Introduction and Overview

Acxiom is a recognized leader in marketing technology and services that enable marketers to successfully manage audiences, personalize consumer experiences and create profitable customer relationships. Our superior industry-focused, consultative approach combines consumer data and analytics, databases, data integration and consulting solutions for personalized, multichannel marketing strategies. Acxiom leverages over 40 years of experience of data management to deliver high-performance, highly secure, reliable information management services. Founded in 1969, Acxiom is headquartered in Little Rock, Arkansas, USA and serves clients around the world from locations in the United States, Europe, South America and the Asia-Pacific region.

During the quarter ended December 31, 2011, the Company announced the sale of its background screening unit, Acxiom Information Security Systems (AISS). The sale was completed in the quarter ended March 31, 2012. As a result, AISS results for the prior year are presented as discontinued operations in the condensed consolidated statement of operations. Revenue and expenses related to discontinued operations are netted and presented on one line, net of tax, in the statement of operations.

As we complete the first quarter of fiscal 2013, our Company is transitioning to a new executive leadership team. During fiscal 2012 we named a new chief executive officer, a new chief financial officer, and a new chief revenue officer. During the first quarter of fiscal 2013 we named a new chief product and engineering officer. During fiscal 2012 we announced plans to significantly accelerate investment in product development in fiscal 2013, which management believes will help drive revenue growth in fiscal 2014 and beyond.

Highlights of the quarter ended June 30, 2012 are identified below.

† Revenue of $271.7 million, a 1.6% decrease from $276.0 million in the same quarter a year ago.

† Total operating expenses of $246.2 million, a 3.6% decrease from $255.3 million in the same quarter a year ago.

† Income from operations of $25.4 million, representing a 9.4% operating margin, compared to $20.7 million, representing a 7.5% operating margin, in the same quarter a year ago.

† Pre-tax earnings from continuing operations of $21.6 million, a 42.7% increase from $15.2 million in the same quarter a year ago.

† Diluted earnings per share attributable to Acxiom stockholders of $0.17 compared to $0.13 in the same quarter a year ago.

† Operating cash flow was negative $1.9 million compared to $32.8 million in the same quarter a year ago.

† The Company paid $33.1 million to acquire common shares as part of a common stock repurchase program.

The highlights above are intended to identify to the reader some of the more significant events and transactions of the Company during the fiscal quarter ended June 30, 2012. However, 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 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 thousands, except per share amounts):



                                                    For the quarter ended
                                                           June 30
                                             2012            2011         % Change
Revenues                                 $    271,659    $    276,044             (2 )%
Total operating costs and expenses            246,235         255,340              4 %
Income from operations                   $     25,424    $     20,704             23 %
Diluted earnings per share
attributable to Acxiom stockholders      $       0.17    $       0.13             31 %

Revenues

The following table presents the Company's revenue for each of the periods
reported (dollars in thousands):



                                             For the quarter ended
                                                    June 30
                                          2012        2011      % Change
Revenues
Marketing and data services             $ 185,676   $ 184,996          0 %
IT Infrastructure management services      70,290      73,050         (4 )%
Other services                             15,693      17,998        (13 )%
Total revenues                          $ 271,659   $ 276,044         (2 )%

Total revenue decreased 1.6%, or $4.4 million, to $271.7 million in the quarter ended June 30, 2012 from $276.0 million in the same quarter a year ago. Revenue in the prior-year quarter included $1.3 million related to the disposed MENA operations. Excluding the impact of the MENA disposed operations revenue, and the impact of unfavorable foreign currency translation, revenue decreased 0.4%.

Marketing and data service (MDS) revenue for the quarter ended June 30, 2012 was $185.7 million, which was flat when compared to $185.0 million in the same quarter a year ago. On a geographic basis, International MDS revenue decreased $3.1 million and U.S. MDS revenue increased $3.8 million, or 2.4%. Excluding the impact of unfavorable foreign currency translation, International MDS revenue decreased $1.4 million, primarily the result of lower revenue volume. The increase in U.S. MDS revenue was primarily attributable to increases from new business revenue and one-time projects in Financial Services (up 4.6%), Retail (up 37.8%), and Technology (up 84.9%), offset by decreases in other industries. By line of business, MDS revenue increases in Marketing Management ($4.5 million, or 6.0%) were offset by declines in CDI Services ($2.6 million, or 6.8%) and Consumer Insight Products ($1.2 million, or 2.4%). The CDI Services and Consumer Insight Products revenue decreases resulted from lower project activity in certain U.S. industries and in Australia.

