UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE QUARTER ENDED SEPTEMBER 30, 2011
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.)
|
161 Sixth Avenue, New York, New York 10013
(Address of principal executive offices)
(212) 539-9600
(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
x
No
¨
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
x
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer,
accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
Large accelerated filer
|
|
¨
|
|
Accelerated filer
|
|
¨
|
|
|
|
|
Non-accelerated filer
|
|
¨
(Do not check if a smaller reporting company)
|
|
Smaller reporting company
|
|
x
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
¨
No
x
On November 11, 2011, 55,652,399 shares of the Registrants Common Stock, $.001 par value, were outstanding.
HARRIS INTERACTIVE INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30,
2011
INDEX
2
Part I: Financial Information
Item 1 Financial Statements
HARRIS INTERACTIVE INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30,
2011
|
|
|
June 30,
2011
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,372
|
|
|
$
|
14,224
|
|
Accounts receivable, net
|
|
|
21,397
|
|
|
|
26,480
|
|
Unbilled receivables
|
|
|
7,614
|
|
|
|
7,580
|
|
Prepaid expenses and other current assets
|
|
|
3,789
|
|
|
|
3,619
|
|
Deferred tax assets
|
|
|
634
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
45,806
|
|
|
|
52,209
|
|
Property, plant and equipment, net
|
|
|
2,481
|
|
|
|
3,447
|
|
Other intangibles, net
|
|
|
12,719
|
|
|
|
14,582
|
|
Other assets
|
|
|
1,522
|
|
|
|
1,610
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
62,528
|
|
|
$
|
71,848
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
8,330
|
|
|
$
|
9,521
|
|
Accrued expenses
|
|
|
21,858
|
|
|
|
21,249
|
|
Current portion of long-term debt
|
|
|
4,794
|
|
|
|
4,794
|
|
Deferred revenue
|
|
|
11,992
|
|
|
|
13,872
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
46,974
|
|
|
|
49,436
|
|
Long-term debt
|
|
|
4,794
|
|
|
|
5,993
|
|
Deferred tax liabilities
|
|
|
1,884
|
|
|
|
2,195
|
|
Other liabilities
|
|
|
4,616
|
|
|
|
2,752
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value, 5,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2011 and June 30,
2011
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 100,000,000 shares authorized; 55,652,399 shares issued and outstanding at September 30, 2011 and
55,417,531 shares issued and outstanding at June 30, 2011
|
|
|
55
|
|
|
|
55
|
|
Additional paid-in capital
|
|
|
186,994
|
|
|
|
186,648
|
|
Accumulated other comprehensive income
|
|
|
3,924
|
|
|
|
5,526
|
|
Accumulated deficit
|
|
|
(186,713
|
)
|
|
|
(180,757
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
4,260
|
|
|
|
11,472
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
62,528
|
|
|
$
|
71,848
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
Revenue from services
|
|
$
|
38,262
|
|
|
$
|
37,015
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
23,997
|
|
|
|
24,193
|
|
Selling, general and administrative
|
|
|
11,985
|
|
|
|
12,564
|
|
Depreciation and amortization
|
|
|
1,293
|
|
|
|
1,527
|
|
Restructuring and other charges
|
|
|
6,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
44,154
|
|
|
|
38,284
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(5,892
|
)
|
|
|
(1,269
|
)
|
Interest and other income
|
|
|
(48
|
)
|
|
|
(14
|
)
|
Interest expense
|
|
|
242
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
Loss from operations before income taxes
|
|
|
(6,086
|
)
|
|
|
(1,725
|
)
|
Provision (benefit) for income taxes
|
|
|
(130
|
)
|
|
|
(388
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,956
|
)
|
|
$
|
(1,337
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.11
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding basic and diluted
|
|
|
55,026,885
|
|
|
|
54,422,790
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,956
|
)
|
|
$
|
(1,337
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,543
|
|
|
|
1,957
|
|
Deferred taxes
|
|
|
(682
|
)
|
|
|
(461
|
)
|
Stock-based compensation
|
|
|
279
|
|
|
|
179
|
|
Amortization of deferred financing costs
|
|
|
17
|
|
|
|
16
|
|
Loss on disposal of property, plant and equipment
|
|
|
336
|
|
|
|
|
|
Writeoff of Asian intangible assets
|
|
|
438
|
|
|
|
|
|
(Increase) decrease in assets
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
4,543
|
|
|
|
1,611
|
|
Unbilled receivables
|
|
|
(423
|
)
|
|
|
(55
|
)
|
Prepaid expenses and other current assets
|
|
|
(456
|
)
|
|
|
(799
|
)
|
Other assets
|
|
|
7
|
|
|
|
166
|
|
(Decrease) increase in liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(1,022
|
)
|
|
|
(3,419
|
)
|
Accrued expenses
|
|
|
1,296
|
|
|
|
(1,361
|
)
|
Deferred revenue
|
|
|
(1,726
|
)
|
|
|
1,165
|
|
Other long-term liabilities
|
|
|
1,981
