Attached files
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EXCEL - IDEA: XBRL DOCUMENT - HARRIS INTERACTIVE INC | Financial_Report.xls |
EX-32.1 - EX-32.1 - HARRIS INTERACTIVE INC | d463774dex321.htm |
EX-31.2 - EX-31.2 - HARRIS INTERACTIVE INC | d463774dex312.htm |
EX-31.1 - EX-31.1 - HARRIS INTERACTIVE INC | d463774dex311.htm |
EX-32.2 - EX-32.2 - HARRIS INTERACTIVE INC | d463774dex322.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTER ENDED DECEMBER 31, 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
HARRIS INTERACTIVE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE | 16-1538028 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
60 Corporate Woods
Rochester, New York 14623
(Address of principal executive offices)
(585) 272-8400
(Registrants 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 þ 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 þ 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 | þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
On February 11, 2013, 57,786,476 shares of the Registrants Common Stock, $.001 par value, were outstanding.
Table of Contents
HARRIS INTERACTIVE INC.
FORM 10-Q
QUARTER ENDED DECEMBER 31, 2012
2
Table of Contents
HARRIS INTERACTIVE INC.
(In thousands, except share and per share amounts)
(Unaudited)
December 31, 2012 |
June 30, 2012 |
|||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 11,085 | $ | 11,456 | ||||
Accounts receivable, net |
27,234 | 19,940 | ||||||
Unbilled receivables |
6,512 | 7,513 | ||||||
Prepaid expenses and other current assets |
3,663 | 3,859 | ||||||
Deferred tax assets |
156 | 243 | ||||||
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|
|
|
|||||
Total current assets |
48,650 | 43,011 | ||||||
Property, plant and equipment, net |
2,335 | 2,500 | ||||||
Other intangibles, net |
9,551 | 10,795 | ||||||
Other assets |
1,131 | 1,080 | ||||||
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Total assets |
$ | 61,667 | $ | 57,386 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 9,122 | $ | 7,628 | ||||
Accrued expenses |
17,343 | 21,643 | ||||||
Current portion of long-term debt |
3,596 | 4,794 | ||||||
Deferred revenue |
14,264 | 10,088 | ||||||
Liabilities from discontinued operations |
| 181 | ||||||
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|
|||||
Total current liabilities |
44,325 | 44,334 | ||||||
Long-term debt |
| 1,199 | ||||||
Deferred tax liabilities |
1,497 | 1,696 | ||||||
Other liabilities |
3,165 | 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 December 31, 2012 and June 30, 2012 |
| | ||||||
Common stock, $.001 par value, 100,000,000 shares authorized; 57,786,476 shares issued and outstanding at December 31, 2012 and 57,399,291 shares issued and outstanding at June 30, 2012 |
58 | 57 | ||||||
Additional paid-in capital |
190,010 | 188,535 | ||||||
Accumulated other comprehensive income |
4,317 | 3,833 | ||||||
Accumulated deficit |
(181,705 | ) | (186,340 | ) | ||||
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Total stockholders equity |
12,680 | 6,085 | ||||||
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Total liabilities and stockholders equity |
$ | 61,667 | $ | 57,386 | ||||
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
Table of Contents
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share amounts)
(Unaudited)
Three Months
Ended December 31, |
Six Months
Ended December 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenue from services |
$ | 37,087 | $ | 39,115 | $ | 70,097 | $ | 76,884 | ||||||||
Operating expenses: |
||||||||||||||||
Cost of services |
21,898 | 24,380 | 41,353 | 48,010 | ||||||||||||
Selling, general and administrative |
11,207 | 11,308 | 21,985 | 22,973 | ||||||||||||
Depreciation and amortization |
963 | 1,197 | 1,911 | 2,490 | ||||||||||||
Restructuring and other charges |
| (72 | ) | | 5,368 | |||||||||||
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|
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Total operating expenses |
34,068 | 36,813 | 65,249 | 78,841 | ||||||||||||
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Operating income (loss) |
3,019 | 2,302 | 4,848 | (1,957 | ) | |||||||||||
Interest expense, net |
69 | 204 | 170 | 361 | ||||||||||||
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Income (loss) from continuing operations before income taxes |
2,950 | 2,098 | 4,678 | (2,318 | ) | |||||||||||
Provision for income taxes |
58 | 283 | 43 | 3 | ||||||||||||
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Income (loss) from continuing operations |
2,892 | 1,815 | 4,635 | (2,321 | ) | |||||||||||
Loss from discontinued operations, net of tax |
| (190 | ) | | (2,011 | ) | ||||||||||
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Net income (loss) |
$ | 2,892 | $ | 1,625 | $ | 4,635 | $ | (4,332 | ) | |||||||
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Other comprehensive income (loss): |
||||||||||||||||
Change in fair value of interest rate swap |
$ | (9 | ) | $ | 27 | $ | (1 | ) | $ | 81 | ||||||
Change in postretirement obligation |
| | | (63 | ) | |||||||||||
Foreign currency translation adjustments |
151 | (68 | ) | 485 | (1,661 | ) | ||||||||||
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Comprehensive income (loss) |
$ | 3,034 | $ | 1,584 | $ | 5,119 | $ | (5,975 | ) | |||||||
