Item 1 Financial Statements
HARRIS INTERACTIVE INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
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September 30,
2012
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June 30,
2012
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ASSETS
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|
|
|
Current assets:
|
|
|
|
|
|
|
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|
Cash and cash equivalents
|
|
$
|
10,623
|
|
|
$
|
11,456
|
|
Accounts receivable, net
|
|
|
19,616
|
|
|
|
19,940
|
|
Unbilled receivables
|
|
|
8,542
|
|
|
|
7,513
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|
Prepaid expenses and other current assets
|
|
|
3,466
|
|
|
|
3,859
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|
Deferred tax assets
|
|
|
248
|
|
|
|
243
|
|
|
|
|
|
|
|
|
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Total current assets
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42,495
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43,011
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Property, plant and equipment, net
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2,332
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|
|
|
2,500
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Other intangibles, net
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|
10,320
|
|
|
|
10,795
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Other assets
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|
|
1,106
|
|
|
|
1,080
|
|
|
|
|
|
|
|
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Total assets
|
|
$
|
56,253
|
|
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$
|
57,386
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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|
|
|
|
|
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Accounts payable
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$
|
7,254
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|
|
$
|
7,628
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|
Accrued expenses
|
|
|
18,169
|
|
|
|
21,643
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|
Current portion of long-term debt
|
|
|
4,794
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|
|
|
4,794
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|
Deferred revenue
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|
12,017
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|
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|
10,088
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Liabilities from discontinued operations
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181
|
|
|
|
|
|
|
|
|
|
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Total current liabilities
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|
42,234
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44,334
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|
|
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Long-term debt
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1,199
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|
Deferred tax liabilities
|
|
|
1,689
|
|
|
|
1,696
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Other liabilities
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3,510
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|
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|
4,072
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|
Commitments and contingencies (Note 14)
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Stockholders equity:
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Preferred stock, $.001 par value, 5,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2012 and June 30,
2012
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Common stock, $.001 par value, 100,000,000 shares authorized; 57,614,299 shares issued and outstanding at September 30, 2012 and
57,399,291 shares issued and outstanding at June 30, 2012
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58
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|
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|
57
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Additional paid-in capital
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189,184
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188,535
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Accumulated other comprehensive income
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4,175
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|
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3,833
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|
Accumulated deficit
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(184,597
|
)
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|
|
(186,340
|
)
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|
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Total stockholders equity
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8,820
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|
|
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6,085
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|
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|
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Total liabilities and stockholders equity
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$
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56,253
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|
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$
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57,386
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share amounts)
(Unaudited)
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Three Months Ended
September 30,
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2012
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2011
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Revenue from services
|
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$
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33,010
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$
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37,769
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Operating expenses:
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Cost of services
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19,455
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23,630
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Selling, general and administrative
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10,778
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11,665
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Depreciation and amortization
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|
948
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1,293
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Restructuring and other charges
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5,440
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|
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Total operating expenses
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31,181
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42,028
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|
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Operating income (loss)
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1,829
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|
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|
(4,259
|
)
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Interest expense, net
|
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|
101
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|
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|
157
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|
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Income (loss) from continuing operations before income taxes
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1,728
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|
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|
(4,416
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)
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Provision (benefit) for income taxes
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|
(15
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)
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|
(280
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)
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Income (loss) from continuing operations
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1,743
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|
(4,136
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)
