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

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

FOR THE QUARTER ENDED SEPTEMBER 30, 2012

OR

FOR THE TRANSITION PERIOD FROM             TO            

COMMISSION FILE NUMBER: 000-27577

HARRIS INTERACTIVE INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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.

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.

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HARRIS INTERACTIVE INC.

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2012

INDEX

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Part I: Financial Information

Item 1 — Financial Statements

HARRIS INTERACTIVE INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

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)

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)

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:

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

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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:

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:

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

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:

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

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:

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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Estimated amortization expense for the fiscal years ending June 30:

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:

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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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:

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:

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:

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:

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:

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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:

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

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:

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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:

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