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TMCNet:  ACXIOM CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

[February 07, 2014]

ACXIOM CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

(Edgar Glimpses Via Acquire Media NewsEdge) Introduction and Overview Acxiom is an enterprise data, analytics and software-as-a-service company. For over 40 years, Acxiom has been an innovator in harnessing the powerful potential of data to strengthen connections between people, businesses and their partners. We focus on creating better connections that enable better living for people and better results for the businesses who serve them.


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 June 30, 2013, the Company realigned its business segments to better reflect the way management assesses the business. The e-mail fulfillment business was moved from the Other services segment to the Marketing and data services segment. The Marketing and data services segment now includes the Company's global lines of business for Customer Data Integration (CDI), Consumer Insight Solutions, the Audience Operating System, Marketing Management Services, E-mail Fulfillment Services, and Consulting and Agency Services. The IT Infrastructure management segment develops and delivers IT outsourcing and transformational solutions. The Other services segment now consists solely of the UK fulfillment business.

As announced in fiscal 2012 we continue to significantly invest in product innovation which management believes will help drive revenue growth for the remainder of fiscal 2014 and beyond. The Company launched the Acxiom Audience Operating System (AOS) on September 24, 2013. The AOS is an innovative new technology that powers more effective marketing decisions through better data, valuable insights and powerful applications. It presents marketers with a comprehensive view of their audiences and allows one-to-one marketing capabilities at scale across all channels and devices. The Company also recently launched a new consumer portal, AboutTheData.com, which is the first online consumer portal which allows individuals to view and update marketing data that Acxiom's clients use for digital marketing.

Notable results and events of the quarter ended December 31, 2013 are identified below.

· Revenue of $277.9 million, a 1.7% increase from $273.1 million in the same quarter a year ago.

· Total operating expenses of $258.1 million, a 4.8% increase from $246.2 million in the same quarter a year ago. Total operating expenses include restructuring charges and loss contingency accruals of $4.7 million recorded in gains, losses and other items, net and business separation expenses of $4.9 million recorded in selling, general and administrative expenses.

· Income from operations of $19.8 million, representing a 7.1% operating margin, compared to $26.9 million, representing a 9.8% operating margin, in the same quarter a year ago.

· Net earnings of $15.1 million, or $0.19 per diluted share, compared to net earnings of $14.5 million, or $0.19 per diluted share, in the same quarter a year ago. Other income includes a $2.6 million gain on the Company's investment in a real estate joint venture. A tax-related adjustment positively impacted earnings by approximately $0.04 per share.

· The Company refinanced its debt facility to consist of a $300 million term loan and a $300 million revolving credit facility. The revolving credit facility remains undrawn.

· Cash provided by financing activities was $110.8 million, compared to cash used of $22.4 million in the same quarter a year ago. Financing activities include $80.6 million net proceeds from debt refinancing, $50.5 million in proceeds from sale of stock under options and warrants, and $13.8 million in payments to acquire common shares as part of the Company's common stock repurchase program.

· The Company acquired the remaining noncontrolling interest in Acxiom Brazil for $0.6 million.

· The Company announced an initiative to reduce annual operating costs and expenses by roughly $20 to $30 million over the next six to twelve months.

The summary above is intended to identify to the reader some of the more significant events and transactions of the Company during the fiscal quarter ended December 31, 2013. However, this is not intended to be a full discussion of the Company's results for the quarter. This 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.

24--------------------------------------------------------------------------------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 For the nine months ended December 31 December 31 2013 2012 % Change 2013 2012 % Change Revenues $ 277,873 $ 273,102 2 % $ 820,337 $ 822,228 (0 %) Total operating costs and expenses 258,093 246,204 5 % 756,854 739,698 2 % Income from operations $ 19,780 $ 26,898 (26 %) $ 63,483 $ 82,530 (23 %) Diluted earnings per share attributable to Acxiom stockholders $ 0.19 $ 0.19 0 % $ 0.50 $ 0.58 (14 %) RevenuesThe following table presents the Company's revenue by reporting segment for each of the periods reported (dollars in thousands): For the quarter ended For the nine months ended December 31 December 31 2013 2012 % Change 2013 2012 % Change Marketing and data services $ 206,662 $ 195,146 6 % $ 595,407 $ 586,230 2 % IT Infrastructure management services 62,099 69,916 (11 %) 198,309 210,267 (6 %) Other services 9,112 8,040 13 % 26,621 25,731 4 % Total revenue $ 277,873 $ 273,102 2 % $ 820,337 $ 822,228 (0 %) Total revenue increased 1.7%, or $4.8 million, to $277.9 million in the quarter ended December 31, 2013 from $273.1 million in the same quarter a year ago. For the nine months ended December 31, 2013 total revenue was $820.3 million, a $1.9 million, or 0.2%, decrease from $822.2 million during the same period a year ago.