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Loss from discontinued operations, net of tax
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|
(1,820
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)
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Net income (loss)
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|
$
|
1,743
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|
|
$
|
(5,956
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)
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Other comprehensive income (loss):
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Change in fair value of interest rate swap
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$
|
8
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$
|
54
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|
Change in postretirement obligation
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(63
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)
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Foreign currency translation adjustments
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334
|
|
|
|
(1,593
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)
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Comprehensive income (loss)
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|
$
|
2,085
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$
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(7,558
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)
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Basic net income (loss) per share:
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Continuing operations
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$
|
0.03
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$
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(0.08
|
)
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Discontinued operations
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|
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(0.03
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)
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$
|
0.03
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|
$
|
(0.11
|
)
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Diluted net income (loss) per share:
|
|
|
|
|
|
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|
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Continuing operations
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|
$
|
0.03
|
|
|
$
|
(0.08
|
)
|
Discontinued operations
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|
|
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.03
|
|
|
$
|
(0.11
|
)
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|
|
|
|
|
|
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|
Weighted-average shares outstanding basic
|
|
|
55,952,534
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|
|
|
55,026,885
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|
|
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|
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Weighted-average shares outstanding diluted
|
|
|
56,878,991
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|
|
55,026,885
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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For the Three Months
Ended September 30,
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|
2012
|
|
|
2011
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,743
|
|
|
$
|
(5,956
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,116
|
|
|
|
1,543
|
|
Deferred taxes
|
|
|
(8
|
)
|
|
|
(682
|
)
|
Stock-based compensation
|
|
|
569
|
|
|
|
279
|
|
Amortization of deferred financing costs
|
|
|
28
|
|
|
|
17
|
|
Loss on disposal of property, plant and equipment
|
|
|
|
|
|
|
336
|
|
Writeoff of Asian intangible assets
|
|
|
|
|
|
|
438
|
|
(Increase) decrease in assets
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
517
|
|
|
|
4,543
|
|
Unbilled receivables
|
|
|
(924
|
)
|
|
|
(423
|
)
|
Prepaid expenses and other current assets
|
|
|
243
|
|
|
|
(456
|
)
|
Other assets
|
|
|
(44
|
)
|
|
|
7
|
|
(Decrease) increase in liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(432
|
)
|
|
|
(1,022
|
)
|
Accrued expenses
|
|
|
(3,809
|
)
|
|
|
1,296
|
|
Deferred revenue
|
|
|
1,873
|
|
|
|
(1,726
|
)
|
Other long-term liabilities
|
|
|
(566
|
)
|
|
|
1,981
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
306
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(58
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(58
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from employee stock purchases
|
|
|
98
|
|
|
|
68
|
|
Repayment of borrowings
|
|
|
(1,199
|
)
|
|
|
(1,199
|
)
|
Repurchases of common stock
|
|
|
(16
|
)
|
|
|
|
|
Credit agreement amendment costs
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(1,117
|
)
|
|
|
(1,217
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
36
|
|
|
|
(791
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(833
|
)
|
|
|
(1,852
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
11,456
|
|
|
|
14,224
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
10,623
|
|
|
$
|
12,372
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
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 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 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, 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
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 Companys consolidated financial statements.
4. Restructuring and Other Charges
Fiscal 2012
During the three months ended September 30, 2011, the Company took actions designed to re-align the cost structure of its U.S. and U.K. operations. Specifically, the Company:
|
|
|
Reduced headcount at its U.K. facilities by a total of 56 full-time employees and incurred $1,008 in one-time termination benefits, all of which involved
cash payments. The reductions in staff were communicated to the affected employees in July 2011 and all actions were completed at that time. Related cash payments were completed in January 2012.
|
|
|
|
Reduced headcount at its U.S. facilities by a total of 23 full-time employees and incurred $389 in one-time termination benefits, all of which involved
cash payments. The reductions in staff were communicated to the affected employees in July and August 2011 and all actions were completed at those respective times. Related cash payments were completed in February 2012.
|
|
|
|
Reduced its occupancy of leased office space at its Rochester, New York, Princeton, New Jersey, Brentford, United Kingdom, and Ottawa, Canada facilities. The
Company incurred $4,084 in lease exit costs associated with the remaining lease obligations, all of which involve cash payments. All actions associated with the leased office space reductions were completed by September 2011, and all cash payments
will be completed in June 2015.
|
The following table summarizes the restructuring charges recognized in the
Companys unaudited consolidated statements of operations for the three months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Termination benefits
|
|
$
|
|
|
|
$
|
1,397
|
|
Lease commitments
|
|
|
|
|
|
|
4,084
|
|
Changes in estimate
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
5,440
|
|
|
|
|
|
|
|
|
|
|
7
The following table summarizes activity during the three months ended September 30, 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,
September 30,
2012
|
|
Termination benefits
|
|
$
|
298
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(236
|
)
|
|
$
|
|
|
|
$
|
62
|
|
Lease commitments
|
|
|
6,278
|
|
|
|
|
|
|
|
|
|
|
|
(612
|
)
|
|
|
|
|
|
|
5,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining reserve
|
|
$
|
6,576
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(848
|
)
|
|
$
|
|
|
|
$
|
5,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Discontinued Operations
The revenue from services and loss attributable to the Companys Asian operations, which ceased in September 2011 and are
reported in discontinued operations, were as follows for the three months ended September 30, 2011:
|
|
|
|
|
Revenue from services
|
|
$
|
493
|
|
Loss from discontinued operations
|
|
|
(1,820
|
)
|
The assets and liabilities of the discontinued operations were as follows:
|
|
|
|
|
|
|
At
June 30,
2012
|
|
Cash and cash equivalents
|
|
$
|
|
|
Accounts receivable, net
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
Other intangibles, net
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
Assets from discontinued operations
|
|
$
|
|
|
Accounts payable
|
|
$
|
|
|
Accrued expenses
|
|
|
181
|
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
Liabilities from discontinued operations
|
|
$
|
181
|
|
There were no assets or liabilities of the discontinued operations at September 30, 2012.