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
175
|
|
|
|
(2,245
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(19
|
)
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(19
|
)
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from employee stock purchases
|
|
|
68
|
|
|
|
24
|
|
Repayment of borrowings
|
|
|
(1,199
|
)
|
|
|
(1,199
|
)
|
Credit agreement amendment costs
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(1,217
|
)
|
|
|
(1,175
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(791
|
)
|
|
|
768
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(1,852
|
)
|
|
|
(2,825
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
14,224
|
|
|
|
14,158
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
12,372
|
|
|
$
|
11,333
|
|
|
|
|
|
|
|
|
|
|
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, 2011 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, 2011, filed by the Company with the Securities and Exchange Commission (SEC) on September 28, 2011.
Future Liquidity Considerations
At September 30, 2011, the Company had cash and cash equivalents of $12,372, compared with $14,224 at June 30, 2011. 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 the Companys operations, and funds to the extent available through its credit facilities. 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
In May 2011, the Financial Accounting Standards Board (FASB) issued amended accounting guidance related to fair value
measurements and disclosure requirements. The amended guidance clarifies the application of existing fair value measurement requirements and is effective on a prospective basis for fiscal years beginning after December 15, 2011. The Company
does not expect that adoption of the amended guidance will have a material impact on its consolidated financial statements.
In June
2011, the FASB issued amended accounting guidance related to the presentation of other comprehensive income requiring that comprehensive income, the components of net income, and the components of other comprehensive income be presented either in a
single continuous statement of comprehensive income or in two separate but consecutive statements. While the amended guidance changes the presentation of comprehensive income, there are
6
no changes to the components that are recognized in net income or other comprehensive income as determined under current accounting guidance. The amended guidance is effective for the Company on
a retrospective basis for fiscal years beginning after December 15, 2011. The Company does not expect that adoption of the amended guidance will have a material impact on its consolidated financial statements.
4. Restructuring and Other Charges
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 involve
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 will be 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 involve
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 will be 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 months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Termination benefits
|
|
$
|
1,397
|
|
|
$
|
|
|
Lease commitments
|
|
|
4,084
|
|
|
|
|
|
Changes in estimate
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,440
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes activity during the three months ended September 30, 2011 with respect to the
Companys remaining reserves for the restructuring activities described above and those undertaken in prior fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
July 1,
2011
|
|
|
Costs
Incurred
|
|
|
Changes in
Estimate
|
|
|
Cash
Payments
|
|
|
Non-Cash
Settlements
|
|
|
Balance,
September 30,
2011
|
|
Termination benefits
|
|
$
|
422
|
|
|
$
|
1,397
|
|
|
$
|
|
|
|
$
|
(924
|
)
|
|
$
|
|
|
|
$
|
895
|
|
Lease commitments
|
|
|
2,212
|
|
|
|
4,084
|
|
|
|
(41
|
)
|
|
|
(237
|
)
|
|
|
|
|
|
|
6,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining reserve
|
|
$
|
2,634
|
|
|
$
|
5,481
|
|
|
$
|
(41
|
)
|
|
$
|
(1,161
|
)
|
|
$
|
|
|
|
$
|
6,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Closure of Asian Operations
In July 2011, the Companys Board of Directors (the Board) approved the closure of the Companys operations
in Hong Kong, Singapore and Shanghai (collectively, Harris Asia). This decision was based on the Boards determination that Harris Asias operations did not adequately support the Companys strategic objectives. While the
operations of Harris Asia ceased as of September 30, 2011, the future cash flows attributable to those operations as a result of collecting outstanding accounts receivable and settling accounts payable and accrued expenses at September 30,
2011
7
had not yet been eliminated. As such, the Company determined that Harris Asias operations did not qualify for treatment as discontinued operations for the three months ended
September 30, 2011.
