Last10K.com

Harris Interactive Inc (HPOL) SEC Filing 10-Q Quarterly report for the period ending Sunday, September 30, 2012

Harris Interactive Inc

CIK: 1094238 Ticker: HPOL

Exhibit 99.1

 

Press Contact:    LOGO
Michael T. Burns   
Investor Relations   
Harris Interactive Inc.   

800-866-7655 x7328

mburns@harrisinteractive.com

  

Harris Interactive® Reports First Quarter Fiscal 2013 Results

Rochester, N.Y. — November 1, 2012 —

Harris Interactive Inc. (NASDAQ: HPOL), a leading global market research firm, today announced its first quarter fiscal 2013 financial results.

Al Angrisani, President and Chief Executive Officer of Harris Interactive, commented, “We made further progress in our turnaround program during the first quarter. Our profitability improved in the quarter, largely due to the successful turnaround of our UK business and the rightsizing of our cost structure, and we continued our focus on accepting higher margin work and paying down our existing bank debt. Despite the profitability improvement, we are still working to address sales and marketing challenges in several of our business units.”

Key Financial Statistics (1)

 

USD in millions – unaudited

   For the Three Months Ended
September 30,
 
     2012      2011  

Revenue (2)

   $ 33.0       $ 37.8   

Operating income (loss) (3)

   $ 1.8       $ (4.3

Income (loss) from continuing operations

   $ 1.7       $ (4.1

Loss from discontinued operations

   $ —         $ (1.8

Net income (loss)

   $ 1.7       $ (6.0

Fully diluted net income (loss) per share – continuing operations

   $ 0.03       $ (0.08

Fully diluted net income (loss) per share – discontinued operations

   $ —         $ (0.03

Fully diluted net income (loss) per share

   $ 0.03       $ (0.11

Adjusted EBITDA (4)

   $ 3.5       $ (2.5

Adjusted EBITDA with add-back of restructuring and other charges (4)

   $ 3.5       $ 3.0   

Cash provided by operations

   $ 0.3       $ 0.2   

Bookings (5)

   $ 33.9       $ 32.1   

At September 30:

   2012      2011  

Cash and cash equivalents

   $ 10.6       $ 12.3   

Outstanding debt

   $ 4.8       $ 9.6   

Secured revenue (6)

   $ 43.4       $ 39.0   

 

(1) All amounts shown reflect our Asian operations as discontinued operations.
(2) Amounts include the impact of foreign currency exchange rate differences. Excluding the impact of foreign currency exchange rate differences, revenue for the three months ended September 30, 2012 decreased by 11% over the same prior year period.

 

 

©2012 Harris Interactive Inc.    All rights reserved.


The following information was filed by Harris Interactive Inc (HPOL) on Thursday, November 1, 2012 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED SEPTEMBER 30, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM             TO            

COMMISSION FILE NUMBER: 000-27577

 

 

 

LOGO

HARRIS INTERACTIVE INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

 

 

DELAWARE   16-1538028
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification No.)

60 Corporate Woods

Rochester, New York 14623

(Address of principal executive offices)

(585) 272-8400

(Registrant’s telephone number, including area code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer     ¨   Accelerated filer     ¨
Non-accelerated filer     ¨  (Do not check if a smaller reporting company)   Smaller reporting company     x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

On November 9, 2012, 57,713,440 shares of the Registrant’s Common Stock, $.001 par value, were outstanding.

 

 

 


Table of Contents

HARRIS INTERACTIVE INC.

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2012

INDEX

 

         Page  
Part I: Financial Information   
Item 1:   Financial Statements (Unaudited):   
  Consolidated Balance Sheets at September 30, 2012 and June 30, 2012      3   
 

Consolidated Statements of Comprehensive Income for the three months ended September 30, 2012 and 2011

     4   
  Consolidated Statements of Cash Flows for the three months ended September 30, 2012 and 2011      5   
  Notes to Unaudited Consolidated Financial Statements      6   
Item 2:   Management’s Discussion and Analysis of Financial Condition and Results of Operations      14   
Item 3:   Quantitative and Qualitative Disclosures About Market Risk      21   
Item 4:   Controls and Procedures      22   
Part II: Other Information   
Item 1:   Legal Proceedings      22   
Item 1A:   Risk Factors      22   
Item 2:   Unregistered Sales of Equity Securities and Use of Proceeds      23   
Item 3:   Defaults Upon Senior Securities      23   
Item 5:   Other Information      23   
Item 6:   Exhibits      23   

Signature

       24   

 

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Table of Contents

Part I: Financial Information

Item 1 — Financial Statements

HARRIS INTERACTIVE INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

     September 30,
2012
    June 30,
2012
 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 10,623      $ 11,456   

Accounts receivable, net

     19,616        19,940   

Unbilled receivables

     8,542        7,513   

Prepaid expenses and other current assets

     3,466        3,859   

Deferred tax assets

     248        243   
  

 

 

   

 

 

 

Total current assets

     42,495        43,011   

Property, plant and equipment, net

     2,332        2,500   

Other intangibles, net

     10,320        10,795   

Other assets

     1,106        1,080   
  

 

 

   

 

 

 

Total assets

   $ 56,253      $ 57,386   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities:

    

Accounts payable

   $ 7,254      $ 7,628   

Accrued expenses

     18,169        21,643   

Current portion of long-term debt

     4,794        4,794   

Deferred revenue

     12,017        10,088   

Liabilities from discontinued operations

     —          181   
  

 

 

   

 

 

 

Total current liabilities

     42,234        44,334   

Long-term debt

     —          1,199   

Deferred tax liabilities

     1,689        1,696   

Other liabilities

     3,510        4,072   

Commitments and contingencies (Note 14)

    

Stockholders’ equity:

    

Preferred stock, $.001 par value, 5,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2012 and June 30, 2012

     —          —     

Common stock, $.001 par value, 100,000,000 shares authorized; 57,614,299 shares issued and outstanding at September 30, 2012 and 57,399,291 shares issued and outstanding at June 30, 2012

     58        57   

Additional paid-in capital

     189,184        188,535   

Accumulated other comprehensive income

     4,175        3,833   

Accumulated deficit

     (184,597     (186,340
  

 

 

   

 

 

 

Total stockholders’ equity

     8,820        6,085   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 56,253      $ 57,386   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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HARRIS INTERACTIVE INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except share and per share amounts)

(Unaudited)

 