6. Fair Value Measurements
The hierarchy for inputs used in measuring fair value for financial assets and liabilities is designed to maximize the use of
observable inputs and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels:
|
|
|
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
|
Level 2 inputs include data points that are observable such as quoted prices for similar assets or liabilities in active markets, quoted prices for
identical assets or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) such as interest rates and yield curves that are observable for the asset and liability, either directly or indirectly.
|
8
|
|
|
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 September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
|
$
|
|
|
|
$
|
121
|
|
|
$
|
|
|
|
$
|
121
|
|
|
|
|
|
|
At June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
|
$
|
|
|
|
$
|
174
|
|
|
$
|
|
|
|
$
|
174
|
|
The fair value of the 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 September 30, 2012 and June 30, 2012, acquired intangible assets subject to amortization consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
Weighted-
Average
Useful
Amortization
Period (in
years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Book
Value
|
|
Contract-based intangibles
|
|
|
3
|
|
|
$
|
1,768
|
|
|
$
|
1,768
|
|
|
$
|
|
|
Internet respondent database
|
|
|
7
|
|
|
|
3,125
|
|
|
|
2,981
|
|
|
|
144
|
|
Customer relationships
|
|
|
10
|
|
|
|
21,305
|
|
|
|
13,767
|
|
|
|
7,538
|
|
Trade names
|
|
|
16
|
|
|
|
5,262
|
|
|
|
2,624
|
|
|
|
2,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
31,460
|
|
|
$
|
21,140
|
|
|
$
|
10,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012
|
|
|
|
|
|
|
Weighted-
Average
Amortization
Period
(In Years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Book
Value
|
|
Contract-based intangibles
|
|
|
3
|
|
|
$
|
1,768
|
|
|
$
|
1,768
|
|
|
$
|
|
|
Internet respondent database
|
|
|
7
|
|
|
|
3,080
|
|
|
|
2,861
|
|
|
|
219
|
|
Customer relationships
|
|
|
10
|
|
|
|
20,849
|
|
|
|
12,974
|
|
|
|
7,875
|
|
Trade names
|
|
|
16
|
|
|
|
5,250
|
|
|
|
2,549
|
|
|
|
2,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
30,947
|
|
|
$
|
20,152
|
|
|
$
|
10,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying amount and accumulated amortization of the Companys 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.
9
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Amortization expense
|
|
$
|
685
|
|
|
$
|
708
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense for the fiscal years ending June 30:
|
|
|
|
|
2013
|
|
$
|
2,554
|
|
|
|
|
|
|
2014
|
|
$
|
2,204
|
|
|
|
|
|
|
2015
|
|
$
|
1,625
|
|
|
|
|
|
|
2016
|
|
$
|
1,501
|
|
|
|
|
|
|
2017
|
|
$
|
1,457
|
|
|
|
|
|
|
2018
|
|
$
|
305
|
|
|
|
|
|
|
Thereafter
|
|
$
|
1,359
|
|
|
|
|
|
|
8. Borrowings
Outstanding Debt
There were no material changes to the Companys 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 Companys 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 Companys credit agreement for the remainder of fiscal 2013 and the succeeding fiscal year are as follows:
|
|
|
|
|
|
|
Total
|
|
2013
|
|
$
|
3,595
|
|
2014
|
|
|
1,199
|
|
|
|
|
|
|
|
|
$
|
4,794
|
|
|
|
|
|
|
At September 30, 2012, the Company was in compliance with all of the covenants under its credit agreement, had
no outstanding borrowings under its revolving line of credit, and had $351 in outstanding letters of credit. The outstanding letters of credit reduce the remaining undrawn portion of the revolving line of credit that is available for future
borrowings.