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Basic net income (loss) per share: |
||||||||||||||||
Continuing operations |
$ | 0.05 | $ | 0.03 | $ | 0.08 | $ | (0.04 | ) | |||||||
Discontinued operations |
| (0.00 | ) | | (0.04 | ) | ||||||||||
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$ | 0.05 | $ | 0.03 | $ | 0.08 | $ | (0.08 | ) | ||||||||
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Diluted net income (loss) per share: |
||||||||||||||||
Continuing operations |
$ | 0.05 | $ | 0.03 | $ | 0.08 | $ | (0.04 | ) | |||||||
Discontinued operations |
| (0.00 | ) | | (0.04 | ) | ||||||||||
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$ | 0.05 | $ | 0.03 | $ | 0.08 | $ | (0.08 | ) | ||||||||
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Weighted-average shares outstanding basic |
56,152,326 | 55,272,335 | 56,171,401 | 55,149,610 | ||||||||||||
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Weighted-average shares outstanding diluted |
57,412,623 | 55,294,426 | 57,395,320 | 55,149,610 | ||||||||||||
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
Table of Contents
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Six Months Ended December 31, |
||||||||
2012 | 2011 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 4,635 | $ | (4,332 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities |
||||||||
Depreciation and amortization |
2,243 | 3,005 | ||||||
Deferred taxes |
(95 | ) | (450 | ) | ||||
Stock-based compensation |
1,248 | 550 | ||||||
Amortization of deferred financing costs |
56 | 46 | ||||||
Loss on disposal of property, plant and equipment |
| 336 | ||||||
Writeoff of Asian intangible assets |
| 438 | ||||||
(Increase) decrease in assets |
||||||||
Accounts receivable |
(6,921 | ) | 1,617 | |||||
Unbilled receivables |
1,147 | 1,289 | ||||||
Prepaid expenses and other current assets |
(99 | ) | (739 | ) | ||||
Other assets |
(73 | ) | 253 | |||||
(Decrease) increase in liabilities |
||||||||
Accounts payable |
1,393 | 494 | ||||||
Accrued expenses |
(4,757 | ) | (412 | ) | ||||
Deferred revenue |
4,080 | (123 | ) | |||||
Other long-term liabilities |
(909 | ) | 1,526 | |||||
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Net cash provided by operating activities |
1,948 | 3,498 | ||||||
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Cash flows from investing activities: |
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Capital expenditures |
(308 | ) | (430 | ) | ||||
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Net cash used in investing activities |
(308 | ) | (430 | ) | ||||
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Cash flows from financing activities: |
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Proceeds from employee stock purchases |
246 | 128 | ||||||
Repayment of borrowings |
(2,397 | ) | (2,397 | ) | ||||
Repurchases of common stock |
(16 | ) | | |||||
Credit agreement amendment costs |
| (86 | ) | |||||
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Net cash used in financing activities |
(2,167 | ) | (2,355 | ) | ||||
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Effect of exchange rate changes on cash and cash equivalents |
156 | (884 | ) | |||||
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Net decrease in cash and cash equivalents |
(371 | ) | (171 | ) | ||||
Cash and cash equivalents at beginning of period |
11,456 | 14,224 | ||||||
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Cash and cash equivalents at end of period |
$ | 11,085 | $ | 14,053 | ||||
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
Table of Contents
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 Companys 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 December 31, 2012, the Company had cash and cash equivalents of $11,085, 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 ($4,596 held in the U.S. and $6,489 held by the Companys international operations at December 31, 2012), additional cash that may be generated from the Companys 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 Companys credit agreement (through September 2013), the Companys 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 Companys 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 Companys clients treat all or a portion of their market research expenditures as discretionary, the Companys 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 Companys consolidated financial statements.
6
Table of Contents
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. The adoption of this amended guidance on July 1, 2012 required changes in presentation only and did not have an impact on the Companys consolidated financial statements.
4. Restructuring and Other Charges
Fiscal 2012
During the three months ended December 31, 2011, the Company continued to take actions designed to re-align the cost structure of its U.S. operations. Specifically, the Company reduced headcount at its U.S. facilities by a total of 10 full-time employees and incurred $260 in one-time termination benefits, all of which involved cash payments. The reductions in staff were communicated to the affected employees in October and December 2011 and all actions were completed at those respective times. Related cash payments were completed in March 2012.