     Three Months Ended
September 30,
 
     2012     2011  

Revenue from services

   $ 33,010      $ 37,769   

Operating expenses:

    

Cost of services

     19,455        23,630   

Selling, general and administrative

     10,778        11,665   

Depreciation and amortization

     948        1,293   

Restructuring and other charges

     —          5,440   
  

 

 

   

 

 

 

Total operating expenses

     31,181        42,028   
  

 

 

   

 

 

 

Operating income (loss)

     1,829        (4,259

Interest expense, net

     101        157   
  

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     1,728        (4,416

Provision (benefit) for income taxes

     (15     (280
  

 

 

   

 

 

 

Income (loss) from continuing operations

     1,743        (4,136

Loss from discontinued operations, net of tax

     —          (1,820
  

 

 

   

 

 

 

Net income (loss)

   $ 1,743      $ (5,956
  

 

 

   

 

 

 

Other comprehensive income (loss):

    

Change in fair value of interest rate swap

   $ 8      $ 54   

Change in postretirement obligation

     —          (63

Foreign currency translation adjustments

     334        (1,593
  

 

 

   

 

 

 

Comprehensive income (loss)

   $ 2,085      $ (7,558
  

 

 

   

 

 

 

Basic net income (loss) per share:

    

Continuing operations

   $ 0.03      $ (0.08

Discontinued operations

     —          (0.03
  

 

 

   

 

 

 
   $ 0.03      $ (0.11
  

 

 

   

 

 

 

Diluted net income (loss) per share:

    

Continuing operations

   $ 0.03      $ (0.08

Discontinued operations

     —          (0.03
  

 

 

   

 

 

 
   $ 0.03      $ (0.11
  

 

 

   

 

 

 

Weighted-average shares outstanding — basic

     55,952,534        55,026,885   
  

 

 

   

 

 

 

Weighted-average shares outstanding — diluted

     56,878,991        55,026,885   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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HARRIS INTERACTIVE INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     For the Three Months
Ended September 30,
 
     2012     2011  

Cash flows from operating activities:

    

Net income (loss)

   $ 1,743      $ (5,956

Adjustments to reconcile net income (loss) to net cash provided by operating activities —

    

Depreciation and amortization

     1,116        1,543   

Deferred taxes

     (8     (682

Stock-based compensation

     569        279   

Amortization of deferred financing costs

     28        17   

Loss on disposal of property, plant and equipment

     —          336   

Writeoff of Asian intangible assets

     —          438   

(Increase) decrease in assets —

    

Accounts receivable

     517        4,543   

Unbilled receivables

     (924     (423

Prepaid expenses and other current assets

     243        (456

Other assets

     (44     7   

(Decrease) increase in liabilities —

    

Accounts payable

     (432     (1,022

Accrued expenses

     (3,809     1,296   

Deferred revenue

     1,873        (1,726

Other long-term liabilities

     (566     1,981   
  

 

 

   

 

 

 

Net cash provided by operating activities

     306        175   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Capital expenditures

     (58     (19
  

 

 

   

 

 

 

Net cash used in investing activities

     (58     (19
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from employee stock purchases

     98        68   

Repayment of borrowings

     (1,199     (1,199

Repurchases of common stock

     (16     —     

Credit agreement amendment costs

     —          (86
  

 

 

   

 

 

 

Net cash used in financing activities

     (1,117     (1,217
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     36        (791
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (833     (1,852

Cash and cash equivalents at beginning of period

     11,456        14,224   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 10,623      $ 12,372   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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HARRIS INTERACTIVE INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

1. Financial Statements

The unaudited consolidated financial statements included herein reflect, in the opinion of the management of Harris Interactive Inc. and its subsidiaries (collectively, the “Company”), all normal recurring adjustments necessary to fairly state the Company’s unaudited consolidated financial statements for the periods presented.

2. Basis of Presentation

Unaudited Consolidated Financial Statements

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The consolidated balance sheet as of June 30, 2012 has been derived from the audited consolidated financial statements of the Company.

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2012, filed by the Company with the Securities and Exchange Commission (“SEC”) on September 25, 2012.

Future Liquidity Considerations

At September 30, 2012, the Company had cash and cash equivalents of $10,623, compared with $11,456 at June 30, 2012. Available sources of cash to support known or reasonably likely cash requirements over the next 12 months include cash and cash equivalents on hand, additional cash that may be generated from the Company’s operations, and funds to the extent available through its credit facilities discussed in Note 8, “Borrowings”. While the Company believes that its available sources of cash, including funds available through its revolving line that are subject to certain requirements, including minimum cash balances, will support known or reasonably likely cash requirements over the next 12 months, including quarterly principal payments of $1,199 and interest payments due under the Company’s credit agreement, the Company’s ability to generate cash from its operations is dependent upon its ability to profitably generate revenue, which requires that it continually develops new business, both for growth and to replace completed projects. Although work for no one client constitutes more than 10% of revenue, the Company has had to find significant amounts of replacement and additional revenue as client relationships and work for continuing clients change and will likely have to continue to do so in the future. The Company’s ability to profitably generate revenue depends not only on execution of its business plans, but also on general market factors outside of its control. As many of the Company’s clients treat all or a portion of their market research expenditures as discretionary, the Company’s ability to profitably generate revenue is adversely impacted whenever there are adverse macroeconomic conditions in the markets the Company serves.

3. Recent Accounting Pronouncements

Fair Value Measurements

Effective July 1, 2012, the Company adopted the Financial Accounting Standards Board (“FASB”) amended guidance to achieve common fair value measurement and disclosure requirements under GAAP. This amended guidance provides clarification about the application of existing fair value measurement and disclosure requirements, and expands certain other disclosure requirements. The adoption of this amended guidance on July 1, 2012 did not have a material impact on the Company’s consolidated financial statements.

 

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Presentation of Comprehensive Income

Effective July 1, 2012, the Company adopted the FASB amended guidance requiring an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This amended guidance eliminates the option to present the components of other comprehensive income as part of the statement of stockholders’ equity. In addition, this amended guidance requires retrospective application. In December 2011, the FASB issued additional guidance deferring the effective date of the June 2011 amended guidance related to the presentation of reclassification adjustments by component in both the statement where net income is presented and the statement where other comprehensive income is presented for further redeliberation. The adoption of this amended guidance on July 1, 2012 required changes in presentation only and did not have an impact on the Company’s consolidated financial statements.