Marketing and data services (MDS) revenue for the quarter ended December 31, 2013 was $206.7 million, an $11.5 million, or 5.9%, increase from the same quarter a year ago. On a geographic basis, International MDS revenue increased $1.8 million, or 6.2%, while U.S. MDS revenue increased $9.7 million, or 5.8%, when compared to the same quarter a year ago. International MDS revenue had increases in Europe, Australia, and China, which were partially offset by a decrease in Brazil. For U.S. MDS revenue, a decrease in the Automotive industry ($1.1 million) from volume reductions was offset by increases in the Financial Services ($2.8 million), Retail ($3.3 million), Technology ($1.7 million), and Broker/Reseller ($2.2 million) industries from new business and volume increases. By line of business, MDS revenue increases in Marketing Management ($10.9 million or 13.1%) and Consumer Insights ($3.2 million or 6.3%) were partially offset by decreases in Data Management ($2.5 million or 8.2%) and E-mail and Agency services ($1.4 million or 7.4%). The Marketing Management increase resulted primarily from increases in existing accounts and new business. Data Management was impacted by lower project activity in the U.S., Europe and Australia.

MDS revenue for the nine months ended December 31, 2013 was $595.4 million, a $9.2 million, or 1.6%, increase from the same period a year ago. On a geographic basis, International MDS revenue decreased $0.4 million, or 0.4%, and U.S. MDS revenue increased $9.6 million, or 1.9%, when compared to the same period a year ago. International MDS revenue decreases of $2.8 million were primarily the result of lower transaction volume in Europe and Australia and were partially offset by increases in China and Brazil MDS revenue. U.S. MDS revenue increases in the Financial Services ($3.9 million), Retail ($5.5 million), and Technology ($1.7 million) industries were partially offset by decreases in the Broker/Reseller ($2.4 million) and Automotive ($0.7 million) industries from volume and project reductions. By line of business, MDS revenue increases in Marketing Management ($16.0 million or 6.4%) and Consulting ($1.4 million or 4.3%) were partially offset by decreases in Data Management ($4.3 million or 4.9%) and E-mail and Agency services ($4.0 million or 6.9%). The Marketing Management and Consulting increases resulted primarily from increases in existing accounts and new business. Data Management was impacted by lower project activity in the U.S., Europe and Australia and Email and Agency services were impacted by lost business.

25 -------------------------------------------------------------------------------- IT Infrastructure Management (IM) revenue for the quarter ended December 31, 2013 was $62.1 million, a $7.8 million, or 11.2% decrease from the same quarter a year ago. IM revenue for the nine months ended December 31, 2013 was $198.3 million, a $12.0 million, or 5.7% decrease from the same period a year ago. IM revenue included termination fees of $0.6 million and $5.9 million in the quarter and nine-month period, respectively, from customers that are winding down their contractual relationship with the Company. Excluding impact of the termination fees, the IM revenue decreases in both the quarter and nine-month period resulted from lower project revenue and lost business. The Company has received notifications of client contract terminations from certain IM clients in addition to those previously disclosed in its 2013 annual report. The Company expects to record fiscal 2014 revenue for IM customers that have given notice of termination of between $65 and $70 million, including the termination fees, as many of these terminations are not effective immediately and there are termination penalties associated with some of them. The customer terminations have impacted the current reporting period revenue and the impact is expected to increase during the remainder of fiscal 2014 and into fiscal 2015.