The Companys results for the six months ended December 31, 2011 also reflect charges taken during the three months ended September 30, 2011 in connection with 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 2020. |
The following table summarizes the restructuring charges recognized in the Companys unaudited consolidated statements of operations for the three and six months ended December 31:
Three Months Ended December 31, |
Six Months Ended December 31, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Termination benefits |
$ | | $ | 260 | $ | | $ | 1,657 | ||||||||
Lease commitments |
| | | 4,084 | ||||||||||||
Changes in estimate |
| | | (41 | ) | |||||||||||
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$ | | $ | 260 | $ | | $ | 5,700 | |||||||||
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Other Charges
For the three and six months ended December 31, 2010, other charges reflected in the Restructuring and other charges line shown on the Companys unaudited consolidated statements of operations included $331 in costs associated with reorganizing the operational structure of the Companys Canadian operations. A corresponding liability was recorded in the Accrued expenses line shown in the Companys unaudited consolidated balance sheet at that time. In October 2011, the Companys obligation to fund those costs lapsed and accordingly, a credit of $331 was recognized for the three and six months ended December 31, 2011.
7
Table of Contents
The following table summarizes activity during the six months ended December 31, 2012 with respect to the Companys 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, December 31, 2012 |
|||||||||||||||||||
Termination benefits |
$ | 298 | $ | | $ | | $ | (298 | ) | $ | | $ | | |||||||||||
Lease commitments |
6,278 | | | (1,098 | ) | | 5,180 | |||||||||||||||||
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Remaining reserve |
$ | 6,576 | $ | | $ | | $ | (1,396 | ) | $ | | $ | 5,180 | |||||||||||
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5. Discontinued Operations
The revenues and losses attributable to the Companys Asian operations, which ceased in September 2011 and are reported in discontinued operations were as follows:
For the Three Months Ended December 31, |
For the Six Months Ended December 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenues |
$ | | $ | | $ | | $ | 493 | ||||||||
Loss from discontinued operations, net of tax |
| (190 | ) | | (2,011 | ) |
The balance sheet of the discontinued operations consisted solely of $181 in accrued expenses at June 30, 2012. There were no assets or liabilities of the discontinued operations at December 31, 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. |
| 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 Companys 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 December 31, 2012 |
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Financial liabilities: |
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Interest rate swap contract |
$ | | $ | 72 | $ | | $ | 72 | ||||||||
At June 30, 2012 |
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Financial liabilities: |
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Interest rate swap contract |
$ | | $ | 174 | $ | | $ | 174 |
8
Table of Contents
The fair value of the Companys 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 December 31, 2012 and June 30, 2012, acquired intangible assets subject to amortization consisted of the following:
December 31, 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 | 3,186 | 3,119 | 67 | ||||||||||||
Customer relationships |
10 | 21,180 | 14,271 | 6,909 | ||||||||||||
Trade names |
16 | 5,267 | 2,692 | 2,575 | ||||||||||||
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Total |
$ | 31,401 | $ | 21,850 | $ | 9,551 | ||||||||||
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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 | ||||||||||||
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Total |
$ | 30,947 | $ | 20,152 | $ | 10,795 | ||||||||||
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The gross carrying amount and accumulated amortization of the Companys acquired intangible assets for the six months ended December 31, 2012, as well as the related amortization expense, reflect the impact of foreign currency exchange rate fluctuations during the period.
For the Three Months Ended December 31, |
For the Six Months Ended December 31, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Amortization expense |
$ | 690 | $ | 687 | $ | 1,375 | $ | 1,417 | ||||||||
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Estimated amortization expense for the fiscal years ending June 30:
2013 |
$ | 2,521 | ||
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2014 |
$ | 2,192 | ||
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2015 |
$ | 1,612 | ||
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2016 |
$ | 1,487 | ||
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2017 |
$ | 1,444 | ||
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2018 |
$ | 304 | ||
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Thereafter |
$ | 1,366 | ||
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9
Table of Contents
8. Borrowings
Outstanding Debt
There were no material changes to the Companys credit facilities under its credit agreement during the three months ended December 31, 2012 from those disclosed in Note 11, Borrowings, to the audited consolidated financial statements included in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2012.
At December 31, 2012, the required principal repayments of the term loan under the Companys credit agreement for the remainder of fiscal 2013 and the succeeding fiscal year are as follows:
Total | ||||
2013 |
$ | 2,398 | ||
2014 |
1,198 | |||
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$ | 3,596 | |||
|
|
At December 31, 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 $353 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 Companys credit agreement at 4.32%.
At December 31 and June 30, 2012, the Company had liabilities of $72 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 $49 and $104, respectively, for the three months ended December 30, 2012 and 2011, and $102 and $205, respectively, for the six months ended December 31, 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 Companys Long-Term Incentive Plans (the Incentive Plans), stock options issued to new employees outside the Incentive Plans, and shares issued under the Companys Employee Stock Purchase Plans (ESPPs) included in the Companys unaudited consolidated statements of comprehensive income for the three and six months ended December 31:
Three Months Ended December 31, |
Six Months Ended December 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Cost of services |
$ | 12 | $ | 5 | $ | 21 | $ | 9 | ||||||||
Selling, general and administrative |
667 | 266 | 1,227 | 541 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 679 | $ | 271 | $ | 1,248 | $ | 550 | |||||||||
|
|
|
|
|
|
|
|
The Company did not capitalize stock-based compensation expense as part of the cost of an asset for any periods presented.