4. Restructuring and Other Charges

Fiscal 2012

During the three months ended September 30, 2011, the Company took actions designed to re-align the cost structure of its U.S. and U.K. operations. Specifically, the Company:

 

   

Reduced headcount at its U.K. facilities by a total of 56 full-time employees and incurred $1,008 in one-time termination benefits, all of which involved cash payments. The reductions in staff were communicated to the affected employees in July 2011 and all actions were completed at that time. Related cash payments were completed in January 2012.

 

   

Reduced headcount at its U.S. facilities by a total of 23 full-time employees and incurred $389 in one-time termination benefits, all of which involved cash payments. The reductions in staff were communicated to the affected employees in July and August 2011 and all actions were completed at those respective times. Related cash payments were completed in February 2012.

 

   

Reduced its occupancy of leased office space at its Rochester, New York, Princeton, New Jersey, Brentford, United Kingdom, and Ottawa, Canada facilities. The Company incurred $4,084 in lease exit costs associated with the remaining lease obligations, all of which involve cash payments. All actions associated with the leased office space reductions were completed by September 2011, and all cash payments will be completed in June 2015.

The following table summarizes the restructuring charges recognized in the Company’s unaudited consolidated statements of operations for the three months ended September 30:

 

     2012      2011  

Termination benefits

   $ —         $ 1,397   

Lease commitments

     —           4,084   

Changes in estimate

     —           (41
  

 

 

    

 

 

 
   $ —         $ 5,440   
  

 

 

    

 

 

 

 

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The following table summarizes activity during the three months ended September 30, 2012 with respect to the Company’s remaining reserves for the restructuring activities described above and those undertaken in prior fiscal years:

 

     Balance,
July 1,
2012
     Costs
Incurred
     Changes in
Estimate
     Cash
Payments
    Non-Cash
Settlements
     Balance,
September 30,
2012
 

Termination benefits

   $ 298       $ —         $ —         $ (236   $ —         $ 62   

Lease commitments

     6,278         —           —           (612     —           5,666   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Remaining reserve

   $ 6,576       $ —         $ —         $ (848   $ —         $ 5,728   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

5. Discontinued Operations

The revenue from services and loss attributable to the Company’s Asian operations, which ceased in September 2011 and are reported in discontinued operations, were as follows for the three months ended September 30, 2011:

 

Revenue from services

   $ 493   

Loss from discontinued operations

     (1,820 )

The assets and liabilities of the discontinued operations were as follows:

 

     At
June 30,
2012
 

Cash and cash equivalents

   $ —     

Accounts receivable, net

     —     

Prepaid expenses and other current assets

     —     

Property, plant and equipment, net

     —     

Other intangibles, net

     —     

Other assets

     —     
  

 

 

 

Assets from discontinued operations

   $ —     

Accounts payable

   $ —     

Accrued expenses

     181   

Deferred revenue

     —     
  

 

 

 

Liabilities from discontinued operations

   $ 181   

There were no assets or liabilities of the discontinued operations at September 30, 2012.

6. Fair Value Measurements

The hierarchy for inputs used in measuring fair value for financial assets and liabilities is designed to maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels:

 

   

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

   

Level 2 inputs include data points that are observable such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) such as interest rates and yield curves that are observable for the asset and liability, either directly or indirectly.

 

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Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

The following table presents the fair value hierarchy for the Company’s financial liabilities measured at fair value on a recurring basis:

 

     Quoted
Prices in
Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Total  

At September 30, 2012

           

Financial liabilities:

           

Interest rate swap contract

   $ —         $ 121       $ —         $ 121   

At June 30, 2012

           

Financial liabilities:

           

Interest rate swap contract

   $ —         $ 174       $ —         $ 174   

The fair value of the Company’s interest rate swap was based on quotes from the respective counterparty, which the Company corroborated using discounted cash flow calculations based upon forward interest-rate yield curves obtained from independent pricing services.

7. Acquired Intangible Assets Subject to Amortization

At September 30, 2012 and June 30, 2012, acquired intangible assets subject to amortization consisted of the following:

 

            September 30, 2012         
     Weighted-
Average
Useful
Amortization
Period (in
years)
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Book
Value
 

Contract-based intangibles

     3       $ 1,768       $ 1,768       $ —     

Internet respondent database

     7         3,125         2,981         144   

Customer relationships

     10         21,305         13,767         7,538   

Trade names

     16         5,262         2,624         2,638   
     

 

 

    

 

 

    

 

 

 

Total

      $ 31,460       $ 21,140       $ 10,320   
     

 

 

    

 

 

    

 

 

 
            June 30, 2012         
     Weighted-
Average

Amortization
Period

(In Years)
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Book
Value
 

Contract-based intangibles

     3       $ 1,768       $ 1,768       $ —     

Internet respondent database

     7         3,080         2,861         219   

Customer relationships

     10         20,849         12,974         7,875   

Trade names

     16         5,250         2,549         2,701   
     

 

 

    

 

 

    

 

 

 

Total

      $ 30,947       $ 20,152       $ 10,795   
     

 

 

    

 

 

    

 

 

 

The gross carrying amount and accumulated amortization of the Company’s acquired intangible assets for the three months ended September 30, 2012, as well as the related amortization expense, reflect the impact of foreign currency exchange rate fluctuations during the period.

 

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     For the Three
Months Ended
September 30,
 
     2012      2011  

Amortization expense

   $ 685       $ 708   
  

 

 

    

 

 

 

Estimated amortization expense for the fiscal years ending June 30:

 

2013

   $ 2,554   
  

 

 

 

2014

   $ 2,204   
  

 

 

 

2015

   $ 1,625   
  

 

 

 

2016

   $ 1,501   
  

 

 

 

2017

   $ 1,457   
  

 

 

 

2018

   $ 305   
  

 

 

 

Thereafter

   $ 1,359   
  

 

 

 

8. Borrowings

Outstanding Debt

There were no material changes to the Company’s credit facilities under its credit agreement during the three months ended September 30, 2012 from those disclosed in Note 11, “Borrowings,” to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

At September 30, 2012, the required principal repayments of the term loan under the Company’s credit agreement for the remainder of fiscal 2013 and the succeeding fiscal year are as follows:

 

     Total  

2013

   $ 3,595   

2014

     1,199   
  

 

 

 
   $ 4,794   
  

 

 

 

At September 30, 2012, the Company was in compliance with all of the covenants under its credit agreement, had no outstanding borrowings under its revolving line of credit, and had $351 in outstanding letters of credit. The outstanding letters of credit reduce the remaining undrawn portion of the revolving line of credit that is available for future borrowings.