IT Infrastructure management services (IM) revenue for the quarter ended June 30, 2012 was $70.3 million, a $2.8 million, or 3.8%, decrease compared to $73.0 million in the same quarter a year ago. The IM revenue decrease was attributable to the loss of a large contract during the third quarter of fiscal 2012, partially offset by revenue increases with existing clients.

Other services (OS) revenue for the quarter ended June 30, 2012 was $15.7 million, a $2.3 million, or 12.8%, decrease compared to $18.0 million in the same quarter a year ago. Excluding the impact of the MENA operations which were disposed of during the second quarter of fiscal 2012, OS revenue decreased approximately $1.0 million when compared to the prior-year quarter. OS revenue from U.S. risk and U.K. fulfillment operations decreased $0.8 million and $0.5 million, respectively, in the quarter due to lower project volume from existing customers. The risk and fulfillment revenue decreases were partially offset by increases in other operations.

Operating Costs and Expenses

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



                                           For the quarter ended
                                                  June 30
                                        2012        2011      % Change
Cost of revenue                       $ 209,326   $ 218,289          4 %
Selling, general and administrative      36,749      36,807          0 %
Gains, losses and other items, net          160         244         34 %
Total operating costs and expenses    $ 246,235   $ 255,340          4 %

Cost of revenue for the quarter ended June 30, 2012 was $209.3 million, a $9.0 million, or 4.1%, decrease from $218.3 million in the same quarter a year ago. Gross margins increased from 20.9% in the quarter ended June 30, 2011 to 22.9% in the quarter ended June 30, 2012. Margins in the quarter benefitted from improving IM margins, the disposal of the MENA operations during the second quarter of fiscal 2012, and cost reduction actions taken in the international operations during the fourth quarter of fiscal 2012. U.S. gross margins increased from 23.7% in the first quarter of fiscal 2012 to 24.5% in the first quarter of fiscal 2013. International gross margins increased from 2.6% in fiscal 2012 to 11.9% in fiscal 2013 primarily due to the disposal of the MENA operations and other cost reduction actions taken during fiscal 2012.

Selling, general and administrative expense for the quarter ended June 30, 2012 was $36.7 million, which was flat compared to the same quarter a year ago. As a percent of total revenue, these expenses were 13.5% this year compared to 13.3% in the prior period. Some items that impacted selling, general, and administrative expense during the current quarter were higher non-cash stock compensation costs resulting from executive changes and higher incentive compensation expense, offset by cost reductions in the international operations.

Gains, losses and other items, net was $0.2 million for the quarters ended June 30, 2011 and 2012. The amount, in both periods, represents the adjustments to restructuring activity accruals established in prior periods.

Operating Profit and Profit Margins

The following table presents the Company's operating profit margin by segment
for each of the periods presented (dollars in thousands):



                                          For the quarter ended
                                                 June 30
                                           2012           2011
Operating profit and profit margin:
Marketing and data services             $    18,366     $  17,260
                                                9.9 %         9.3 %
IT Infrastructure management services   $     8,831     $   4,247
                                               12.6 %         5.8 %
Other services                          $    (1,613 )   $    (559 )
                                              (10.3 )%       (3.1 )%
Corporate                               $      (160 )   $    (244 )
Total operating profit                  $    25,424     $  20,704
Total operating profit margin                   9.4 %         7.5 %

MDS operating profit for the quarter ended June 30, 2012 was $18.4 million, a 9.9% margin, compared to $17.3 million, a 9.3% margin, in the same period a year ago. Margins in the U.S. operations declined from 14.8% in the first quarter of fiscal 2012 to 13.3% in the first quarter of fiscal 2013 resulting primarily from additional delivery and data costs required to support new business implementations and product development as well as higher levels of incentive compensation in the current period. Operating losses in the international operations decreased from $5.8 million in fiscal 2012 to $2.9 million in fiscal 2013. International margin benefitted from the cost reduction actions taken in the fourth quarter of fiscal 2012 in both Europe and Brazil.

IM operating profit for the quarter ended June 30, 2012 was $8.8 million, a 12.6% margin, compared to $4.2 million, a 5.8% margin, in the same period a year ago. IM margins benefitted primarily from ongoing efficiency improvements.

OS operating loss for the quarter ended June 30, 2012 was $1.6 million, a negative 10.3% margin, compared to $0.6 million, a negative 3.1% margin, in the same period a year ago. The increase in operating loss in the current period resulted primarily from a $2.0 million decline in the U.S. risk business from revenue decreases, partially offset by a $1.0 million improvement due to the disposition of the MENA operations in fiscal 2012.