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Table of Contents
The following table provides a summary of the status of the Companys employee and director stock options (including options issued under the Incentive Plans and options issued outside the Incentive Plans to new employees) for the six months ended December 31, 2012:
Shares | Weighted- Average Exercise Price |
|||||||
Options outstanding at July 1 |
5,218,927 | $ | 1.54 | |||||
Granted |
| | ||||||
Forfeited |
(89,263 | ) | 2.24 | |||||
Exercised |
(163,917 | ) | 0.65 | |||||
|
|
|||||||
Options outstanding at December 31 |
4,965,747 | 1.55 | ||||||
|
|
The following table provides a summary of the status of the Companys employee and director restricted stock awards for the six months ended December 31, 2012:
Shares | Weighted- Average Fair Value at Date of Grant |
|||||||
Restricted shares outstanding at July 1 |
1,466,032 | $ | 1.09 | |||||
Granted |
615,391 | 1.44 | ||||||
Forfeited |
(14,201 | ) | 1.45 | |||||
Vested |
(117,170 | ) | 1.10 | |||||
|
|
|||||||
Restricted shares outstanding at December 31 |
1,950,052 | 1.23 | ||||||
|
|
At December 31, 2012, there was $2,437 of total unrecognized stock-based compensation expense related to non-vested stock-based compensation arrangements granted under the Incentive Plans, outside the Incentive Plans, and under the ESPPs. That expense is expected to be recognized over a weighted-average period of 1.5 years.
10. Income Taxes
The Company recorded income tax provisions in continuing operations of $58 and $43, respectively, for the three and six months ended December 31, 2012, compared with income tax provisions in continuing operations of $283 and $3, respectively for the same prior year periods. The tax provisions for both the current and same prior year periods were primarily attributable to pre-tax income in certain of the Companys international jurisdictions.
A full valuation allowance continues to be recorded at December 31, 2012 against the Companys U.S. and U.K. net deferred tax assets. If the Company continues its recent trend of pre-tax book income in the U.S., it believes that, based on consideration of all sources of available evidence, including recent historical profitable operating performance and other positive and negative evidence such as financial and taxable income projections, market environment, and other factors, a determination may result that a valuation allowance is no longer needed. The Company gives the most weight to the existence of cumulative losses in recent years in its evaluation of the need for a full valuation allowance. Any reversal of the Companys valuation allowance will favorably impact its results of operations in the period of reversal. The Company is currently unable to determine when that reversal might occur, but it 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.
At December 31, 2012, the Company had U.S. federal and various state net operating loss carryforwards of approximately $39,900.
11. Share Repurchase Program
Under the share 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 six months ended December 31, 2012. All shares repurchased were subsequently retired. There were no shares repurchased during the three months ended December 31, 2012.
At December 31, 2012, the repurchase program had $2,914 in remaining capacity.
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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 and six months ended December 31:
Three Months
Ended December 31, |
Six Months
Ended December 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Numerator: |
||||||||||||||||
Net income (loss) used for calculating basic and diluted net income (loss) per share of common stock |
$ | 2,892 | $ | 1,625 | $ | 4,635 | $ | (4,332 | ) | |||||||
|
|
|
|
|
|
|
|
|||||||||
Denominator: |
||||||||||||||||
Weighted average number of shares of common stock used in the calculation of basic net income (loss) per share |
56,152,326 | 55,272,335 | 56,171,401 | 55,149,610 | ||||||||||||
Dilutive effect of outstanding stock options and restricted stock |
1,260,297 | 22,091 | 1,223,919 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Shares of common stock used in the calculation of diluted net income (loss) per share |
57,412,623 | 55,294,426 | 57,395,320 | 55,149,610 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) per share: |
||||||||||||||||
Basic |
$ | 0.05 | $ | 0.03 | $ | 0.08 | $ | (0.08 | ) | |||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
$ | 0.05 | $ | 0.03 | $ | 0.08 | $ | (0.08 | ) | |||||||
|
|
|
|
|
|
|
|
Unvested restricted stock and unexercised stock options to purchase 1,574,376 and 6,147,824 shares of the Companys common stock for the three months ended December 31, 2012 and 2011, respectively, at weighted-average prices per share of $3.56 and $1.47, respectively, were not included in the computations of diluted net income per share because their impact was anti-dilutive during the respective periods.
Unvested restricted stock and unexercised stock options to purchase 1,272,674 and 6,252,824 shares of the Companys common stock for the six months ended December 31, 2012 and 2011, respectively, at weighted-average prices per share of $4.03 and $1.45, 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 Canada, United Kingdom, France and Germany. The Companys 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 Companys business model for offering market research is consistent across the geographic regions in which it operates. Geographic management facilitates local execution of the Companys 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 Companys chief operating decision-maker are made on a global basis. Accordingly, the Company has concluded that it has one reportable segment.