Interest Rate Swap

The Company has one interest rate swap contract, the term of which ends on September 30, 2013. The interest rate swap fixed the floating LIBOR interest portion of the rate on the term loan outstanding under the Company’s credit agreement at 4.32%.

At September 30 and June 30, 2012, the Company had liabilities of $121 and $174, respectively, in the “Other liabilities” line item of its consolidated balance sheet to reflect the fair value of the interest rate swap. Changes in the fair value of the interest rate swap are recorded through interest expense on a quarterly basis. Such changes amounted to $53 and $101, respectively, for the three months ended September 30, 2012 and 2011.

9. Stock-Based Compensation

The following table illustrates the stock-based compensation expense for stock options and restricted stock issued under the Company’s Long-Term Incentive Plans (the “Incentive Plans”), stock options issued to new employees outside the Incentive Plans, and shares issued under the Company’s Employee Stock Purchase Plans (“ESPPs”) included in the Company’s unaudited consolidated statements of comprehensive income for the three months ended September 30:

 

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     Three Months Ended
September 30,
 
     2012      2011  

Cost of services

   $ 10       $ 5   

Selling, general and administrative

     559         274   
  

 

 

    

 

 

 
   $ 569       $ 279   
  

 

 

    

 

 

 

The Company did not capitalize stock-based compensation expense as part of the cost of an asset for any periods presented.

The following table provides a summary of the status of the Company’s employee and director stock options (including options issued under the Incentive Plans and options issued outside the Incentive Plans to new employees) for the three months ended September 30, 2012:

 

     Shares     Weighted-
Average
Exercise
Price
 

Options outstanding at July 1

     5,218,927      $ 1.54   

Granted

     —          —     

Forfeited

     (89,263     2.24   

Exercised

     (63,917     0.57   
  

 

 

   

Options outstanding at September 30

     5,065,747        1.54   
  

 

 

   

The following table provides a summary of the status of the Company’s employee and director restricted stock awards for the three months ended September 30, 2012:

 

     Shares     Weighted-
Average
Fair Value at
Date of Grant
 

Restricted shares outstanding at July 1

     1,466,032      $ 1.09   

Granted

     515,391        1.45   

Forfeited

     —          —     

Vested

     (53,414     0.98   
  

 

 

   

Restricted shares outstanding at September 30

     1,928,009        1.21   
  

 

 

   

At September 30, 2012, there was $3,127 of total unrecognized stock-based compensation expense related to non-vested stock-based compensation arrangements granted under the Incentive Plans and under the ESPPs. That expense is expected to be recognized over a weighted-average period of 1.7 years.

10. Income Taxes

The Company recorded an income tax benefit in continuing operations of $15 for the three months ended September 30, 2012, compared with an income tax benefit of $280 for the same prior year period. The tax benefit for both periods was comprised primarily of tax benefits related to pre-tax losses in certain of the Company’s international jurisdictions.

A full valuation allowance continues to be recorded at September 30, 2012 against the Company’s U.S. and U.K. net deferred tax assets. The Company will continue to assess the realizability of its deferred tax assets and will adjust the valuation allowances should all or a portion of the deferred tax assets become realizable in the future.

 

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11. Share Repurchase Program

Under the share repurchase program (the “Repurchase Program”) authorized by the Board on March 6, 2012, the Company repurchased 14,300 shares of its common stock at an average price per share of $1.09 for an aggregate purchase price of $16 during the three months ended September 30, 2012. All shares repurchased were subsequently retired.

At September 30, 2012, the Repurchase Program had $2,914 in remaining capacity.

12. Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period. Diluted net income (loss) per share reflects the potential dilution of such securities that could share in earnings. When the impact of stock options or other stock-based compensation is anti-dilutive, they are excluded from the calculation.

The following table sets forth the reconciliation of the basic and diluted net income (loss) per share computations for the three months ended September 30:

 

     Three Months Ended
September 30,
 
     2012      2011  

Numerator:

     

Net income (loss) used for calculating basic and diluted net income (loss) per share of common stock

   $ 1,743       $ (5,956
  

 

 

    

 

 

 

Denominator:

     

Weighted average number of shares of common stock used in the calculation of basic net income (loss) per share

     55,952,534         55,026,885   

Dilutive effect of outstanding stock options and restricted stock

     926,457         —     
  

 

 

    

 

 

 

Shares of common stock used in the calculation of diluted net income (loss) per share

     56,878,991         55,026,885   
  

 

 

    

 

 

 

Net income (loss) per share:

     

Basic

   $ 0.03       $ (0.11
  

 

 

    

 

 

 

Diluted

   $ 0.03       $ (0.11
  

 

 

    

 

 

 

Unvested restricted stock and unexercised stock options to purchase 770,314 and 6,289,310 shares of the Company’s common stock for the three months ended September 30, 2012 and 2011, respectively, at weighted-average prices per share of $5.94 and $1.51, respectively, were not included in the computations of diluted net income (loss) per share because their impact was anti-dilutive during the respective periods.

13. Enterprise-Wide Disclosures

The Company is comprised principally of operations in North America and Europe. Non-U.S. market research is comprised of operations in United Kingdom, Canada, France and Germany. The Company’s operations in Asia ceased as of September 30, 2011. There were no intercompany transactions that materially affected the financial statements, and all intercompany sales have been eliminated upon consolidation.

The Company’s business model for offering market research is consistent across the geographic regions in which it operates. Geographic management facilitates local execution of the Company’s global strategies. The Company maintains global leaders with responsibility across all geographic regions for the majority of its critical business processes, and the most significant performance evaluations and resource allocations made by the Company’s chief operating decision-maker are made on a global basis. Accordingly, the Company has concluded that it has one reportable segment.

 

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The Company has prepared the financial results for geographic information on a basis that is consistent with the manner in which management internally disaggregates information to assist in making internal operating decisions. The Company has allocated common expenses among these geographic regions differently than it would for stand-alone information prepared in accordance with GAAP. Geographic operating income (loss) may not be consistent with measures used by other companies.