In connection with the Companys closure of Harris Asia, the following charges are recognized in the
restructuring and other charges line of the Companys unaudited consolidated statement of operations for the three months ended September 30, 2011:
|
|
|
|
|
Writeoff of intangible assets
|
|
$
|
438
|
|
Termination benefits to former employees
|
|
|
390
|
|
Payments to terminate office and equipment leases
|
|
|
231
|
|
Professional fees
|
|
|
163
|
|
Writeoff of fixed assets
|
|
|
149
|
|
Other
|
|
|
68
|
|
|
|
|
|
|
|
|
$
|
1,439
|
|
|
|
|
|
|
Cash payments for termination benefits to former employees and termination of office and equipment leases were
completed in October 2011. The Company expects that all significant cash flows attributable to Harris Asia will be eliminated by December 31, 2011.
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 September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
|
$
|
|
|
|
$
|
412
|
|
|
$
|
|
|
|
$
|
412
|
|
|
|
|
|
|
At June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
|
$
|
|
|
|
$
|
513
|
|
|
$
|
|
|
|
$
|
513
|
|
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.
8
7. Acquired Intangible Assets Subject to Amortization
At September 30, 2011 and June 30, 2011, acquired intangible assets subject to amortization consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
|
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
|
|
|
|
3,231
|
|
|
|
2,763
|
|
|
|
468
|
|
Customer relationships
|
|
|
10
|
|
|
|
20,682
|
|
|
|
11,320
|
|
|
|
9,362
|
|
Trade names
|
|
|
16
|
|
|
|
5,260
|
|
|
|
2,371
|
|
|
|
2,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
30,941
|
|
|
$
|
18,222
|
|
|
$
|
12,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
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
|
|
|
|
3,457
|
|
|
|
2,878
|
|
|
|
579
|
|
Customer relationships
|
|
|
10
|
|
|
|
22,667
|
|
|
|
11,619
|
|
|
|
11,048
|
|
Trade names
|
|
|
16
|
|
|
|
5,352
|
|
|
|
2,397
|
|
|
|
2,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
33,244
|
|
|
$
|
18,662
|
|
|
$
|
14,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying amount and accumulated amortization of the Companys acquired intangible assets for the
three months ended September 30, 2011, as well as the related amortization expense, reflect the impact of foreign currency exchange rate fluctuations during the period.
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
Amortization expense
|
|
$
|
729
|
|
|
$
|
695
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense for the fiscal years ending June 30:
|
|
|
|
|
2012
|
|
$
|
2,082
|
|
|
|
|
|
|
2013
|
|
$
|
2,609
|
|
|
|
|
|
|
2014
|
|
$
|
2,176
|
|
|
|
|
|
|
2015
|
|
$
|
1,597
|
|
|
|
|
|
|
2016
|
|
$
|
1,473
|
|
|
|
|
|
|
2017
|
|
$
|
1,429
|
|
|
|
|
|
|
Thereafter
|
|
$
|
1,353
|
|
|
|
|
|
|
8. Borrowings
On June 30, 2010, the Company entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A.
(JPMC), as Administrative Agent and Issuing Bank, and the Lenders party thereto, as further amended on August 27, 2010 (the Amended and Restated Credit Agreement).
The principal terms of the Amended and Restated Credit Agreement are described below:
9
|
Amended and Restated Credit Agreement
|
Availability:
|
$5,000 Revolving Line
|
The Revolving Line may be used to back Letters of Credit.
|
Requires the Company to maintain a minimum cash balance of the greater of $5,000 and 1.2
times the outstanding amount under the Revolving Line (including outstanding letters of credit)
|
New Term Loan original principal, $15,581
|
Pricing Grid:
|
See below
|
Interest:
|
Company option:
|
Base Rate (greater of Federal Funds Rate plus 0.5%, LIBOR plus 1%, or Prime) plus an
Applicable Rate based on the pricing grid tied to the Companys Consolidated Total Leverage Ratio, as described below (the Pricing Grid)
|
OR
|
LIBOR plus an Applicable Rate based on the Pricing Grid
|
The Company elected LIBOR and the interest swap agreement fixes the LIBOR-based portion of the rate at 4.32%.