12
Table of Contents
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 December 31, |
Six Months
Ended December 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenue from services |
||||||||||||||||
United States |
$ | 23,037 | $ | 23,770 | $ | 43,460 | $ | 46,848 | ||||||||
Canada |
5,107 | 6,034 | 10,017 | 11,775 | ||||||||||||
United Kingdom |
2,829 | 3,809 | 5,542 | 7,611 | ||||||||||||
France |
3,902 | 3,942 | 6,863 | 7,037 | ||||||||||||
Germany |
2,212 | 1,560 | 4,215 | 3,613 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue from services |
$ | 37,087 | $ | 39,115 | $ | 70,097 | $ | 76,884 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss) |
||||||||||||||||
United States |
$ | 2,587 | $ | 1,863 | $ | 4,440 | $ | 471 | ||||||||
Canada |
49 | 292 | (74 | ) | (199 | ) | ||||||||||
United Kingdom |
93 | 54 | 133 | (2,627 | ) | |||||||||||
France |
114 | 120 | 72 | 218 | ||||||||||||
Germany |
176 | (27 | ) | 277 | 180 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating income (loss) |
$ | 3,019 | $ | 2,302 | $ | 4,848 | $ | (1,957 | ) | |||||||
|
|
|
|
|
|
|
|
At December 31, 2012 |
At June 30, 2012 |
|||||||
Long-lived assets |
||||||||
United States |
$ | 836 | $ | 909 | ||||
Canada |
193 | 276 | ||||||
United Kingdom |
405 | 459 | ||||||
France |
752 | 742 | ||||||
Germany |
149 | 114 | ||||||
|
|
|
|
|||||
Total long-lived assets |
$ | 2,335 | $ | 2,500 | ||||
|
|
|
|
|||||
Deferred tax assets (liabilities) |
||||||||
United States |
$ | | $ | | ||||
Canada |
(1,409 | ) | (1,458 | ) | ||||
United Kingdom |
| | ||||||
France |
(13 | ) | (51 | ) | ||||
Germany |
81 | 56 | ||||||
|
|
|
|
|||||
Total deferred tax liabilities |
$ | (1,341 | ) | $ | (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 and six months ended December 31, 2012 from those disclosed in Note 18, Commitments and Contingencies, to the audited consolidated financial statements included in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2012.
13
Table of Contents
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 Companys business, financial condition or results of operations.
Item 2 Managements 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 Companys 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 December 31, 2012:
| Revenue from services was $37,087, down 5.2% from the same prior year period. Excluding foreign exchange rate differences, revenue was down 5.0% from last fiscal years second quarter. The decrease was driven primarily by revenue declines in the U.S., Canada and U.K. |
| Bookings were up 5.5% compared with the same prior year period, excluding foreign exchange rate differences. The increase was driven mainly by increased bookings in the U.S., Canada and France. |
| Operating income was $3,019, compared with operating income of $2,302 for the same prior year period. |
| We had $11,085 in cash at December 31, 2012, down from $11,456 at June 30, 2012. |
| Our outstanding debt at December 31, 2012 was $3,596, down from $5,993 at June 30, 2012 as a result of quarterly principal payments made during the first two quarters of fiscal 2013. |
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Table of Contents
Significant Events
Restructuring and Other Charges
Fiscal 2012
During the three months ended December 31, 2011, we continued to take actions designed to re-align the cost structure of our U.S. operations. Specifically, we reduced headcount at our U.S. facilities by a total of 10 full-time employees and incurred $260 in one-time termination benefits, all of which involved cash payments. The reductions in staff were communicated to the affected employees in October and December 2011 and all actions were completed at those respective times. Related cash payments were completed in March 2012.
Our results for the six months ended December 31, 2011 also reflect charges taken during the three months ended September 30, 2011 in connection with 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 operations for the three and six months ended December 31:
Three Months Ended December 31, |
Six Months Ended December 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Termination benefits |
$ | | $ | 260 | $ | | $ | 1,657 | ||||||||
Lease commitments |
| | | 4,084 | ||||||||||||
Changes in estimate |
| | | (41 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | | $ | 260 | $ | | $ | 5,700 | |||||||||
|
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|
|
The following table summarizes activity during the six months ended December 31, 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, December 31, 2012 |
|||||||||||||||||||
Termination benefits |
$ | 298 | $ | | $ | | $ | (298 | ) | $ | | $ | | |||||||||||
Lease commitments |
6,278 | | | (1,098 | ) | | 5,180 | |||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|||||||||||||
Remaining reserve |
$ | 6,576 | $ | | $ | | $ | (1,396 | ) | $ | | $ | 5,180 | |||||||||||
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|
For the three and six months ended December 31, 2010, other charges reflected in the Restructuring and other charges line shown on our unaudited consolidated statements of operations included $331 in costs associated with reorganizing the operational structure of our Canadian operations. A corresponding liability was recorded in the Accrued expenses line shown in our unaudited statement of financial position at that time. In October 2011, our obligation to fund those costs lapsed and accordingly, a credit of $331 was recognized for the three and six months ended December 31, 2011.