Geographic information for the periods presented herein is as follows:

 

     Three Months Ended
September 30,
 
     2012     2011  

Revenue from services

    

United States

   $ 20,423      $ 23,078   

Canada

     4,909        5,741   

United Kingdom

     2,713        3,802   

France

     2,961        3,094   

Germany

     2,004        2,054   
  

 

 

   

 

 

 

Total revenue from services

   $ 33,010      $ 37,769   
  

 

 

   

 

 

 

Operating income (loss)

    

United States

   $ 1,852      $ (1,392

Canada

     (123     (491

United Kingdom

     40        (2,682

France

     (42     99   

Germany

     102        207   
  

 

 

   

 

 

 

Total operating income (loss)

   $ 1,829      $ (4,259
  

 

 

   

 

 

 

 

     At
September 30,

2012
    At
June 30,

2012
 

Long-lived assets

    

United States

   $ 822      $ 909   

Canada

     236        276   

United Kingdom

     435        459   

France

     723        742   

Germany

     116        114   
  

 

 

   

 

 

 

Total long-lived assets

   $ 2,332      $ 2,500   
  

 

 

   

 

 

 

Deferred tax assets (liabilities)

    

United States

   $ —        $ —     

Canada

     (1,472     (1,458

United Kingdom

     —          —     

France

     (33     (51

Germany

     64        56   
  

 

 

   

 

 

 

Total deferred tax liabilities

   $ (1,441   $ (1,453
  

 

 

   

 

 

 

14. Commitments and Contingencies

The Company has several non-cancelable operating leases for office space and equipment. There were no material changes to the financial obligations for such leases during the three months ended September 30, 2012 from those disclosed in Note 18, “Commitments and Contingencies,” to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

 

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15. Legal Proceedings

In the normal course of business, the Company is at times subject to pending and threatened legal actions and proceedings. After reviewing any pending and threatened actions and proceedings with legal counsel, management does not expect the outcome of such actions or proceedings to have a material adverse effect on the Company’s business, financial condition or results of operations.

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion in this Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding expectations, beliefs, plans, objectives, intentions or strategies regarding the future. In some cases, you can identify forward-looking statements by terminology such as, “may”, “should”, “expects”, “plans”, “anticipates”, “feel”, “believes”, “estimates”, “predicts”, “potential”, “continue”, “consider”, “possibility”, or the negative of these terms or other comparable terminology . All forward-looking statements included in this document are based on the information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statement. Actual results could differ materially from the results discussed herein. Factors that might cause or contribute to such differences include but are not limited to, those discussed in the Risk Factors section set forth in reports or documents the Company files from time to time with the Securities and Exchange Commission (“SEC”), such as its Annual Report on Form 10-K for the fiscal year ended June 30, 2012, filed by the Company with the SEC on September 25, 2012. Risks and uncertainties also include quarterly variations in financial results, actions of competitors, and the Company’s ability to sustain and grow its revenue base, maintain and improve cost efficient operations, develop and maintain products and services attractive to the market, maintain compliance with financial covenants under its credit agreement, obtain additional cash resources should it be necessary to do so, and maintain compliance with certain Nasdaq listing requirements.

Note: Amounts shown below are in thousands of U.S. Dollars for our continuing operations, unless otherwise noted. Also, references herein to “we”, “our”, “us”, “its”, the “Company” or “Harris Interactive” refer to Harris Interactive Inc. and its subsidiaries, unless the context specifically requires otherwise.

Overview

Harris Interactive is a leading global market research firm that uses web-based, telephone and other research methodologies to provide clients with information about the views, behaviors and attitudes of people worldwide.

For the three months ended September 30, 2012:

 

   

Revenue from services was $33,010, down 12.6% from the same prior year period. Excluding foreign exchange rate differences, revenue was down 10.6% from last fiscal year’s first quarter. The decrease was driven by declines in the U.S., U.K. and Canada as a result of bookings declines in those operations throughout fiscal 2012.

 

   

Bookings were up 4.1% compared with the same prior year period, excluding foreign exchange rate differences. The increase was driven mainly by increased bookings in Germany and Canada.

 

   

Operating income was $1,829, compared with an operating loss of $4,259 for the same prior year period. Operating loss for the three months ended September 30, 2011 included $5,440 in restructuring and other charges, compared with no such charges for the three months ended September 30, 2012.

 

   

We had $10,623 in cash at September 30, 2012, down from $11,456 at June 30, 2012.

 

   

Our outstanding debt at September 30, 2012 was $4,794, down from $5,993 at June 30, 2012 as a result of a quarterly principal payment made during the first quarter of fiscal 2013.

 

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Significant Events

Restructuring and Other Charges

Fiscal 2012

During the three months ended September 30, 2011, we took actions designed to re-align the cost structure of our U.S. and U.K. operations. Specifically, we:

 

   

Reduced headcount at our U.K. facilities by a total of 56 full-time employees and incurred $1,008 in one-time termination benefits, all of which involved cash payments. The reductions in staff were communicated to the affected employees in July 2011 and all actions were completed at that time. Related cash payments were completed in January 2012.

 

   

Reduced headcount at our U.S. facilities by a total of 23 full-time employees and incurred $389 in one-time termination benefits, all of which involved cash payments. The reductions in staff were communicated to the affected employees in July and August 2011 and all actions were completed at those respective times. Related cash payments were completed in February 2012.

 

   

Reduced our occupancy of leased office space at our Rochester, New York, Princeton, New Jersey, Brentford, United Kingdom, and Ottawa, Canada facilities. We incurred $4,084 in lease exit costs associated with the remaining lease obligations, all of which involve cash payments. All actions associated with the leased office space reductions were completed by September 2011, and all cash payments will be completed in June 2020.

The following table summarizes the restructuring charges recognized in our unaudited consolidated statements of comprehensive income for the three months ended September 30:

 

     2012      2011  

Termination benefits

   $ —         $ 1,397   

Lease commitments

     —           4,084   

Changes in estimate

     —           (41
  

 

 

    

 

 

 
   $ —         $ 5,440   
  

 

 

    

 

 

 

The following table summarizes activity during the three months ended September 30, 2012 with respect to our remaining reserves for the restructuring activities described above and those undertaken in prior fiscal years:

 

     Balance,
July 1,
2012
     Costs
Incurred
     Changes in
Estimate
     Cash
Payments
    Non-Cash
Settlements
     Balance,
September 30,
2012
 

Termination benefits

   $ 298       $ —         $ —         $ (236   $ —         $ 62   

Lease commitments

     6,278         —           —           (612     —           5,666   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Remaining reserve

   $ 6,576       $ —         $ —         $ (848   $ —         $ 5,728   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

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Discontinued Operations

The revenue from services and loss attributable to our Asian operations, which ceased in September 2011 and are reported in discontinued operations, were as follows for the three months ended September 30, 2011:

 

Revenue from services

   $ 493   

Loss from discontinued operations

     (1,820 )

The assets and liabilities of the discontinued operations were as follows:

 

     At
June 30,
2012
 

Cash and cash equivalents

   $ —     

Accounts receivable, net

     —     

Prepaid expenses and other current assets

     —     

Property, plant and equipment, net

     —     

Other intangibles, net

     —     

Other assets

     —     
  

 

 

 

Assets from discontinued operations

   $ —     

Accounts payable

   $ —     

Accrued expenses

     181   

Deferred revenue

     —     
  

 

 

 

Liabilities from discontinued operations

   $ 181   

There were no assets or liabilities of the discontinued operations at September 30, 2012.