Other services (OS) revenue for the quarter ended December 31, 2013 was $9.1 million, a $1.1 million increase from the same quarter a year ago. OS revenue for the nine months ended December 31, 2013 was $26.6 million, a $0.9 million increase from the same period a year ago. Revenue from the UK fulfillment operation increased $1.7 million and $4.4 million from new business during the quarter and nine-month period ended December 31, 2013, respectively. The Company has completed transition of all risk customers previously included in the OS segment to a third-party partner as a part of the exit from that business. As a result, OS revenue decreased $0.6 million and $3.5 million during the quarter and nine-month period ended December 31, 2013, respectively.

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 For the nine months ended December 31 December 31 2013 2012 % Change 2013 2012 % Change Cost of revenue $ 210,053 $ 208,848 1 % $ 621,953 $ 627,323 (1 %) Selling, general and administrative 43,383 37,482 16 % 123,857 112,309 10 % Gains, losses and other items, net, 4,657 (126 ) 11,044 66 Total operations costs and expenses $ 258,093 $ 246,204 5 % $ 756,854 $ 739,698 2 % Cost of revenue was $210.1 million for the quarter ended December 31, 2013, a $1.2 million, or 0.6%, increase when compared to the same quarter a year ago. Gross margins increased from 23.5% to 24.4% between the two comparable periods. Margins were impacted by a $1.2 million improvement in OS gross margins resulting from the Company's exit from the U.S. risk business. U.S. gross margins increased slightly from 24.6% to 24.7% and International gross margins increased from 16.7% to 22.4%. U.S. margins benefitted from the OS margin increase but were offset by increased investment spending (data and engineering) in the MDS segment. International margins benefitted from revenue increases in Europe and Australia.

Cost of revenue was $622.0 million for the nine months ended December 31, 2012, a $5.4 million, or 0.9%, decrease from the same period a year ago. Gross margins increased from 23.7% to 24.2% between the two comparable periods. Margins were impacted by a $3.6 million improvement in OS gross margins resulting from the Company's exit from the U.S. risk business. Margins also improved from the positive impact of the IM termination fee revenue. U.S. gross margins increased from 24.9% to 25.5% and International gross margins increased from 15.7% to 16.0%. U.S. margins benefitted from the OS margin increase and improving IM margins but were partially offset by increased investment spending (data and engineering) in the MDS segment. International margins benefitted from revenue increases in Europe and Australia.

Selling, general, and administrative (SG&A) expenses were $43.4 million for the quarter ended December 31, 2013, a $5.9 million, or 15.7%, increase when compared to the same quarter a year ago. SG&A included $4.9 million of costs associated with separating shared operations of the MDS and IM operating segments. Excluding these separation costs, SG&A expense increased $1.0 million, or 2.7%. As a percentage of total revenue, and excluding the separation costs, SG&A expenses were 13.9% compared to 13.7% a year ago. The increase primarily resulted from higher legal fees.

SG&A expenses were $123.9 million for the nine months ended December 31, 2013, an $11.5 million, or 10.3%, increase when compared to the same period a year ago. The current period SG&A included $7.1 million of costs associated 26 -------------------------------------------------------------------------------- with separating the MDS and IM operating segments. Excluding these separation costs, SG&A expense increased $4.4 million, or 4.0%. As a percentage of total revenue, and excluding the separation costs, SG&A expenses were 14.2% compared to 13.7% a year ago. The increase primarily resulted from higher legal fees and other consulting expenses.

The Company continues to develop and execute plans to create operating independence between its operating segments. As the Company executes these plans, it is likely to continue to incur incremental outside consulting and other third-party expenses to create formal documentation of intercompany agreements and to separate IT and network operations.

Gains, losses and other items, net was $4.7 million and $11.0 million for the quarter and nine months ended December 31, 2013, respectively. The current-year quarter included restructuring charges and adjustments of $3.7 million and a $1.0 million loss contingency accrual. The current-year nine-month period included restructuring charges and adjustments of $6.8 million, of which $4.4 million related to termination of associates in the United States, Australia, China, and Europe and $2.5 million related to a lease accrual, and loss contingency accruals of $4.2 million.