15
Table of Contents
Discontinued Operations
The revenues and losses attributable to our Asian operations, which ceased in September 2011 and are reported in discontinued operations are as follows:
For the Three Months Ended December 31, |
For the Six Months Ended December 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenues |
$ | | $ | | $ | | $ | 493 | ||||||||
Loss from discontinued operations, net of tax |
| (190 | ) | | (2,011 | ) |
The balance sheet of the discontinued operations consisted solely of $181 in accrued expenses at June 30, 2012. There were no assets or liabilities of the discontinued operations at December 31, 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 six months ended December 31, 2012, there were no changes to the items that we disclosed as our critical accounting policies and estimates in managements 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.
16
Table of Contents
Results of Operations
Three Months Ended December 31, 2012 Versus Three Months Ended December 31, 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 December 31, 2012 and 2011, respectively:
2012 | % | 2011 | % | |||||||||||||
Revenue from services |
$ | 37,087 | 100.0 | % | $ | 39,115 | 100.0 | % | ||||||||
Operating expenses: |
||||||||||||||||
Cost of services |
21,898 | 59.0 | 24,380 | 62.3 | ||||||||||||
Selling, general and administrative |
11,207 | 30.2 | 11,308 | 28.9 | ||||||||||||
Depreciation and amortization |
963 | 2.6 | 1,197 | 3.1 | ||||||||||||
Restructuring and other charges |
| | (72 | ) | (0.2 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
3,019 | 8.1 | 2,302 | 5.9 | ||||||||||||
Interest expense, net |
69 | 0.2 | 204 | 0.5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income from continuing operations before taxes |
2,950 | 7.9 | 2,098 | 5.4 | ||||||||||||
Provision for income taxes |
58 | 0.1 | 283 | 0.7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income from continuing operations |
2,892 | 7.8 | 1,815 | 4.6 | ||||||||||||
Loss from discontinued operations, net of tax |
| | (190 | ) | (0.5 | ) | ||||||||||
|
|
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|
|
|
|
|||||||||
Net income |
$ | 2,892 | 7.8 | $ | 1,625 | 4.2 | ||||||||||
|
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|
Revenue from services. Revenue from services decreased by $2,028, or 5.2%, to $37,087 for the three months ended December 31, 2012 compared with the same prior year period. Excluding foreign currency exchange rate differences, revenue from services decreased by 5.1% 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 $1,660 to $28,144 for the three months ended December 31, 2012 compared with the same prior year period, a decrease of 5.6%. By country, North American revenue for the three months ended December 31, 2012 was comprised of:
| Revenue from U.S. operations of $23,037, down 3.1% compared with $23,770 for the same prior year period. The decrease was primarily due to the continued revenue impact from bookings declines in our U.S. operations during the latter part of fiscal 2012. |
| Revenue from Canadian operations of $5,107, down 15.4% compared with $6,034 for the same prior year period. In local currency (Canadian Dollar), Canadian revenue decreased by 17.7% compared with the same prior year period. The decrease was primarily due to our more selective approach to accepting work based on expected project profitability and a slowdown in the wholesale side of the business. |
European revenue decreased by $368 to $8,943 for the three months ended December 31, 2012 compared with the same prior year period, a decrease of 4.0%. By country, European revenue for the three months ended December 31, 2012 was comprised of:
| Revenue from U.K. operations of $2,829, down 25.7% compared with $3,809 for the same prior year period. In local currency (British Pound), U.K. revenue decreased by 27.2% compared with the same prior year period. The decrease was primarily due to the expected impact of our U.K. restructuring actions taken during the first three months of fiscal 2012, which were designed to focus on core markets and key solutions areas. |
| Revenue from French operations of $3,902, down 1.0% compared with $3,942 for the same prior year period. In local currency (Euro), French revenue increased by 5.0% 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 six months of fiscal 2013, resulting from our success in selling to new and existing clients across several industry sectors. |
17
Table of Contents
| Revenue from German operations of $2,212, up 41.8% compared with $1,560 for the same prior year period. In local currency (Euro), German revenue increased by 42.7% 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, resulting from our success in selling to new and existing clients across several industry sectors. |
Cost of services. Cost of services was $21,898 or 59.0% of total revenue for the three months ended December 31, 2012, compared with $24,380 or 62.3% of total revenue for the same prior year period. Cost of services for the three months ended December 31, 2012 was principally impacted by direct labor savings derived from the restructuring actions taken during fiscal 2012 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 December 31, 2012 was $11,207 or 30.2% of total revenue, essentially flat compared with $11,308 or 28.9% of total revenue for the same prior year period but up on a percentage basis due to the year over year decline in revenue.
Depreciation and amortization. Depreciation and amortization was $963 or 2.6% of total revenue for the three months ended December 31, 2012, compared with $1,197 or 3.1% of total revenue for the same prior year period. The decrease in depreciation and amortization expense for the three months ended December 31, 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 December 31, 2011. There were no restructuring or other charges for the three months ended December 31, 2012.
Interest expense, net. Net interest expense was $69 or less than 1% of total revenue for the three months ended December 31, 2012, compared with $204 or less than 1% of total revenue for the same prior year period. The decrease in interest expense for the three months ended December 31, 2012 when compared with the same prior year period 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 provision in continuing operations of $58 for the three months ended December 31, 2012, compared with an income tax provision in continuing operations of $283 for the same prior year period. The tax provisions for both periods were primarily attributable to pre-tax income in certain of our international jurisdictions.