Critical Accounting Policies and Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein. The most significant of these areas involving difficult or complex judgments made by management with respect to the preparation of our consolidated financial statements in fiscal 2013 include:

 

   

Revenue recognition,

 

   

Impairment of other intangible assets,

 

   

Income taxes,

 

   

Stock-based compensation,

 

   

HIpoints loyalty program, and

 

   

Contingencies and other accruals.

In each situation, management is required to make estimates about the effects of matters or future events that are inherently uncertain.

During the three months ended September 30, 2012, there were no changes to the items that we disclosed as our critical accounting policies and estimates in management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, filed by us with the SEC on September 25, 2012.

 

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Results of Operations

Three Months Ended September 30, 2012 Versus Three Months Ended September 30, 2011

The following table sets forth the results of our operations, expressed both as a dollar amount and as a percentage of revenue from services, for the three months ended September 30, 2012 and 2011, respectively:

 

     2012     %     2011     %  

Revenue from services

   $ 33,010        100.0   $ 37,769        100.0

Operating expenses:

        

Cost of services

     19,455        58.9        23,630        62.6   

Selling, general and administrative

     10,778        32.7        11,665        30.9   

Depreciation and amortization

     948        2.9        1,293        3.4   

Restructuring and other charges

     —          —          5,440        14.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     1,829        5.5        (4,259     (11.3

Interest expense, net

     101        0.3        157        0.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before taxes

     1,728        5.2        (4,416     (11.7

Provision (benefit) for income taxes

     (15     (0.0     (280     (0.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     1,743        5.2        (4,136     (11.0

Loss from discontinued operations, net of tax

     —          —          (1,820     (4.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 1,743        5.2      $ (5,956     (15.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue from services. Revenue from services decreased by $4,759, or 12.6%, to $33,010 for the three months ended September 30, 2012 compared with the same prior year period. Excluding foreign currency exchange rate differences, revenue from services decreased by 10.6% compared with the same prior year period. As more fully described below, revenue from services was impacted by several factors.

North American revenue decreased by $3,487 to $25,332 for the three months ended September 30, 2012 compared with the same prior year period, a decrease of 12.1%. By country, North American revenue for the three months ended September 30, 2012 was comprised of:

 

   

Revenue from U.S. operations of $20,423, down 11.5% compared with $23,078 for the same prior year period. The decrease was primarily due to the continued revenue impact from bookings declines in our U.S. operations throughout fiscal 2012.

 

   

Revenue from Canadian operations of $4,909, down 14.5% compared with $5,741 for the same prior year period. In local currency (Canadian Dollar), Canadian revenue decreased by 13.1% compared with the same prior year period. The decrease was primarily due to the revenue impact from bookings declines in our Canadian operations throughout fiscal 2012.

European revenue decreased by $1,272 to $7,678 for the three months ended September 30, 2012 compared with the same prior year period, a decrease of 14.2%. By country, European revenue for the three months ended September 30, 2012 was comprised of:

 

   

Revenue from U.K. operations of $2,713, down 28.6% compared with $3,802 for the same prior year period. In local currency (British Pound), U.K. revenue decreased by 27.0% compared with the same prior year period. The decrease was primarily due to the expected impact of our U.K. restructuring actions during the first three months of fiscal 2012, discussed above under “Restructuring and Other Charges”, which were designed to scale back our U.K. business to focus on core markets and key solutions areas.

 

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Revenue from French operations of $2,961, down 4.3% compared with $3,094 for the same prior year period. In local currency (Euro), French revenue increased by 7.4% compared with the same prior year period. The increase was primarily due to the revenue impact from bookings increases in our French operations during the first three months of fiscal 2013.

 

   

Revenue from German operations of $2,004, down 2.5% compared with $2,054 for the same prior year period. In local currency (Euro), German revenue increased by 9.6% compared with the same prior year period. The increase was primarily due to the revenue impact from bookings increases in our German operations during the first three months of fiscal 2013.

Cost of services. Cost of services was $19,455 or 58.9% of total revenue for the three months ended September 30, 2012, compared with $23,630 or 62.6% of total revenue for the same prior year period. Cost of services for the three months ended September 30, 2012 was principally impacted by direct labor savings derived from the restructuring actions discussed above under “Restructuring and Other Charges” and our more selective approach to accepting work based on expected project profitability.

Selling, general and administrative. Selling, general and administrative expense for the three months ended September 30, 2012 was $10,778 or 32.7% of total revenue, compared with $11,665 or 30.9% of total revenue for the same prior year period. Selling, general and administrative expense was principally impacted by the following:

 

   

a $745 decrease in payroll-related expense, mainly due to headcount reductions made throughout fiscal 2012, and

 

   

a $424 decrease in rent expense, mainly due to space reductions made throughout fiscal 2012.

Depreciation and amortization. Depreciation and amortization was $948 or 2.9% of total revenue for the three months ended September 30, 2012, compared with $1,293 or 3.4% of total revenue for the same prior year period. The decrease in depreciation and amortization expense for the three months ended September 30, 2012 when compared with the same prior year period is the result of fixed and intangible assets that became fully depreciated or amortized during fiscal 2012 combined with decreased capital spending as part of our overall focus on controlling costs.

Restructuring and other charges. See above under “Restructuring and Other Charges” for a discussion regarding restructuring and other charges for the three months ended September 30, 2011. There were no restructuring or other charges for the three months ended September 30, 2012.

Interest expense, net. Net interest expense was $101 or less than 1% of total revenue for the three months ended September 30, 2012, compared with $157 or less than 1% of total revenue for the same prior year period. Interest expense for the three months ended September 30, 2012 reflects the impact of the decline in our outstanding debt as we continue to make required principal payments.