Interest Rate Swap
The Company has one interest rate swap contract, the term of which ends on September 30, 2013. The interest rate swap fixed the floating LIBOR interest portion of the rate on the term loan outstanding under
the Companys 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
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 months ended September 30:
10
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Cost of services
|
|
$
|
10
|
|
|
$
|
5
|
|
Selling, general and administrative
|
|
|
559
|
|
|
|
274
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
569
|
|
|
$
|
279
|
|
|
|
|
|
|
|
|
|
|
The Company did not capitalize stock-based compensation expense as part of the cost of an asset for any periods presented.
The following table provides a summary of the status of the 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 three months ended September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
Options outstanding at July 1
|
|
|
5,218,927
|
|
|
$
|
1.54
|
|
Granted
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(89,263
|
)
|
|
|
2.24
|
|
Exercised
|
|
|
(63,917
|
)
|
|
|
0.57
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at September 30
|
|
|
5,065,747
|
|
|
|
1.54
|
|
|
|
|
|
|
|
|
|
|
The following table provides a summary of the status of the Companys employee and director restricted stock
awards for the three months ended September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average
Fair Value at
Date of Grant
|
|
Restricted shares outstanding at July 1
|
|
|
1,466,032
|
|
|
$
|
1.09
|
|
Granted
|
|
|
515,391
|
|
|
|
1.45
|
|
Forfeited
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(53,414
|
)
|
|
|
0.98
|
|
|
|
|
|
|
|
|
|
|
Restricted shares outstanding at September 30
|
|
|
1,928,009
|
|
|
|
1.21
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2012, there was $3,127 of total unrecognized stock-based compensation expense related to
non-vested stock-based compensation arrangements granted under the Incentive Plans and under the ESPPs. That expense is expected to be recognized over a weighted-average period of 1.7 years.
10. Income Taxes
The Company recorded an income tax benefit in continuing operations of $15 for the three months ended September 30, 2012,
compared with an income tax benefit of $280 for the same prior year period. The tax benefit for both periods was comprised primarily of tax benefits related to pre-tax losses in certain of the Companys international jurisdictions.
A full valuation allowance continues to be recorded at September 30, 2012 against the Companys 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.
11
11. Share Repurchase Program
Under the share repurchase program (the Repurchase Program) authorized by the Board on March 6, 2012, the
Company repurchased 14,300 shares of its common stock at an average price per share of $1.09 for an aggregate purchase price of $16 during the three months ended September 30, 2012. All shares repurchased were subsequently retired.
At September 30, 2012, the Repurchase Program had $2,914 in remaining capacity.
12. Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common
stock outstanding for the period. Diluted net income (loss) per share reflects the potential dilution of such securities that could share in earnings. When the impact of stock options or other stock-based compensation is anti-dilutive, they are
excluded from the calculation.
The following table sets forth the reconciliation of the basic and diluted net income (loss) per share
computations for the three months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss) used for calculating basic and diluted net income (loss) per share of common stock
|
|
$
|
1,743
|
|
|
$
|
(5,956
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock used in the calculation of basic net income (loss) per share
|
|
|
55,952,534
|
|
|
|
55,026,885
|
|
Dilutive effect of outstanding stock options and restricted stock
|
|
|
926,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock used in the calculation of diluted net income (loss) per share
|
|
|
56,878,991
|
|
|
|
55,026,885
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.03
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock and unexercised stock options to purchase 770,314 and 6,289,310 shares of the
Companys 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 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
The Company has prepared the financial results for geographic information on a basis that is
consistent with the manner in which management internally disaggregates information to assist in making internal operating decisions. The Company has allocated common expenses among these geographic regions differently than it would for stand-alone
information prepared in accordance with GAAP. Geographic operating income (loss) may not be consistent with measures used by other companies.