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 For the nine months ended December 31 December 31 2013 2012 2013 2012 Operating profit and profit margin: Marketing and data services $ 22,518 $ 18,186 $ 51,189 $ 59,151 10.9 % 9.3 % 8.6 % 10.1 % IT Infrastructure management services $ 6,316 $ 9,622 $ 29,044 $ 26,973 10.2 % 13.8 % 14.6 % 12.8 % Other services $ 500 $ (1,036 ) $ 1,377 $ (3,528 ) 5.5 % (12.9 %) 5.2 % (13.7 %) Corporate $ (9,554 ) $ 126 $ (18,127 ) $ (66 ) Total operating profit $ 19,780 $ 26,898 $ 63,483 $ 82,530 Total operating profit margin 7.1 % 9.8 % 7.7 % 10.0 % MDS income from operations was $22.5 million, a 10.9% margin, for the quarter ended December 31, 2013 compared to $18.2 million, a 9.3% margin, for the same quarter a year ago. Margins in the U.S. declined from 12.0% to 11.5% and International operations improved from a slight loss to a 7.8% margin between the two comparable periods. The U.S. margin decrease primarily resulted from costs associated with additional personnel and data costs required to support investment initiatives. International operating margin increases primarily resulted from revenue increases in Europe.

MDS income from operations was $51.2 million, an 8.6% margin, for the nine months ended December 31, 2013 compared to $59.2 million, a 10.1% margin, for the same period a year ago. Margins in the U.S. declined from 12.8% to 10.5% and International operating losses decreased from $5.1 million to $2.6 million between the two comparable periods. The U.S. margin decrease primarily resulted from costs associated with additional personnel and data costs required to support investment initiatives and higher levels of general and administrative costs in the current fiscal year. Decreases in International operating losses primarily resulted from improvements in Brazil and China that were partially offset by increased losses in Europe.

IM income from operations was $6.3 million, a 10.2% margin, for the quarter ended December 31, 2013 compared to $9.6 million, a 13.8% margin, for the same quarter a year ago. IM income from operations was $29.0 million, a 14.6% margin, for the nine months ended December 31, 2013 compared to $27.0 million, a 12.8% margin, for the same period a year ago. IM margins declined in the current-year quarter as a result of revenue decreases from lost business. IM margins benefited from termination fee revenue in the current-year nine-month period.

27-------------------------------------------------------------------------------- OS income from operations was $0.5 million for the quarter ended December 31, 2013 compared to a loss of $1.0 million in the same quarter a year ago. OS income from operations was $1.4 million for the nine months ended December 31, 2013 compared to a loss of $3.5 million in the same period a year ago. The improvement resulted from the Company's exit from the risk business which lost $1.2 million and $4.7 million in the quarter and nine months ended December 31, 2012, respectively.

Corporate loss from operations was $9.6 million and $18.1 million in the quarter and nine months ended December 31, 2013, respectively. The losses consist of the restructuring charges and legal contingency costs recorded in gains, losses and other items, net and the business segment separation costs included in selling, general and administrative expense on the consolidated statement of operations.

Management announced in November 2013 an initiative to reduce its annual operating costs and expenses by roughly $20 to $30 million over the next six to twelve months. These reductions will not impact the Company's ongoing investment in the AOS or continued investment in innovation. The initiative seeks to improve the Company's performance by simplifying the Company's management structure, centralizing duplicative efforts, and standardizing work flows. The components of the restructuring program are not finalized and actual total savings and timing may vary from those estimated due to changes in the scope or assumptions underlying the restructuring program. The Company to date has taken steps to realize approximately $15 million in annualized cost reductions.

Other Expense, Income Taxes and Other Items Interest expense was $3.1 million for the quarter ended December 31, 2013 compared to $3.2 million for the same quarter a year ago. Interest expense was $9.1 million for the nine months ended December 31, 2013 compared to $9.7 million for the same period a year ago. On October 9, 2013, the Company refinanced its prior credit agreement. As a result, the average term loan balance increased approximately $72 million and the average interest rate decreased approximately 75 basis points causing interest expense to increase slightly during the quarter ended December 31, 2013 when compared to the same quarter a year ago. During the nine months ended December 31, 2013, the average term loan balance increased approximately $20 million and the average interest rate decreased approximately 40 basis points causing interest expense to remain flat when compared to the same period a year ago. Interest expense on other debt, such as capital leases, declined over both comparable periods.