A full valuation allowance continues to be recorded at December 31, 2012 against our U.S. and U.K. net deferred tax assets. If we continue our recent trend of pre-tax book income in the U.S., we believe that, based on consideration of all sources of available evidence, including recent historical profitable operating performance and other positive and negative evidence such as financial and taxable income projections, market environment, and other factors, a determination may result that a valuation allowance is no longer needed. We give the most weight to the existence of cumulative losses in recent years in our evaluation of the need for a full valuation allowance. Any reversal of our valuation allowance will favorably impact our results of operations in the period of reversal. We are currently unable to determine when that reversal might occur, but 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.
18
Table of Contents
Six Months Ended December 31, 2012 Versus Six Months Ended December 31, 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 six months ended December 31, 2012 and 2011, respectively:
2012 | % | 2011 | % | |||||||||||||
Revenue from services |
$ | 70,097 | 100.0 | % | $ | 76,884 | 100.0 | % | ||||||||
Operating expenses: |
||||||||||||||||
Cost of services |
41,353 | 59.0 | 48,010 | 62.4 | ||||||||||||
Selling, general and administrative |
21,985 | 31.4 | 22,973 | 29.9 | ||||||||||||
Depreciation and amortization |
1,911 | 2.7 | 2,490 | 3.2 | ||||||||||||
Restructuring and other charges |
| | 5,368 | 7.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss) |
4,848 | 6.9 | (1,957 | ) | (2.5 | ) | ||||||||||
Interest expense, net |
170 | 0.2 | 361 | 0.5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations before taxes |
4,678 | 6.7 | (2,318 | ) | (3.0 | ) | ||||||||||
Provision for income taxes |
43 | 0.1 | 3 | 0.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations |
4,635 | 6.6 | (2,321 | ) | (3.0 | ) | ||||||||||
Loss from discontinued operations, net of tax |
| | (2,011 | ) | (2.6 | ) | ||||||||||
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Net income (loss) |
$ | 4,635 | 6.6 | $ | (4,332 | ) | (5.6 | ) | ||||||||
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Revenue from services. Revenue from services decreased by $6,787, or 8.8%, to $70,097 for the six months ended December 31, 2012 compared with the same prior year period. Excluding foreign currency exchange rate differences, revenue from services decreased by 7.7% 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 $5,146 to $53,477 for the six months ended December 31, 2012 compared with the same prior year period, a decrease of 8.8%. By country, North American revenue for the six months ended December 31, 2012 was comprised of:
| Revenue from U.S. operations of $43,460, down 7.2% compared with $46,848 for the same prior year period. The decrease was primarily due to the continued revenue impact from bookings declines in our U.S. operations during the latter part of fiscal 2012. |
| Revenue from Canadian operations of $10,017, down 14.9% compared with $11,775 for the same prior year period. In local currency (Canadian Dollar), Canadian revenue decreased by 15.4% compared with the same prior year period. The decrease was primarily due to our more selective approach to accepting work based on expected project profitability and a slowdown in the wholesale side of the business. |
European revenue decreased by $1,643 to $16,620 for the six months ended December 31, 2012 compared with the same prior year period, a decrease of 9.0%. By country, European revenue for the six months ended December 31, 2012 was comprised of:
| Revenue from U.K. operations of $5,542, down 27.2% compared with $7,611 for the same prior year period. In local currency (British Pound), U.K. revenue decreased by 27.1% compared with the same prior year period. The decrease was primarily due to the expected impact of our U.K. restructuring actions taken during the first three months of fiscal 2012, which were designed to focus on core markets and key solutions areas. |
| Revenue from French operations of $6,863, down 2.5% compared with $7,037 for the same prior year period. In local currency (Euro), French revenue increased by 6.1% 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 six months of fiscal 2013, resulting from our success in selling to new and existing clients across several industry sectors. |
| Revenue from German operations of $4,215, up 16.6% compared with $3,613 for the same prior year period. In local currency (Euro), German revenue increased by 23.9% 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, resulting from our success in selling to new and existing clients across several industry sectors. |
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Cost of services. Cost of services was $41,353 or 59.0% of total revenue for the six months ended December 31, 2012, compared with $48,010 or 62.4% of total revenue for the same prior year period. Cost of services for the six months ended December 31, 2012 was principally impacted by direct labor savings derived from the restructuring actions taken during fiscal 2012 and our more selective approach to accepting work based on expected project profitability.
Selling, general and administrative. Selling, general and administrative expense for the six months ended December 31, 2012 was $21,985 or 31.4% of total revenue, compared with $22,973 or 29.9% of total revenue for the same prior year period. Selling, general and administrative expense was principally impacted by an $872 decrease in payroll-related expense, mainly due to headcount reductions made throughout fiscal 2012.