Geographic information for the periods presented herein is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Revenue from services
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
20,423
|
|
|
$
|
23,078
|
|
Canada
|
|
|
4,909
|
|
|
|
5,741
|
|
United Kingdom
|
|
|
2,713
|
|
|
|
3,802
|
|
France
|
|
|
2,961
|
|
|
|
3,094
|
|
Germany
|
|
|
2,004
|
|
|
|
2,054
|
|
|
|
|
|
|
|
|
|
|
Total revenue from services
|
|
$
|
33,010
|
|
|
$
|
37,769
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,852
|
|
|
$
|
(1,392
|
)
|
Canada
|
|
|
(123
|
)
|
|
|
(491
|
)
|
United Kingdom
|
|
|
40
|
|
|
|
(2,682
|
)
|
France
|
|
|
(42
|
)
|
|
|
99
|
|
Germany
|
|
|
102
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
$
|
1,829
|
|
|
$
|
(4,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
September 30,
2012
|
|
|
At
June 30,
2012
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
822
|
|
|
$
|
909
|
|
Canada
|
|
|
236
|
|
|
|
276
|
|
United Kingdom
|
|
|
435
|
|
|
|
459
|
|
France
|
|
|
723
|
|
|
|
742
|
|
Germany
|
|
|
116
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
2,332
|
|
|
$
|
2,500
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets (liabilities)
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
|
|
|
$
|
|
|
Canada
|
|
|
(1,472
|
)
|
|
|
(1,458
|
)
|
United Kingdom
|
|
|
|
|
|
|
|
|
France
|
|
|
(33
|
)
|
|
|
(51
|
)
|
Germany
|
|
|
64
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
$
|
(1,441
|
)
|
|
$
|
(1,453
|
)
|
|
|
|
|
|
|
|
|
|
14. Commitments and Contingencies
The Company has several non-cancelable operating leases for office space and equipment. There were no material changes to
the financial obligations for such leases during the three months ended September 30, 2012 from those disclosed in Note 18, Commitments and Contingencies, to the audited consolidated financial statements included in the
Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2012.
13
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 September 30, 2012:
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Revenue from services was $33,010, down 12.6% from the same prior year period. Excluding foreign exchange rate differences, revenue was down 10.6% from last
fiscal years first quarter. The decrease was driven by declines in the U.S., U.K. and Canada as a result of bookings declines in those operations throughout fiscal 2012.
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Bookings were up 4.1% compared with the same prior year period, excluding foreign exchange rate differences. The increase was driven mainly by increased bookings
in Germany and Canada.
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Operating income was $1,829, compared with an operating loss of $4,259 for the same prior year period. Operating loss for the three months ended
September 30, 2011 included $5,440 in restructuring and other charges, compared with no such charges for the three months ended September 30, 2012.
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We had $10,623 in cash at September 30, 2012, down from $11,456 at June 30, 2012.
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Our outstanding debt at September 30, 2012 was $4,794, down from $5,993 at June 30, 2012 as a result of a quarterly principal payment made during the
first quarter of fiscal 2013.
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14
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:
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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.
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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.
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Reduced our occupancy of leased office space at our Rochester, New York, Princeton, New Jersey, Brentford, United Kingdom, and Ottawa, Canada facilities. We
incurred $4,084 in lease exit costs associated with the remaining lease obligations, all of which involve cash payments. All actions associated with the leased office space reductions were completed by September 2011, and all cash payments will be
completed in June 2020.
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The following table summarizes the restructuring charges recognized in our unaudited
consolidated statements of comprehensive income for the three months ended September 30:
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2012
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2011
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Termination benefits
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$
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$
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1,397
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Lease commitments
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4,084
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Changes in estimate
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(41
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)
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$
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$
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5,440
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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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Balance,
July 1,
2012
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Costs
Incurred
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Changes in
Estimate
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Cash
Payments
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Non-Cash
Settlements
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Balance,
September 30,
2012
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Termination benefits
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$
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298
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$
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$
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$
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(236
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)
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$
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$
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62
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Lease commitments
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6,278
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(612
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)
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5,666
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Remaining reserve
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$
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6,576
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$
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$
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$
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(848
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)
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$
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$
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5,728
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15
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:
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Revenue from services
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$
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493
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Loss from discontinued operations
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(1,820
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)
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The assets and liabilities of the discontinued operations were as follows:
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At
June 30,
2012
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Cash and cash equivalents
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$
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Accounts receivable, net
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Prepaid expenses and other current assets
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Property, plant and equipment, net
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Other intangibles, net
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Other assets
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Assets from discontinued operations
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$
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Accounts payable
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$
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Accrued expenses
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181
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Deferred revenue
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Liabilities from discontinued operations
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$
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181
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There were no assets or liabilities of the discontinued operations at September 30, 2012.
Critical Accounting Policies and Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein. The most
significant of these areas involving difficult or complex judgments made by management with respect to the preparation of our consolidated financial statements in fiscal 2013 include:
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Impairment of other intangible assets,
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Stock-based compensation,
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HIpoints loyalty program, and
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Contingencies and other accruals.