|
Interest payments are due at end of LIBOR interest periods, but at least quarterly in arrears
|
Letter of credit fees equal to 5% of outstanding face amounts until the first quarterly adjustment pursuant to the Pricing Grid, and are set
under the Pricing Grid thereafter
|
Interest Rate Swap:
|
Fixes the floating LIBOR interest portion of the rates on the amounts outstanding under the New Term Loan (reflecting the consolidation of Term
Loans A and B into a single New Term Loan) at 4.32% through September 30, 2013
|
Three-month LIBOR rate received on the swap matches the LIBOR base rate paid on the New Term Loan
|
Unused Facility Fees:
|
Fee fixed at 0.75% of unused Revolving Line amount
|
Principal Payments:
|
New Term Loan Maturity September 30, 2013
|
Revolving Line Maturity September 30, 2013
|
Revolving Line payable at maturity
|
10
|
Amended and Restated Credit Agreement
|
Quarterly New Term Loan Payments $1,199
|
Financial Covenants:
|
Minimum Consolidated Interest Coverage Ratio of at least 3.00:1.00
|
Maximum Consolidated Leverage Ratio of 2.90:1.00 for quarterly periods ending through December 31, 2010,
2.70:1.00 for the quarterly period ending March 31, 2011, and 2.50:1.00 for quarterly periods ending
thereafter.
Minimum cash balance of the
greater of $5,000 and 1.2 times the outstanding amount under the Revolving Line
(including outstanding letters
of credit)
|
Collateral:
|
Secured by all domestic assets and 66% of equity interests in first tier foreign subsidiaries
|
The Pricing Grid provides for quarterly adjustment of rates and fees, and is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pricing Level
|
|
Consolidated Total
Leverage Ratio
|
|
ABR
Applicable
Rate
|
|
|
Adjusted LIBO
Applicable
Rate
|
|
|
Letter of
Credit
Applicable
Rate
|
|
|
Commitment
Fee
Rate
|
|
1
|
|
< 1.0
|
|
|
2.50
|
%
|
|
|
3.50
|
%
|
|
|
3.50
|
%
|
|
|
0.50
|
%
|
2
|
|
³
1.0
but < 1.5
|
|
|
3.25
|
%
|
|
|
4.25
|
%
|
|
|
4.25
|
%
|
|
|
0.75
|
%
|
3
|
|
³
1.5
but < 2.0
|
|
|
3.50
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
0.75
|
%
|
4
|
|
³
2.0
but < 2.5
|
|
|
3.75
|
%
|
|
|
4.75
|
%
|
|
|
4.75
|
%
|
|
|
0.75
|
%
|
5
|
|
³
2.5
|
|
|
4.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
1.00
|
%
|
The Amended and Restated Credit Agreement contains customary representations, default provisions, and affirmative
and negative covenants, including among others prohibitions of dividends, sales of certain assets and mergers, and restrictions related to acquisitions, indebtedness, liens, investments, share repurchases and capital expenditures. Among others, the
Company may freely transfer assets and incur obligations among its domestic subsidiaries, but limitations apply to transfers of assets and loans to foreign subsidiaries.
Amendment Agreement and Waiver
On September 27, 2011, the Company entered into
Amendment Agreement No. 2 and Waiver (Amendment No. 2) to the Amended and Restated Credit Agreement.
At
June 30, 2011, the Company was not in compliance with the Consolidated Total Leverage and Consolidated Interest Coverage Ratio covenants contained in the Amended and Restated Credit Agreement largely due to the magnitude of restructuring and
other charges incurred during the fiscal year ended June 30, 2011. Pursuant to Amendment No. 2, these covenant violations were permanently waived and the Company regained compliance with the terms of the Amended and Restated Credit
Agreement. Amendment No. 2 includes both the addition and modification of certain definitions, terms, financial covenants, and reporting requirements. Obligations under the Companys Amended and Restated Credit Agreement continue to be
secured by its domestic assets and 66% of the equity interests in first tier foreign subsidiaries. In accordance with ASC Topic 470, the Company evaluated the change in cash flows, determined that there was not a greater than 10% change, and
concluded that Amendment No. 2 did not result in an extinguishment of debt.