Other income was $1.5 million for the quarter ended December 31, 2013 compared to $0.6 million in the same quarter a year ago. Other income was $1.2 million for the nine months ended December 31, 2013. Other income is primarily from foreign currency transaction gains and losses in both periods. In addition, during the quarter ended December 31, 2013, the Company recorded a $2.6 million gain from its investment in a real estate joint venture and $0.7 million in accelerated deferred debt costs as a result of refinancing its term loan agreement.

The effective tax rate for the quarter ended December 31, 2013 was 17.0% compared to 40.5% for the same quarter a year ago. During the current quarter, the Company recognized approximately $3.1 million of previously unrecognized tax benefits related to certain tax credits due to the expiration of the related statute of limitations. Excluding the $3.1 million income tax reserve adjustment, the effective tax rate for the quarter ended December 31, 2013 would have been 34.1%. The effective tax rate for the nine months ended December 31, 2013 was 31.6% compared to 39.5% in the same period a year ago. Excluding the $3.1 million income tax reserve adjustment, the effective tax rate for the nine months ended December 31, 2013 would have been 37.2%. The current-year effective tax rate is impacted by research and development credits reenacted in the fourth quarter of fiscal 2013. All period tax rates were impacted by losses in foreign jurisdictions. The Company does not record the tax benefit of certain of those losses due to uncertainty of future benefit.

Losses attributable to noncontrolling interest include the noncontrolling interest in the Company's Brazilian subsidiary. During the quarter ended December 31, 2013, the Company acquired the remaining noncontrolling interest in Acxiom Brazil.

Capital Resources and Liquidity Working Capital and Cash Flow Working capital at December 31, 2013 totaled $389.6 million, a $153.0 million increase when compared to $236.5 million at March 31, 2013. Total current assets increased $156.2 million primarily from increases in cash and cash equivalents of $157.9 million and trade accounts receivable, net of $9.0 million, partially offset by decreases in refundable income taxes of $5.8 million and other current assets of $5.5 million. Current liabilities increased $3.2 million primarily from increases in current installments of long-term debt of $9.5 million, other accrued expenses of $7.1 million, deferred revenue of $8.8 million and income taxes of $1.1 million, partially offset by decreases in trade accounts payable of $12.2 million and accrued payroll and related expenses of $11.1 million. The increase in cash and cash equivalents is primarily due to the proceeds of the new term loan, as well as proceeds from stock option exercises.

28 --------------------------------------------------------------------------------The Company's cash is primarily located in the United States. Approximately $15.3 million of the total cash balance of $380.9 million, or approximately 4.0%, is located outside of the United States. The Company has no current plans to repatriate this cash to the United States.

Accounts receivable days sales outstanding was 56 days at December 31, 2013 compared to 52 days at March 31, 2013, and is calculated as follows (dollars in thousands): December 31, March 31, 2013 2013 Numerator - trade accounts receivable, net $ 168,931 $ 159,882 Denominator: Quarter revenue 277,873 277,131 Number of days in quarter 92 90 Average daily revenue $ 3,020 $ 3,079 Days sales outstanding 56 52 Net cash provided by operating activities was $121.1 million for the nine months ended December 31, 2013, compared to $75.9 million in the same period a year ago. The $45.2 million increase primarily resulted from favorable working capital changes related to accounts receivable, net ($15.5 million), other assets ($6.0 million), deferred revenue ($19.4 million), and accounts payable and other liabilities ($20.1 million), partially offset by a $13.5 million decrease in depreciation and amortization.

Investing activities used $45.0 million in cash during the nine months ended December 31, 2013 compared to $41.6 million in the same period a year ago. Current year investing activities include capital expenditures ($24.9 million), capitalization of software ($19.1 million), data acquisition costs ($4.7 million), and cash proceeds from the Company's investment in a real estate join venture ($3.6 million). Excluding the impact of the $3.6 million investment proceeds, the $7.0 million increase from the prior year primarily results from a $5.9 million increase in capitalization of software due to the Company's ongoing investment in innovation.