Depreciation and amortization. Depreciation and amortization was $1,911 or 2.7% of total revenue for the six months ended December 31, 2012, compared with $2,490 or 3.2% of total revenue for the same prior year period. The decrease in depreciation and amortization expense for the six months ended December 31, 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 six months ended December 31, 2011. There were no restructuring or other charges for the six months ended December 31, 2012.
Interest expense, net. Net interest expense was $170 or less than 1% of total revenue for the six months ended December 31, 2012, compared with $361 or less than 1% of total revenue for the same prior year period. The decrease in interest expense for the six months ended December 31, 2012 when compared with the same prior year period 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 provision in continuing operations of $43 for the six months ended December 31, 2012, compared with an income tax provision in continuing operations of $3 for the same prior year period. The tax provisions for both periods were primarily attributable to pre-tax income in certain of our international jurisdictions.
A full valuation allowance continues to be recorded at December 31, 2012 against our U.S. and U.K. net deferred tax assets. If we continue our recent trend of pre-tax book income in the U.S., we believe that, based on consideration of all sources of available evidence, including recent historical profitable operating performance and other positive and negative evidence such as financial and taxable income projections, market environment, and other factors, a determination may result that a valuation allowance is no longer needed. We give the most weight to the existence of cumulative losses in recent years in our evaluation of the need for a full valuation allowance. Any reversal of our valuation allowance will favorably impact our results of operations in the period of reversal. We are currently unable to determine when that reversal might occur, but 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 December 31, 2012 and the four preceding fiscal quarters were as follows (U.S. Dollar amounts in millions):
Q2 FY2012 |
Q3 FY2012 |
Q4 FY2012 |
Q1 FY2013 |
Q2 FY2013 |
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Bookings |
$ | 45.2 | $ | 39.5 | $ | 28.5 | $ | 33.9 | $ | 47.8 | ||||||||||
Secured revenue |
$ | 45.1 | $ | 50.5 | $ | 42.5 | $ | 43.4 | $ | 54.1 |
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 December 31, 2012 were $47.8 million, an increase of 5.8% compared with $45.2 million for the same prior year period. Excluding foreign exchange rate differences, bookings were up 5.5% over the same prior year period. Bookings in local currency compared with the same prior year period were principally impacted by the following:
| a 9.1% increase in U.S. bookings, mainly as a result of success in selling to new and existing clients in certain of our business units, along with normal course shifts in the timing of when recurring work books, |
| a 3.7% increase in Canadian bookings, mainly as a result of timing differences, |
| a 26.3% decrease in U.K. bookings, mainly as a result of the expected impact of our U.K. restructuring actions during the first three months of fiscal 2012, which were designed to focus on core markets and key solutions areas, |
| a 10.1% increase in French bookings, mainly as a result of continued success in winning work at new and existing clients, and |
| a 5.9% decrease in German bookings, mainly as a result of timing differences. |
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.
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Secured revenue for the three months ended December 31, 2012 was $54.1 million, an increase of 20.0% compared with $45.1 million for the same prior year period. Foreign exchange rate differences had an inconsequential impact on secured revenue when compared with the same prior year period. The increase in secured revenue for the three months ended December 31, 2012 when compared with the same prior year period 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 six months ended December 31:
2012 | 2011 | |||||||
Net cash provided by operating activities |
$ | 1,948 | $ | 3,498 | ||||
Net cash used in investing activities |
(308 | ) | (430 | ) | ||||
Net cash used in financing activities |
(2,167 | ) | (2,355 | ) |
Net cash provided by operating activities. Net cash provided by operating activities was $1,948 for the six months ended December 31, 2012, compared with $3,498 provided by operating activities for the same prior year period. The decrease in cash provided by operating activities was mainly due to timing differences related to accounts receivable at December 31, 2012, which in large part have since been collected.
Net cash used in investing activities. Net cash used in investing activities was $308 for the six months ended December 31, 2012, compared with $430 for the same prior year period. Investing activities for the six months ended December 31, 2012 and 2011 consisted solely of capital expenditures.
Net cash used in financing activities. Net cash used in financing activities was $2,167 for the six months ended December 31, 2012, compared with $2,355 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 December 31, 2012, we had cash and cash equivalents of $11,085, 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 ($4,596 held in the U.S. and $6,489 held by our international operations at December 31, 2012), 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 (through September 2013), 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 foreign earnings are not considered permanently reinvested and we are not presently aware of any restrictions on the repatriation of these funds. If these funds were needed to fund our operations in the U.S., they could be repatriated. Repatriation of our foreign funds could result in additional U.S. income taxes and foreign withholding taxes which could be partially offset by net operating losses. Determining the amount of possible future taxes is not practicable.
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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 $500 and $1,000 during the fiscal year ending June 30, 2013.
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 December 31, 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 $353 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 December 31, 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 December 31, 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 December 31, 2012 and for the six 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 December 31, 2012, we had outstanding debt under our credit facilities of $3,596. 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.
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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 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 countrys 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 December 31, 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 December 31, 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 managements evaluation thereof during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.
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
None.
Item 3 Defaults Upon Senior Securities
None.
Item 4 Mine Safety Disclosures
None.
None.
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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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.
February 14, 2013 | 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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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 |
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