two to six years, with the Company having the option at expiration of the initial term to return, or purchase at a fixed price, or extend or renew the term of the leased equipment. In the event the Company elects to return the Leased Assets, the Company has guaranteed a portion of the residual value to the lessors. Assuming the Company elects to return the Leased Assets to the lessors at its earliest opportunity under the synthetic lease arrangements and assuming the Leased Assets have no significant residual value to the lessors, the maximum potential amount of future payments the Company could be required to make under these residual value guarantees was $0.4 million at September 30, 2009. As of September 30, 2009 the Company has a future commitment for synthetic lease payments of $1.3 million over the next two years.

In connection with a certain building, the Company has entered into a 50/50 joint venture with a local real estate developer. The Company is guaranteeing a portion of the loan for the building. In addition, in connection with the disposal of certain assets, the Company has guaranteed loans for the buyers of the assets. Substantially all of the third party indebtedness for which the Company has provided guarantees is collateralized by various pieces of real property. The aggregate amount of the guarantees at September 30, 2009 was $2.5 million.

Outstanding letters of credit which reduce the borrowing capacity under the Company's revolving credit were $12.5 million at September 30, 2009.

Contractual Commitments
The following table presents Acxiom's contractual cash obligations, exclusive of
interest, and purchase commitments at September 30, 2009 (dollars in
thousands). The table does not include the future payment of gross unrealized
tax benefit liabilities of $5.5 million or the future payment, if any, against
the Company's non-current interest rate swap liability of $3.6 million as the
Company is not able to predict the periods in which these payments will be made.
The column for 2010 represents the six months ending March 31, 2010. All other
columns represent fiscal years ending March 31.

                                                For the years ending March 31
                 2010          2011          2012          2013          2014         Thereafter        Total
Capital
lease and
installment
payment
obligations    $  13,577     $  12,245     $   4,361     $   1,352     $     631     $      9,696     $  41,862
Software and
data license
liabilities        2,104         4,059         2,625         1,461             -                -        10,249
Warrant
liability              -             -             -             -             -            1,499         1,499
Other
long-term
debt               4,069        19,498       227,380       229,687             -                -       480,634
Total
long-term
obligations       19,750        35,802       234,366       232,500           631           11,195       534,244
Synthetic
equipment
and
furniture
leases             1,186           125             -             -             -                -         1,311
Equipment
operating
leases             1,587           817           225            62            10                -         2,701
Building
operating
leases            13,553        20,954        14,835        11,795        10,377           37,942       109,456
Total
operating
lease
payments          16,326        21,896        15,060        11,857        10,387           37,942       113,468
Total
contractual
cash
obligations    $  36,076     $  57,698     $ 249,426     $ 244,357     $  11,018     $     49,137     $ 647,712



                                                For the years ending March 31
                 2010          2011          2012          2013          2014         Thereafter        Total
Purchase
commitments
on synthetic
equipment
and
furniture
leases             1,527           215             -             -             -                -         1,742
Other
purchase
commitments       51,643        41,797        31,410        18,284         9,764           17,197       170,095
Total
purchase
commitments    $  53,170     $  42,012     $  31,410     $  18,284     $   9,764     $     17,197     $ 171,837

The purchase commitments on the synthetic equipment and furniture leases assume the leases terminate and are not renewed, and the Company elects to purchase the assets. The other purchase commitments include contractual commitments for the purchase of data and open purchase orders for equipment, paper, office supplies, construction and other items. Other purchase commitments in some cases will be satisfied by entering into future operating leases, capital leases, or other financing arrangements, rather than payment of cash.

The following table shows contingencies or guarantees under which the Company could be required, in certain circumstances, to make cash payments as of September 30, 2009 (dollars in thousands):

Residual value guarantee on the synthetic computer equipment and

furniture leases                                                         $     377
Guarantee on certain partnership and other loans                             2,529
Outstanding letters of credit                                               12,519

The total of partnership and other loans of which the Company guarantees the portion noted in the above table is $7.0 million as of September 30, 2009.

While the Company does not have any other material contractual commitments for capital expenditures, certain levels of investments in facilities and computer equipment continue to be necessary to support the growth of the business. In some cases, the Company also sells software and hardware to clients. In addition, new outsourcing or facilities management contracts frequently require substantial up-front capital expenditures to acquire or replace existing assets. Management believes that the Company's existing available debt and cash flow from operations will be sufficient to meet the Company's working capital and capital expenditure requirements for the foreseeable future. The Company also evaluates acquisitions from time to time, which may require up-front payments of cash. Depending on the size of the acquisition it may be necessary to raise additional capital. If additional capital becomes necessary as a result of any material variance of operating results from projections or from potential future acquisitions, the Company would first use available borrowing capacity under its revolving credit agreement, followed by the issuance of debt or equity securities. However, no assurance can be given that the Company would be able to obtain funding through the issuance of debt or equity securities at terms favorable to the Company, or that such funding would be available.

For a description of certain risks that could have an impact on results of operations or financial condition, including liquidity and capital resources, see "Risk Factors" contained in Part I, Item 1A, of the Company's 2009 Annual Report.

Non-U.S. Operations

The Company has a presence in the United Kingdom, France, the Netherlands, Germany, Portugal, Poland, Australia and China. Most of the Company's exposure to exchange rate fluctuation is due to translation gains and losses as there are no material transactions that cause exchange rate impact. In general, each of the foreign locations is expected to fund its own operations and cash flows, although funds may be loaned or invested from the U.S. to the foreign subsidiaries subject to limitations in the Company's revolving credit facility. These advances are considered to be long-term investments, and any gain or loss resulting from changes in exchange rates as well as gains or losses resulting from translating the foreign financial statements into U.S. dollars are included in accumulated other comprehensive income (loss). Exchange rate movements of foreign currencies may have an impact on the Company's future costs or on future cash flows from foreign investments. The Company has not entered into any foreign currency forward exchange contracts or other derivative instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. These accounting principles require management to make certain judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The consolidated financial statements in the Company's 2009 Annual Report include a summary of significant accounting policies used in the preparation of Acxiom's consolidated financial statements. In addition, the Management's Discussion and Analysis filed as part of the 2009 Annual Report contains a discussion of the policies which management has identified as the most critical because they require management's use of complex and/or significant judgments. None of the Company's critical accounting policies have materially changed since the date of the last annual report.

New Accounting Pronouncements

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), "Business Combinations," ("SFAS 141R"), which replaces SFAS
141. SFAS 141R has subsequently been codified in the FASB Accounting Standards Codification Topic 805 ("ASC 805"). ASC 805 requires most assets acquired and liabilities assumed in a business combination, contingent consideration, and certain acquired contingencies to be measured at their fair values as of the date of acquisition. The new standard also requires that acquisition-related costs and restructuring costs be recognized separately from the business combination. The new standard is effective for the Company for fiscal year 2010 and will be effective for business combinations entered into this fiscal year.

In December 2007, the FASB issued Statement of Financial Accounting Standards . . .