Financing activities provided $81.3 million in cash during the nine months ended December 31, 2013. During the quarter ended December 31, 2013, the Company refinanced its term loan debt, resulting in net proceeds of $80.6 million. Financing activities include other payments of debt of $15.2 million and acquisition of treasury stock of $52.7 million, offset by $69.1 million in proceeds from the sale of common stock, which are primarily related to the exercise of employee stock options. The payments of debt include capital lease and installment credit payments of $8.3 million and other debt payments of $6.9 million. The acquisition of treasury stock consists of payments of $52.7 million for 2.0 million shares of the Company's stock pursuant to the board of directors' approved stock repurchase plan. Under the Company's common stock repurchase program, the Company may purchase up to $250.0 million of its common stock through the period ending November 18, 2014. Through December 31, 2013, the Company has purchased a total of 12.3 million shares of its stock for $192.6 million, leaving remaining capacity of $57.4 million under the program.

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 prior-year nine-month period. Future payments under these arrangements will be reflected as debt payments.

Credit and Debt Facilities On October 9, 2013, the Company refinanced its prior credit agreement. On that day, the Company borrowed $300 million of the new term loan and used the proceeds to pay off the prior $215 million term loan balance in its entirety along with $4.4 million in fees related to the new credit agreement. The remaining proceeds will be used for other general corporate purposes. The amended and restated credit agreement contains customary representations, warranties, affirmative and negative covenants, default, and acceleration provisions.

As of December 31, 2013, the Company's newly amended and restated credit agreement provided for (1) term loans up to an aggregate principal amount of $300 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 $300 million.

29 --------------------------------------------------------------------------------The term loan agreement is payable in quarterly installments of $3.8 million through September 2014, followed by quarterly installments of $7.5 million through September 2017, followed by quarterly installments of $11.3 million through June 2018, with a final payment of $161.3 million due October 9, 2018. The revolving loan commitment expires October 9, 2018.

Term loan and revolving credit facility borrowings bear interest at LIBOR or at an alternative base rate plus a credit spread. At December 31, 2013, the LIBOR credit spread was 2.00%. There were no revolving credit borrowings outstanding at December 31, 2013 or March 31, 2013. The weighted-average interest rate on term loan borrowings at December 31, 2013 was 2.2%. Outstanding letters of credit at December 31, 2013 were $2.2 million.

The term loan allows for 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 December 31, 2013, 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 of 3.0% 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 December 31, 2013 was .24%. The swap was entered into as a cash flow hedge against LIBOR interest rate movements on the term loan. On October 9, 2013, the Company voluntarily de-designated this hedging relationship as a result of the full prepayment of the related term loan. The hedge will remain de-designated until its maturity on January 27, 2014. The fair market value of the derivative was zero at inception. At December 31, 2013, the derivative had a fair value loss of $0.1 million which was recorded in other, net in the statement of operations with an offset recorded to other accrued expenses. The Company has assessed the creditworthiness of the counterparty of the derivative and concludes that no substantial risk of default exists as of December 31, 2013.

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 the disposal of certain assets, the Company has guaranteed a lease for the buyer of the assets. This guarantee was made by the Company primarily to facilitate favorable financing terms for the third party. Should the third party default, the Company would be required to perform under this guarantee. At December 31, 2013 the Company's maximum potential future payments under this guarantee were $1.6 million.

30 -------------------------------------------------------------------------------- Contractual Commitments The following table presents Acxiom's contractual cash obligations, exclusive of interest, and purchase commitments at December 31, 2013. The table does not include the future payment of gross unrealized tax benefit liabilities of $2.1 million or the future payment, if any, against the Company's interest rate swap liability of $0.1 million as the Company is not able to predict the periods in which these payments will be made. The column for 2014 represents the three months ending March 31, 2014. All other columns represent fiscal years ending March 31 (dollars in thousands).

For the years ending March 31 2014 2015 2016 2017 2018 Thereafter Total Term loan $ 3,750 $ 22,500 $ 30,000 $ 30,000 $ 37,500 $ 172,500 $ 296,250 Capital lease and installment payment obligations 1,464 3,971 926 1,001 1,157 5,935 14,454 Other long-term debt 514 2,097 2,168 2,243 2,320 3,293 12,635 Total long-term obligations 5,728 28,568 33,094 33,244 40,977 181,728 323,339 Operating lease payments 6,416 20,492 16,869 16,231 14,181 52,951 127,140 Total contractual cash obligations $ 12,144 $ 49,060 $ 49,963 $ 49,475 $ 55,158 $ 234,679 $ 450,479 For the years ending March 31 2014 2015 2016 2017 2018 Thereafter Total Total purchase commitments $ 34,401 $ 51,182 $ 34,955 $ 20,286 $ 2,352 $ 1,257 $ 144,433 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 2014 of $2.8 million.