Other Expense, Income Taxes and Other Items

Interest expense was $3.2 million for the quarter ended June 30, 2012 compared to $5.5 million in the same period a year ago. The decrease primarily relates to a reduction in outstanding borrowing under the Company's term loan. The average term loan balance declined approximately $120 million between the two periods presented. The average interest rate decreased approximately 30 basis points. Interest on other debt, such as capital leases, also decreased.

Other expense was $0.5 million for the quarter ended June 30, 2012 compared to $0.1 million in the same period a year ago. Other expense is primarily due to foreign currency losses.

The effective tax rate for the quarter ended June 30, 2012 was 39% compared to 40% for the same period a year ago. Both fiscal period tax rates were impacted by losses in foreign jurisdictions. The Company does not record the tax benefit of those losses due to uncertainty of future benefit.

Discontinued operations in the quarter ended June 30, 2011 are the results of operations of AISS, net of tax. The AISS disposal was completed in the quarter ended March 31, 2012.

Losses attributable to noncontrolling interest include the noncontrolling interest in the Company's Brazilian subsidiary for both periods presented, and the noncontrolling interest in the MENA operation for the prior year.

Capital Resources and Liquidity

Working Capital and Cash Flow

Working capital at June 30, 2012 totaled $203.6 million compared to $206.4 million at March 31, 2012. Total current assets decreased $47.4 million. The decrease primarily resulted from decreases in cash and cash equivalents of $50.4 million related to increases in incentive compensation payments, income tax payments, and the acquisition of Company stock pursuant to the board of directors' approved stock repurchase plan. Current liabilities decreased $44.6 million due primarily to decreases in trade accounts payable of $7.6 million, accrued payroll and related expenses of $23.3 million, deferred revenue of $7.4 million, and income taxes of $6.4 million.

Accounts receivable days sales outstanding was 58 days at June 30, 2012 compared to 54 days at March 31, 2012, and is calculated as follows (dollars in thousands):

                                             June 30,    March 31,
                                               2012         2012
Numerator - trade accounts receivable, net   $ 172,549   $  169,446
Denominator:
Quarter revenue                                271,659      287,255
Number of days in quarter                           91           91
Average daily revenue                        $   2,985   $    3,157
Days sales outstanding                              58           54

Net cash used by operating activities was $1.9 million for the quarter ended June 30, 2012, compared to cash provided by operating activities of $32.8 million in the same period a year ago. The decrease was primarily related to unfavorable working capital changes resulting from an increase in incentive compensation payments and income tax payments, primarily related to the sale of the background screening business.

Investing activities used $9.5 million in cash during the quarter ended June 30, 2012 compared to $16.1 million in the prior period. The current year included capital expenditures of $3.5 million, capitalization of data acquisition costs of $2.3 million, and capitalization of software development costs of $3.7 million.

Financing activities used $38.5 million in cash during the quarter ended June 30, 2012. Payments of debt of $6.9 million include capital lease and installment credit payments of $4.6 million, software and data license payments of $0.1 million and other debt payments of $2.2 million. The current period also includes payments of $33.1 million for acquisition of the Company's stock pursuant to the board of directors' approved stock repurchase plan. The Company purchased 2.3 million shares at a cost of $31.7 million, of which $30.5 million was paid during the current period. The remaining $1.2 million is included in other accrued expenses as of June 30, 2012 and was paid when the trades settled in July 2012. In addition $2.6 million was paid during the current period which was included in other accrued expenses as of March 31, 2012.

Non-cash investing and financing activities included acquisition of property and equipment under capital leases and installment payment arrangements of $2.2 million in the quarter ended June 30, 2012, compared to $3.7 million in the same period last year. Future payments under these arrangements will be reflected as debt payments.

Credit and Debt Facilities

The Company's amended and restated credit agreement provides for (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 $120 million.

The term loan is payable in quarterly installments of approximately $1.5 million each, through December 31, 2014, with a final payment of approximately $207.5 million due March 15, 2015. The revolving loan commitment expires March 15, 2014.

Revolving credit facility borrowings currently bear interest at LIBOR plus a credit spread, or at an alternative base rate or at the Federal Funds rate plus a credit spread, depending on the type of borrowing. The LIBOR credit spread is 2.75%. There were no revolving credit borrowings outstanding at June 30, 2012 or March 31, 2012. Term loan borrowings bear interest at LIBOR plus a credit spread of 3.00%. The weighted-average interest rate on term loan borrowings at June 30, 2012 was 3.8%.

The term loan allows prepayments before maturity. The credit agreement is secured by the accounts receivable of Acxiom and its domestic subsidiaries, as well as by the outstanding stock of certain Acxiom subsidiaries.