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In each situation, management is required to make estimates about the effects of matters or future events that are inherently uncertain.
During the three months ended September 30, 2012, there were no changes to the items that we disclosed as our critical accounting policies and estimates in 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
Results of Operations
Three Months Ended September 30, 2012 Versus Three Months Ended September 30, 2011
The following table sets forth the results of our operations, expressed both as a dollar amount and as a percentage of revenue from services, for the three months ended September 30, 2012 and 2011,
respectively:
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2012
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%
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2011
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%
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Revenue from services
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$
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33,010
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100.0
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%
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$
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37,769
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100.0
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%
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Operating expenses:
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Cost of services
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19,455
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58.9
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23,630
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62.6
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Selling, general and administrative
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10,778
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32.7
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11,665
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30.9
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Depreciation and amortization
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948
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2.9
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1,293
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3.4
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Restructuring and other charges
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5,440
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14.4
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Operating income (loss)
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1,829
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5.5
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(4,259
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(11.3
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Interest expense, net
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101
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0.3
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157
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0.4
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Income (loss) from continuing operations before taxes
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1,728
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5.2
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(4,416
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)
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(11.7
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)
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Provision (benefit) for income taxes
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(15
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(0.0
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(280
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(0.7
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Income (loss) from continuing operations
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1,743
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5.2
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(4,136
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(11.0
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)
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Loss from discontinued operations, net of tax
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(1,820
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)
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(4.8
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)
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Net income (loss)
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$
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1,743
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5.2
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$
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(5,956
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)
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(15.8
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Revenue from services.
Revenue from services decreased by $4,759, or 12.6%, to $33,010 for the
three months ended September 30, 2012 compared with the same prior year period. Excluding foreign currency exchange rate differences, revenue from services decreased by 10.6% compared with the same prior year period. As more fully described
below, revenue from services was impacted by several factors.
North American revenue decreased by $3,487 to $25,332 for the three
months ended September 30, 2012 compared with the same prior year period, a decrease of 12.1%. By country, North American revenue for the three months ended September 30, 2012 was comprised of:
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Revenue from U.S. operations of $20,423, down 11.5% compared with $23,078 for the same prior year period. The decrease was primarily due to the continued
revenue impact from bookings declines in our U.S. operations throughout fiscal 2012.
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Revenue from Canadian operations of $4,909, down 14.5% compared with $5,741 for the same prior year period. In local currency (Canadian Dollar), Canadian revenue
decreased by 13.1% compared with the same prior year period. The decrease was primarily due to the revenue impact from bookings declines in our Canadian operations throughout fiscal 2012.
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European revenue decreased by $1,272 to $7,678 for the three months ended September 30, 2012 compared with the same prior year period, a
decrease of 14.2%. By country, European revenue for the three months ended September 30, 2012 was comprised of:
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Revenue from U.K. operations of $2,713, down 28.6% compared with $3,802 for the same prior year period. In local currency (British Pound), U.K. revenue decreased
by 27.0% compared with the same prior year period. The decrease was primarily due to the expected impact of our U.K. restructuring actions during the first three months of fiscal 2012, discussed above under Restructuring and Other
Charges, which were designed to scale back our U.K. business to focus on core markets and key solutions areas.
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17
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Revenue from French operations of $2,961, down 4.3% compared with $3,094 for the same prior year period. In local currency (Euro), French revenue increased by
7.4% compared with the same prior year period. The increase was primarily due to the revenue impact from bookings increases in our French operations during the first three months of fiscal 2013.
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Revenue from German operations of $2,004, down 2.5% compared with $2,054 for the same prior year period. In local currency (Euro), German revenue increased by
9.6% compared with the same prior year period. The increase was primarily due to the revenue impact from bookings increases in our German operations during the first three months of fiscal 2013.
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Cost of services.
Cost of services was $19,455 or 58.9% of total revenue for the three months ended September 30, 2012,
compared with $23,630 or 62.6% of total revenue for the same prior year period. Cost of services for the three months ended September 30, 2012 was principally impacted by direct labor savings derived from the restructuring actions discussed
above under Restructuring and Other Charges and our more selective approach to accepting work based on expected project profitability.
Selling, general and administrative.