The following are contingencies or guarantees under which the Company could be required, in certain circumstances, to make cash payments as of December 31, 2013 (dollars in thousands): Lease guarantee $ 1,642 Outstanding letters of credit 2,238 Surety bonds 420 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 licenses software and sells 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 has significantly increased the level of product investment. Notwithstanding the Company's recently announced cost reduction efforts, the Company expects to continue to increase investment spending, primarily for engineering and product management labor, capitalized software, and new data sources for at least the remainder of this 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 2013 Annual Report.

31--------------------------------------------------------------------------------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 consolidated financial statements in the Company's 2013 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 2013 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.

Valuation of Goodwill Goodwill is measured and tested for impairment on an annual basis in the first quarter of the Company's fiscal year in accordance with applicable accounting standards, or more frequently if indicators of impairment exist. Triggering events for interim impairment testing include indicators such as adverse industry or economic trends, restructuring actions, downward revisions to projections of financial performance, or a sustained decline in market capitalization. The performance of the impairment test involves a two-step process. The first step requires comparing the estimated fair value of a reporting unit to its net book value, including goodwill. A potential impairment exists if the estimated fair value of the reporting unit is lower than its net book value. The second step of the impairment test involves assigning the estimated fair value of the reporting unit to its identifiable assets, with any residual fair value being assigned to goodwill. If the carrying value of an individual indefinite-lived intangible asset (including goodwill) exceeds its estimated fair value, such asset is written down by an amount equal to the excess, and a corresponding amount is recorded as a charge to operations for the period in which the impairment test is completed. Completion of the Company's annual impairment test during the quarter ended June 30, 2013 indicated no potential impairment of its goodwill balances.

In order to estimate the fair value for each of the components, management uses an income approach based on a discounted cash flow model together with valuations based on an analysis of public company market multiples and a similar transactions analysis.

The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections and terminal value rates.

Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment.

Discount rates are determined by using a weighted average cost of capital ("WACC"). The WACC considers market and industry data as well as company-specific risk factors for each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business. Management, considering industry and company-specific historical and projected data, develops growth rates and cash flow projections for each reporting unit. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates.

32-------------------------------------------------------------------------------- The public company market multiple method is used to estimate values for each of the components by looking at market value multiples to revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) for selected public companies that are believed to be representative of companies that marketplace participants would use to arrive at comparable multiples for the individual component being tested. These multiples are then used to develop an estimated value for each respective component.

The similar transactions method compares multiples based on acquisition prices of other companies believed to be those that marketplace participants would use to compare to the individual component being tested. Those multiples are then used to develop an estimated value for that component.

In order to arrive at an estimated value for each component, management uses a weighted-average approach to combine the results of each analysis. Management believes that using multiple valuation approaches and then weighting them appropriately is a technique that a marketplace participant would use.

As a final test of the valuation results, the total of the values of the components is reconciled to the actual market value of Acxiom common stock as of the valuation date. This reconciliation indicated an implied control premium. Management believes this control premium is reasonable compared to historical control premiums observed in actual transactions.

Goodwill is tested for impairment at the reporting unit level, which is defined as either an operating segment or one step below an operating segment, known as a component. Acxiom's segments are the Marketing and data services segment, the IT Infrastructure management segment, and the Other services segment. Because the Marketing and data services segment contains both U.S. and International components, and there are differences in economic characteristics between the components in the different geographic regions, management tested a total of seven components at the beginning of the year. The goodwill amounts as of April 1, 2013 included in each component tested were: U.S. Marketing and data services, $266.3 million; Europe Marketing and data services, $18.5 million; Australia Marketing and data services, $15.0 million; China Marketing and data services, $6.0 million; Brazil Marketing and data services, $1.0 million; U.S.

Infrastructure management, $71.5 million; and Europe Other services, $2.8 million.

As of April 1, 2013, each of the components had an estimated fair value in excess of its carrying value, indicating no impairment. All of the components had a substantial excess fair value.