The Companys credit facilities under the Amended
and Restated Credit Agreement consist of its previously existing term loan, which matures September 30, 2013, and a revolving line of credit. A maximum amount of $5,000 remains available under the revolving line of credit, subject to the
Companys satisfaction of certain conditions. Until the Company achieves trailing twelve month adjusted EBITDA of $5,000, borrowings under the revolving line of credit are limited to the lesser of $2,000 or the Companys net
U.S. accounts receivable, defined as its U.S. accounts receivable plus its
11
U.S. unbilled accounts receivable, less its deferred revenue. The principal amount outstanding under the term loan, $10,787 at June 30, 2011, and the payment terms of the term loan
remain unchanged. Pursuant to Amendment No. 2, the manner in which outstanding amounts accrue interest remains unchanged, except that the Eurodollar Applicable Rate (Adjusted LIBO Applicable Rate) and ABR Applicable Rate are fixed at 5.50% and
4.50%, respectively, through March 31, 2012.
Amendment No. 2 also impacted certain financial covenants, as follows:
|
|
|
The Consolidated Interest Coverage Ratio and Consolidated Total Leverage Ratio covenants were suspended for the fiscal quarter ended September 30, 2011, and
will continue to be suspended for the fiscal quarters ending December 31, 2011 and March 31, 2012. During each of those fiscal quarters, the Company is subject to a trailing twelve month adjusted EBITDA covenant of $4,548, $3,817 and
$4,424, respectively.
|
|
|
|
For fiscal quarters commencing on or after April 1, 2012, the Company will again be subject to the Consolidated Interest Coverage Ratio and Consolidated
Total Leverage Ratio covenants contained in the Amended and Restated Credit Agreement.
|
|
|
|
Cash paid to fund restructuring and other charges incurred on or before September 30, 2011 are limited to amounts agreed upon as contained in Amendment
No. 2.
|
|
|
|
The Company must maintain minimum global cash of $7,000 and U.S. cash of $1,000 through June 30, 2012, at which time it will again be subject to only a
minimum global cash requirement of $5,000.
|
At September 30, 2011 and 2010, the Company was in compliance with
all of the covenants under the Amended and Restated Credit Agreement, as in effect at such time.
At September 30, 2011, the
required principal repayments of the term loan under the Amended and Restated Credit Agreement, as amended by Amendment No. 2, for the remaining nine months of the fiscal year ending June 30, 2012 and the two succeeding fiscal years are as
follows:
|
|
|
|
|
|
|
Total
|
|
2012
|
|
|
3,595
|
|
2013
|
|
|
4,794
|
|
2014
|
|
|
1,199
|
|
|
|
|
|
|
|
|
$
|
9,588
|
|
|
|
|
|
|
At September 30, 2011 and 2010, the Company had no outstanding borrowings under its revolving line of credit
and $356 and $381, respectively 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
Effective September 21, 2007, the Company entered into an interest rate swap agreement with JPMC, which effectively fixed the floating LIBOR
interest portion of the rates on the term loans outstanding under the Original Credit Agreement at 5.08% through September 21, 2012. The three-month LIBOR rate received on the swap matched the LIBOR base rate paid on the term loans since both
used three-month LIBOR. The swap had an initial notional value of $34,625, which declined as payments were made on the term loans so that the amount outstanding under those term loans and the notional amount of the swap were always equal.
As a result of the Amended and Restated Credit Agreement, the Company modified the terms of its interest rate swap to ensure that the
notional amount of the swap matches the outstanding amount of the New Term Loan and the three-month LIBOR rate received on the swap matches the LIBOR base rate on the New Term Loan. The term of the interest rate swap was extended through
September 30, 2013 to be consistent with the maturity date of the New Term Loan. As a result of these modifications, the Company re-designated its interest rate swap as a cash flow hedge and determined it to be highly effective at that time.
12
At September 30, 2011, the Company recorded a liability of $412 in the Other
liabilities line item of its unaudited consolidated balance sheet to reflect the fair value of the interest rate swap. The interest rate swap was not an effective cash flow hedge at June 30, 2011 as a result of the covenant violations
discussed above, and the Company opted not to re-designate its interest rate swap as a cash flow hedge at September 30, 2011. As such, changes in the fair value of the interest rate swap were recorded through interest expense for the three
months ended September 30, 2011 and such treatment will continue for the foreseeable future.