Income taxes. We recorded an income tax benefit in continuing operations of $15 for the three months ended September 30, 2012, compared with an income tax benefit of $280 for the same prior year period. The tax benefit for both periods was comprised primarily of tax benefits related to pre-tax losses in certain of our international jurisdictions.

A full valuation allowance continues to be recorded at September 30, 2012 against our U.S. and U.K. net deferred tax assets. We will continue to assess the realizability of our deferred tax assets and will adjust the valuation allowances should all or a portion of the deferred tax assets become realizable in the future.

 

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Significant Factors Affecting our Performance

Key Operating Metrics

We closely track certain key operating metrics, specifically bookings and secured revenue. These key operating metrics enable us to measure the current and forecasted performance of our business relative to historical trends.

Key operating metrics for continuing operations for the three months ended September 30, 2012 and the four preceding fiscal quarters were as follows (U.S. Dollar amounts in millions):

 

     Q1
FY2012
     Q2
FY2012
     Q3
FY2012
     Q4
FY2012
     Q1
FY2013
 

Bookings

   $ 32.1       $ 45.2       $ 39.5       $ 28.5       $ 33.9   

Secured revenue

   $ 39.0       $ 45.1       $ 50.5       $ 42.5       $ 43.4   

Additional information regarding each of the key operating metrics noted above is as follows:

Bookings are defined as the contract value of revenue-generating projects that are anticipated to take place during the next four fiscal quarters for which a firm client commitment was received during the current period, less any adjustments to prior period bookings due to contract value adjustments or project cancellations during the current period.

Monitoring bookings enhances our ability to forecast long-term revenue and to measure the effectiveness of our marketing and sales initiatives. However, we also are mindful that bookings often vary significantly from quarter to quarter. Information concerning our new bookings is not comparable to, nor should it be substituted for, an analysis of our revenue over time. There are no third-party standards or requirements governing the calculation of bookings. New bookings involve estimates and judgments regarding new contracts and renewals, as well as extensions and additions to existing contracts. Subsequent cancellations, suspensions and other matters may affect the amount of bookings previously reported.

Bookings for the three months ended September 30, 2012 were $33.9 million, an increase of 5.6% compared with $32.1 million for the same prior year period. Excluding foreign exchange rate differences, bookings were up 4.1% over the same prior year period. Bookings in local currency compared with the same prior year period were principally impacted by the following:

 

   

a 2.0% decrease in U.S. bookings, mainly as a result of our more selective approach to accepting work based on expected project profitability,

 

   

a 2.0% increase in Canadian bookings, mainly as a result of timing differences,

 

   

a 1.1% increase in U.K. bookings, mainly as a result of the stabilization of our U.K. business during fiscal 2012,

 

   

a 9.9% increase in French bookings, mainly as a result of timing differences, and

 

   

a 93.5% increase in German bookings, mainly as a result of continued success in winning work at new and existing clients.

Secured Revenue (formerly referred to as ending sales backlog) is defined as prior period secured revenue plus current period bookings, less revenue recognized on outstanding projects as of the end of the period.

Secured revenue helps us manage our future staffing levels more accurately and is also an indicator of the effectiveness of our marketing and sales initiatives. Based on our experience, projects included in secured revenue at the end of a fiscal period generally convert to revenue from services during the following twelve months.

Secured revenue for the three months ended September 30, 2012 was $43.4 million, an increase of 11.2% compared with $39.0 million for the same prior year period. Foreign exchange rate differences had an inconsequential impact on

 

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secured revenue when compared with the same prior year period. The increase is primarily due to increased bookings and timing differences compared with the same prior year period.

Financial Condition, Liquidity and Capital Resources

Cash and Cash Equivalents

The following table sets forth net cash provided by operating activities, net cash used in investing activities, and net cash used in financing activities, for the three months ended September 30:

 

     2012     2011  

Net cash provided by operating activities

   $ 306      $ 175   

Net cash used in investing activities

     (58     (19

Net cash used in financing activities

     (1,117     (1,217

Net cash provided by operating activities. Net cash provided by operating activities was $306 for the three months ended September 30, 2012, compared with $175 provided by operating activities for the same prior year period. The increase was primarily due to our net income for the three months ended September 30, 2012, offset by working capital timing differences compared with the same prior year period.

Net cash used in investing activities. Net cash used in investing activities was $58 for the three months ended September 30, 2012, compared with $19 for the same prior year period. Investing activities for the three months ended September 30, 2012 and 2011 consisted solely of capital expenditures.

Net cash used in financing activities. Net cash used in financing activities was $1,117 for the three months ended September 30, 2012, compared with $1,217 for the same prior year period. The primary use of cash during both periods was to make required principal payments on our outstanding debt.

Working Capital

At September 30, 2012, we had cash and cash equivalents of $10,623 compared with $11,456 at June 30, 2012. Available sources of cash to support known or reasonably likely cash requirements over the next 12 months include cash, cash equivalents and marketable securities on hand, additional cash that may be generated from our operations, and funds to the extent available through our credit facilities discussed below. While we believe that our available sources of cash, including funds available through our revolving line that are subject to certain minimum cash balance requirements, will support known or reasonably likely cash requirements over the next 12 months, including quarterly principal payments of $1,199 and interest payments due under our credit agreement, our ability to generate cash from our operations is dependent upon our ability to profitably generate revenue, which requires that we continually develop profitable new business, both for growth and to replace completed projects. Although work for no one client constitutes more than 10% of our revenue, we have had to find significant amounts of replacement and additional revenue as client relationships and work for continuing clients change and will likely have to continue to do so in the future. Our ability to profitably generate revenue depends not only on execution of our business plans, but also on general market factors outside of our control. As many of our clients treat all or a portion of their market research expenditures as discretionary, our ability to profitably generate revenue is adversely impacted whenever there are adverse macroeconomic conditions in the markets we serve.

Our capital requirements depend on numerous factors, including but not limited to, market acceptance of our products and services, the resources we allocate to the continuing development of new products and services, our technology infrastructure and online panel, and the marketing and selling of our products and services. We are able to control or defer certain capital and other expenditures in order to help preserve cash if necessary. We expect to incur capital expenditures of between $1,000 and $1,500 during the fiscal year ending June 30, 2013.