Management believes that the estimated valuations it arrived at are reasonable and consistent with what other marketplace participants would use in valuing the Company's components. However, management cannot give any assurance that these market values will not change in the future. For example, if discount rates demanded by the market increase, this could lead to reduced valuations under the income approach. If the Company's projections are not achieved in the future, this could lead management to reassess their assumptions and lead to reduced valuations under the income approach. If the market price of the Company's stock decreases, this could cause the Company to reassess the reasonableness of the implied control premium, which might cause management to assume a higher discount rate under the income approach which could lead to reduced valuations. If future similar transactions exhibit lower multiples than those observed in the past, this could lead to reduced valuations under the similar transactions approach. And finally, if there is a general decline in the stock market and particularly in those companies selected as comparable to the Company's components, this could lead to reduced valuations under the public company market multiple approach. The Company's next annual impairment test will be performed during the first quarter of fiscal 2015. The fair value of the Company's components could deteriorate which could result in the need to record impairment charges in future periods. The Company continues to monitor potential triggering events including changes in the business climate in which it operates, attrition of key personnel, the volatility in the capital markets, the Company's market capitalization compared to its book value, the Company's recent operating performance, and the Company's financial projections. The Company has recently initiated a cost reduction program. The initiative seeks to improve the Company's performance by simplifying the Company's management structure, centralizing duplicative efforts and standardizing workflows. The components of the restructuring program are not yet finalized. The Company will monitor the progress of the program to determine whether any resulting activities constitute a triggering event. The occurrence of one or more triggering events could require additional impairment testing, which could result in impairment charges.

33--------------------------------------------------------------------------------Forward-looking Statements This document contains forward-looking statements. These statements, which are not statements of historical fact, may contain estimates, assumptions, projections and/or expectations regarding the Company's financial position, results of operations, market position, product development, growth opportunities, economic conditions, and other similar forecasts and statements of expectation. Forward-looking statements are often identified by words or phrases such as "anticipate," "estimate," "plan," "expect," "believe," "intend," "foresee," and similar words or phrases. These forward-looking statements are not guarantees of future performance and are subject to a number of factors and uncertainties that could cause the Company's actual results and experiences to differ materially from the anticipated results and expectations expressed in the forward-looking statements.

Forward-looking statements may include but are not limited to the following: · management's expectations about the macro economy; · statements containing a projection of revenues, expenses, income (loss), earnings (loss) per share, capital expenditures, dividends, capital structure, or other financial items; · statements regarding plans to continue making significant investments in product development; · management's belief that increased product investment will drive revenue growth in fiscal 2014 and beyond; · statements regarding the Company's cost reduction efforts and related cost savings; · management's plan to create operating independence between its operating segments; · statements of future economic performance, including, but not limited to, those statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this Quarterly Report on Form 10-Q; · statements containing any assumptions underlying or relating to any of the above statements; and · statements containing a projection or estimate.

Among the factors that may cause actual results and expectations to differ from anticipated results and expectations expressed in such forward-looking statements are the following: · the risk factors described in Part I, "Item 1A. Risk Factors" included in the Company's 2013 Annual Report and those described from time to time in our future reports filed with the SEC; · the possibility that we will not be able to achieve anticipated cost reductions and avoid unanticipated costs in a timely manner or at all; · the possibility that unusual or infrequent charges may be incurred; · the possibility that in the event a change of control of the Company is sought that certain clients may attempt to invoke provisions in their contracts resulting in a decline in revenue and profit; · 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 (including goodwill) 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 will not be able to properly motivate our sales force or other associates; · 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 will not 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 there will be changes in consumer or business information industries and markets that negatively impact the Company; · the possibility that we will not be able to protect proprietary information and technology or to obtain necessary licenses on commercially reasonable terms; · 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; 34--------------------------------------------------------------------------------· 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 we may not properly and timely adjust to changes in our management structure and work flows; · 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 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; and · general and global negative economic conditions.

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 scale, competition, culture, laws and regulations.

Other factors are detailed from time to time in periodic reports and registration statements filed with the SEC. The Company believes 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.

In light of these risks, uncertainties and assumptions, the Company cautions readers not to place undue reliance on any forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information or otherwise.

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