Under the terms of the term loan, the Company is required to maintain certain debt-to-cash flow and debt service coverage ratios, among other restrictions. At June 30, 2012, the Company was in compliance with these covenants and restrictions. In addition, if certain financial ratios and other conditions are not satisfied, the revolving credit facility limits the Company's ability to pay dividends in excess of $30 million in any fiscal year (plus additional amounts in certain circumstances).

On July 25, 2011, the Company entered into an interest rate swap agreement. The agreement provides for the Company to pay interest through January 27, 2014 at a fixed rate of 0.94% plus the applicable credit spread on $150.0 million notional amount, while receiving interest for the same period at the LIBOR rate on the same notional amount. The LIBOR rate as of June 30, 2012 was 0.47%. The swap was entered into as a cash flow hedge against LIBOR interest rate movements on the term loan. As of June 30, 2012, the hedge relationship qualified as an effective hedge under applicable accounting standards. Consequently, all changes in fair value of the derivative are deferred and recorded in other comprehensive income (loss) until the related forecasted transaction is recognized in the consolidated statement of operations. The fair market value of the derivative was zero at inception and an unrealized loss of $1.0 million since inception is recorded in other comprehensive income (loss) with the offset recorded to other noncurrent liabilities. The fair value of the interest rate swap agreement recorded in accumulated other comprehensive income (loss) may be recognized in the statement of operations if certain terms of the floating-rate debt change, if the floating-rate debt is extinguished or if the interest rate swap agreement is terminated prior to maturity. The Company has assessed the creditworthiness of the counterparty of the swap and concludes that no substantial risk of default exists as of June 30, 2012.

Based on our current expectations, we believe our liquidity and capital resources will be sufficient to operate our business. However, we may take advantage of opportunities to generate additional liquidity or refinance existing debt through capital market transactions. The amount, nature and timing of any capital market transactions will depend on: our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.

Off-Balance Sheet Items and Commitments

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 a lease for the buyer of the assets. These guarantees were made by the Company primarily to facilitate favorable financing terms for those third parties. Should the third parties default, the Company would be required to perform under these guarantees. A portion of the guaranteed amount is collateralized by real property. At June 30, 2012 the Company's maximum potential future payments under these guarantees were $3.5 million.

Contractual Commitments

The following table presents Acxiom's contractual cash obligations, exclusive of interest, and purchase commitments at June 30, 2012. The table does not include the future payment of gross unrealized tax benefit liabilities of $3.1 million or the future payment, if any, against the Company's non-current interest rate swap liability of $1.0 million as the Company is not able to predict the periods in which these payments will be made. The column for 2013 represents the nine months ending March 31, 2013. All other columns represent fiscal years ending March 31 (dollars in thousands).

                                             For the years ending March 31
                      2013       2014       2015        2016       2017      Thereafter      Total
Term loan           $  4,500   $  6,000   $ 212,000   $      -   $      -   $          -   $ 222,500
Capital lease and
installment
payment
obligations           11,949      8,405       3,944        925      1,001          7,092      33,316
Other long-term
debt                   3,661      1,608       1,663      7,319        582          2,869      17,702
Total long-term
obligations           20,110     16,013     217,607      8,244      1,583          9,961     273,518
Operating lease
payments              16,783     21,391      15,685     12,987     12,339         43,244     122,429
Total contractual
cash obligations    $ 36,893   $ 37,404   $ 233,292   $ 21,231   $ 13,922   $     53,205   $ 395,947




                                                 For the years ending March 31
                        2013        2014        2015        2016        2017       Thereafter      Total
Total purchase
commitments           $  65,238   $  45,156   $  35,739   $  25,012   $  15,761   $      2,314   $ 189,220

Purchase commitments include contractual commitments for the purchase of data and open purchase orders for equipment, paper, office supplies, construction and other items. 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 above commitments relating to long-term obligations do not include future payments of interest. The Company estimates future interest payments on debt and capital leases for the remainder of fiscal 2013 of $10.3 million.

The following are contingencies or guarantees under which the Company could be required, in certain circumstances, to make cash payments as of June 30, 2012 (dollars in thousands):

Loan guarantee                  $ 1,165
Lease guarantee                   2,374
Outstanding letters of credit     2,512
Surety bonds                        388

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.

To help accelerate the pace of product development, the Company plans to significantly increase the level of product investment over the next two years. The incremental investment for fiscal 2013 could be as much as $30 million with most of that amount being research and development. This investment is expected to ramp up during the fiscal year.

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 2012 Annual Report.

Non-U.S. Operations

The Company has a presence in the United Kingdom, France, Germany, Poland, Australia, China and Brazil. 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 . . .