 

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Credit Facilities

The required principal repayments under our credit agreement for the remainder of fiscal 2013 and the succeeding fiscal year are set forth in Note 8, “Borrowings”, to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q. At September 30, 2012, we were in compliance with all of the covenants under our credit agreement, had no outstanding borrowings under our revolving line of credit, and had $351 in outstanding letters of credit. The letters of credit reduce the remaining undrawn portion of the revolving line of credit that is available for future borrowings.

Interest Rate Swap

The principal terms of our interest rate swap are described in Note 8, “Borrowings”, to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements and Contractual Obligations

At September 30, 2012, we did not have any transaction, agreement, or other contractual arrangement constituting an “off-balance sheet arrangement” as defined in Item 303(a)(4) of Regulation S-K.

There have been no material changes outside the ordinary course of business during the three months ended September 30, 2012 to our contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, filed by us with the SEC on September 25, 2012.

Recent Accounting Pronouncements

See Note 3, “Recent Accounting Pronouncements”, to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q for a discussion of the impact of recently issued accounting pronouncements on our unaudited consolidated financial statements at September 30, 2012 and for the three months then ended, as well as the expected impact on our consolidated financial statements for future periods.

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

We have two kinds of market risk exposures, interest rate exposure and foreign currency exposure. We have no market risk sensitive instruments entered into for trading purposes.

In light of current economic conditions, we reviewed the cash equivalents and marketable securities held by us. We do not believe that our holdings have a material liquidity risk under current market conditions.

Interest Rate Exposure

At September 30, 2012, we had outstanding debt under our credit facilities of $4,794. The debt matures September 30, 2013 and bears interest at the floating adjusted LIBOR plus an applicable margin. Our interest rate swap fixes the floating adjusted LIBOR portion of the interest rate at 4.32% through September 30, 2013.

Foreign Currency Exposure

As a result of operating in foreign markets, our financial results could be affected by significant changes in foreign currency exchange rates. We have international sales and operations in North America and Europe. Therefore, we are subject to foreign currency rate exposure. Non-U.S. transactions are denominated in the functional currencies of the respective countries in which our foreign subsidiaries reside. Our consolidated assets and liabilities are translated into U.S. Dollars at the applicable exchange rates in effect as of the balance sheet date. Consolidated income and expense items are translated into U.S. Dollars at the average exchange rates for each period presented. Accumulated net translation adjustments are recorded in the accumulated other comprehensive income component of stockholders’ equity. We measure our risk related to foreign currency rate exposure on two levels, the first being the impact of operating results

 

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on the consolidation of foreign subsidiaries that are denominated in the functional currencies of their home countries, and the second being the extent to which we have instruments denominated in foreign currencies.

Foreign exchange translation gains and losses are included in our results of operations since we consolidate the results of our international operations, which are denominated in each country’s functional currency, with our U.S. results. The impact of translation gains or losses on net income from consolidating foreign subsidiaries was not material for the periods presented. We have historically had low exposure to changes in foreign currency exchange rates upon consolidating the results of our foreign subsidiaries with our U.S. results due to the size of our foreign operations in comparison to our consolidated operations. However, if the operating profits of our international operations increase as a percentage of our consolidated operations, our exposure to the appreciation or depreciation in the U.S. Dollar could have a more significant impact on our net income and cash flows. Thus, we evaluate our exposure to foreign currency fluctuation risk on an ongoing basis.

Since our foreign operations are conducted using foreign currencies, we bear additional risk of fluctuations in exchange rates because of instruments denominated in foreign currencies. We have historically had low exposure to changes in foreign currency exchange rates with regard to instruments denominated in foreign currencies, given the amount and short-term nature of the maturity of these instruments. The carrying values of financial instruments denominated in foreign currencies, including cash, cash equivalents, accounts receivable and accounts payable, approximate fair value because of the short-term nature of the maturity of these instruments.

We performed a sensitivity analysis at September 30, 2012. Holding all other variables constant, we have determined that the impact of a near-term 10% appreciation or depreciation of the U.S. Dollar would have an insignificant effect on our financial condition, results of operations and cash flows.

Item 4 — Controls and Procedures

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended). Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of September 30, 2012 (the end of the period covered by this Quarterly Report on Form 10-Q) were effective. Further, there have been no changes in our internal control over financial reporting identified in connection with management’s evaluation thereof during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: Other Information

Item 1 — Legal Proceedings

In the normal course of business, we are at times subject to pending and threatened legal actions and proceedings. After reviewing with legal counsel any pending and threatened actions and proceedings, management does not expect the outcome of such actions or proceedings to have a material adverse effect on our business, financial condition or results of operations.

Item 1A — Risk Factors

There are no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, filed by us with the SEC on September 25, 2012.

 

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Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

The following table shows our repurchases of our equity securities for the three months ended September 30, 2012:

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period

   Total Number
of Shares
Purchased
     Average Price
Paid
per Share
     Total Number
of Shares
Purchased as
Part of Publicly

Announced
Program
     Approximate
Dollar Value of
Shares That
May Yet Be
Purchased
Under the
Program
 

July 1, 2012 through July 31, 2012

     12,700       $ 1.10         12,700       $ 2,916   

August 1, 2012 through August 31, 2012

     1,600         1.07         1,600         2,914   

September 1, 2012 through September 30, 2012

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     14,300       $ 1.09         14,300       $ 2,914   
  

 

 

    

 

 

    

 

 

    

 

 

 

Item 3 — Defaults Upon Senior Securities

None.

Item 4 — Mine Safety Disclosures

None.

Item 5 — Other Information

None.

Item 6 — Exhibits

 

31.1    Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certificate of the Chief Executive Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
32.2    Certificate of the Chief Financial Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002).

 

* Denotes management contract or arrangement

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

November 14, 2012    Harris Interactive Inc.
   By:   

/s/ Eric W. Narowski

      Eric W. Narowski
      Chief Financial Officer
      (On Behalf of the Registrant and as
      Principal Financial and Accounting Officer)

 

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Table of Contents

Exhibit Index

 

31.1    Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certificate of the Chief Executive Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
32.2    Certificate of the Chief Financial Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002).

 

* Denotes management contract or arrangement

 

25

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Ticker: HPOL
CIK: 1094238
Form Type: 10-Q Quarterly Report
Accession Number: 0001193125-12-470600
Submitted to the SEC: Wed Nov 14 2012 4:08:51 PM EST
Accepted by the SEC: Wed Nov 14 2012
Period: Sunday, September 30, 2012
Industry: Management Consulting Services

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