Selling, general and administrative expense for the three months ended September 30, 2012 was $10,778 or 32.7% of total revenue, compared with $11,665 or
30.9% of total revenue for the same prior year period. Selling, general and administrative expense was principally impacted by the following:
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a $745 decrease in payroll-related expense, mainly due to headcount reductions made throughout fiscal 2012, and
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a $424 decrease in rent expense, mainly due to space reductions made throughout fiscal 2012.
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Depreciation and amortization.
Depreciation and amortization was $948 or 2.9% of total revenue for the three months ended
September 30, 2012, compared with $1,293 or 3.4% of total revenue for the same prior year period. The decrease in depreciation and amortization expense for the three months ended September 30, 2012 when compared with the same prior year
period is the result of fixed and intangible assets that became fully depreciated or amortized during fiscal 2012 combined with decreased capital spending as part of our overall focus on controlling costs.
Restructuring and other charges.
See above under Restructuring and Other Charges for a discussion regarding
restructuring and other charges for the three months ended September 30, 2011. There were no restructuring or other charges for the three months ended September 30, 2012.
Interest expense, net.
Net interest expense was $101 or less than 1% of total revenue for the three months ended
September 30, 2012, compared with $157 or less than 1% of total revenue for the same prior year period. Interest expense for the three months ended September 30, 2012 reflects the impact of the decline in our outstanding debt as we
continue to make required principal payments.
Income taxes.
We recorded an income tax benefit in continuing
operations of $15 for the three months ended September 30, 2012, compared with an income tax benefit of $280 for the same prior year period. The tax benefit for both periods was comprised primarily of tax benefits related to pre-tax losses in
certain of our international jurisdictions.
A full valuation allowance continues to be recorded at September 30, 2012 against our
U.S. and U.K. net deferred tax assets. We will continue to assess the realizability of our deferred tax assets and will adjust the valuation allowances should all or a portion of the deferred tax assets become realizable in the future.
18
Significant Factors Affecting our Performance
Key Operating Metrics
We closely track certain key operating metrics, specifically bookings and secured revenue. These key operating metrics enable us to measure the
current and forecasted performance of our business relative to historical trends.
Key operating metrics for continuing operations for
the three months ended September 30, 2012 and the four preceding fiscal quarters were as follows (U.S. Dollar amounts in millions):
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Q1
FY2012
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Q2
FY2012
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Q3
FY2012
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Q4
FY2012
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Q1
FY2013
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Bookings
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$
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32.1
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$
|
45.2
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$
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39.5
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$
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28.5
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$
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33.9
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Secured revenue
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$
|
39.0
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$
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45.1
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$
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50.5
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$
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42.5
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$
|
43.4
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Additional information regarding each of the key operating metrics noted above is as follows:
Bookings
are defined as the contract value of revenue-generating projects that are anticipated to take place during the next four
fiscal quarters for which a firm client commitment was received during the current period, less any adjustments to prior period bookings due to contract value adjustments or project cancellations during the current period.
Monitoring bookings enhances our ability to forecast long-term revenue and to measure the effectiveness of our marketing and sales initiatives.
However, we also are mindful that bookings often vary significantly from quarter to quarter. Information concerning our new bookings is not comparable to, nor should it be substituted for, an analysis of our revenue over time. There are no
third-party standards or requirements governing the calculation of bookings. New bookings involve estimates and judgments regarding new contracts and renewals, as well as extensions and additions to existing contracts. Subsequent cancellations,
suspensions and other matters may affect the amount of bookings previously reported.
Bookings for the three months ended
September 30, 2012 were $33.9 million, an increase of 5.6% compared with $32.1 million for the same prior year period. Excluding foreign exchange rate differences, bookings were up 4.1% over the same prior year period. Bookings in
local currency compared with the same prior year period were principally impacted by the following:
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a 2.0% decrease in U.S. bookings, mainly as a result of our more selective approach to accepting work based on expected project profitability,
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a 2.0% increase in Canadian bookings, mainly as a result of timing differences,
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a 1.1% increase in U.K. bookings, mainly as a result of the stabilization of our U.K. business during fiscal 2012,
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a 9.9% increase in French bookings, mainly as a result of timing differences, and
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a 93.5% increase in German bookings, mainly as a result of continued success in winning work at new and existing clients.
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Secured Revenue
(formerly referred to as ending sales backlog) is defined as prior period secured revenue plus current period
bookings, less revenue recognized on outstanding projects as of the end of the period.
Secured revenue helps us manage our future
staffing levels more accurately and is also an indicator of the effectiveness of our marketing and sales initiatives. Based on our experience, projects included in secured revenue at the end of a fiscal period generally convert to revenue from
services during the following twelve months.
Secured revenue for the three months ended September 30, 2012 was $43.4 million,
an increase of 11.2% compared with $39.0 million for the same prior year period. Foreign exchange rate differences had an inconsequential impact on
19
secured revenue when compared with the same prior year period. The increase is primarily due to increased bookings and timing differences compared with the same prior year period.
Financial Condition, Liquidity and Capital Resources
Cash and Cash Equivalents
The following table sets forth net cash provided by operating
activities, net cash used in investing activities, and net cash used in financing activities, for the three months ended September 30:
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2012
|
|
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2011
|
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Net cash provided by operating activities
|
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$
|
306
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$
|
175
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Net cash used in investing activities
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|
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(58
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)
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(19
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)
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Net cash used in financing activities
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(1,117
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)
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|
|
(1,217
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)
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Net cash provided by operating activities.
Net cash provided by operating activities was $306 for the
three months ended September 30, 2012, compared with $175 provided by operating activities for the same prior year period. The increase was primarily due to our net income for the three months ended September 30, 2012, offset by working
capital timing differences compared with the same prior year period.
Net cash used in investing activities.
Net cash used
in investing activities was $58 for the three months ended September 30, 2012, compared with $19 for the same prior year period. Investing activities for the three months ended September 30, 2012 and 2011 consisted solely of capital
expenditures.
Net cash used in financing activities.
Net cash used in financing activities was $1,117 for the three
months ended September 30, 2012, compared with $1,217 for the same prior year period. The primary use of cash during both periods was to make required principal payments on our outstanding debt.
Working Capital
At
September 30, 2012, we had cash and cash equivalents of $10,623 compared with $11,456 at June 30, 2012. Available sources of cash to support known or reasonably likely cash requirements over the next 12 months include cash, cash
equivalents and marketable securities on hand, additional cash that may be generated from our operations, and funds to the extent available through our credit facilities discussed below. While we believe that our available sources of cash, including
funds available through our revolving line that are subject to certain minimum cash balance requirements, will support known or reasonably likely cash requirements over the next 12 months, including quarterly principal payments of $1,199 and
interest payments due under our credit agreement, our ability to generate cash from our operations is dependent upon our ability to profitably generate revenue, which requires that we continually develop profitable new business, both for growth and
to replace completed projects. Although work for no one client constitutes more than 10% of our revenue, we have had to find significant amounts of replacement and additional revenue as client relationships and work for continuing clients change and
will likely have to continue to do so in the future. Our ability to profitably generate revenue depends not only on execution of our business plans, but also on general market factors outside of our control. As many of our clients treat all or a
portion of their market research expenditures as discretionary, our ability to profitably generate revenue is adversely impacted whenever there are adverse macroeconomic conditions in the markets we serve.
Our capital requirements depend on numerous factors, including but not limited to, market acceptance of our products and services, the resources we
allocate to the continuing development of new products and services, our technology infrastructure and online panel, and the marketing and selling of our products and services. We are able to control or defer certain capital and other expenditures
in order to help preserve cash if necessary. We expect to incur capital expenditures of between $1,000 and $1,500 during the fiscal year ending June 30, 2013.
20
Credit Facilities
The required principal repayments under our credit agreement for the remainder of fiscal 2013 and the succeeding fiscal year are set forth in
Note 8, Borrowings, to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q. At September 30, 2012, we were in compliance with all of the covenants under our credit agreement, had
no outstanding borrowings under our revolving line of credit, and had $351 in outstanding letters of credit. The letters of credit reduce the remaining undrawn portion of the revolving line of credit that is available for future borrowings.
Interest Rate Swap
The principal terms of our interest rate swap are described in Note 8, Borrowings, to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements and Contractual Obligations
At September 30, 2012, we did not have any transaction, agreement, or other contractual arrangement constituting an off-balance sheet arrangement as defined in Item 303(a)(4) of Regulation
S-K.
There have been no material changes outside the ordinary course of business during the three months ended September 30, 2012
to our contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, filed by us with the SEC on September 25, 2012.
Recent Accounting Pronouncements
See Note 3, Recent Accounting
Pronouncements, to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q for a discussion of the impact of recently issued accounting pronouncements on our unaudited consolidated financial
statements at September 30, 2012 and for the three months then ended, as well as the expected impact on our consolidated financial statements for future periods.