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 operations for the three months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
Cost of services
|
|
$
|
5
|
|
|
$
|
5
|
|
Selling, general and administrative
|
|
|
274
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
279
|
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
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, 2011:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
Options outstanding at July 1
|
|
|
6,396,373
|
|
|
$
|
1.53
|
|
Granted
|
|
|
160,000
|
|
|
|
0.63
|
|
Forfeited
|
|
|
(605,406
|
)
|
|
|
1.13
|
|
Exercised
|
|
|
(124,167
|
)
|
|
|
0.38
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at September 30
|
|
|
5,826,800
|
|
|
|
1.57
|
|
|
|
|
|
|
|
|
|
|
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, 2011:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average
Fair Value at
Date of Grant
|
|
Restricted shares outstanding at July 1
|
|
|
529,021
|
|
|
$
|
0.79
|
|
Granted
|
|
|
120,000
|
|
|
|
0.82
|
|
Forfeited
|
|
|
(8,750
|
)
|
|
|
0.85
|
|
Vested
|
|
|
(177,761
|
)
|
|
|
0.83
|
|
|
|
|
|
|
|
|
|
|
Restricted shares outstanding at September 30
|
|
|
462,510
|
|
|
|
0.78
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2011, there was $1,683 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 3.1 years.
13
10. Income Taxes
The forecasted effective tax rate for the fiscal year ending June 30, 2012 is 15% and is lower than the statutory U.S.
federal tax rate of 35% primarily due to the valuation allowances in the U.S. and certain of the Companys foreign jurisdictions. Accordingly, for the three months ended September 30, 2011, the Company recorded an income tax benefit of
$130, inclusive of a discrete tax provision of $150 recorded in Asia in connection with the planned exit from that jurisdiction. For the three months ended September 30, 2010, the Company recorded a tax benefit of $388 which was comprised
primarily of tax benefits related to pre-tax losses in certain of the Companys foreign jurisdictions. No benefit was recorded for U.S., U.K. or Asian pre-tax losses during that period due to the valuation allowances in those jurisdictions.
A full valuation allowance continues to be recorded at September 30, 2011 against the Companys U.S., U.K. and Asian deferred
tax assets. The Company will continue to assess the realizability of its deferred tax assets in accordance with the FASB guidance for income taxes and will adjust the valuation allowances should all or a portion of the deferred tax assets become
realizable in the future.
11. Comprehensive Income
The following table sets forth the components of the Companys total comprehensive income for the three months ended
September 30:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September
30,
|
|
|
|
2011
|
|
|
2010
|
|
Net loss, as reported
|
|
$
|
(5,956
|
)
|
|
$
|
(1,337
|
)
|
Change in fair value of interest rate swap
|
|
|
54
|
|
|
|
72
|
|
Change in postretirement obligation
|
|
|
(63
|
)
|
|
|
(51
|
)
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
(1
|
)
|
Foreign currency translation adjustments
|
|
|
(1,593
|
)
|
|
|
1,572
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
(7,558
|
)
|
|
$
|
255
|
|
|
|
|
|
|
|
|
|
|
12. Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding
for the period. Diluted net 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 loss per share computations for the three months ended
September 30:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss used for calculating basic and diluted net loss per share of common stock
|
|
$
|
(5,956
|
)
|
|
$
|
(1,337
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock used in the calculation of basic net loss per share
|
|
|
55,026,885
|
|
|
|
54,422,790
|
|
Dilutive effect of outstanding stock options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock used in the calculation of diluted net loss per share
|
|
|
55,026,885
|
|
|
|
54,422,790
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.11
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
14
Unvested restricted stock and unexercised stock options to purchase 6,289,310 and 4,318,836 shares of
the Companys common stock for the three months ended September 30, 2011 and 2010, respectively, at weighted-average prices per share of $1.51 and $2.20, respectively, were not included in the computations of diluted net 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 custom 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.
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,
|
|
|
|
2011
|
|
|
2010
|
|
Revenue from services
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
23,078
|
|
|
$
|
21,909
|
|
Canada
|
|
|
5,741
|
|
|
|
4,707
|
|
United Kingdom
|
|
|
3,802
|
|
|
|
5,398
|
|
France
|
|
|
3,094
|
|
|
|
2,478
|
|
Germany
|
|
|
2,055
|
|
|
|
1,504
|
|
Asia
|
|
|
492
|
|
|
|
1,019
|
|
|
|
|
|
|
|
|
|
|
Total revenue from services
|
|
$
|
38,262
|
|
|
$
|
37,015
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
(1,392
|
)
|
|
$
|
321
|
|
Canada
|
|
|
(491
|
)
|
|
|
(915
|
)
|
United Kingdom
|
|
|
(2,682
|
)
|
|
|
(972
|
)
|
France
|
|
|
99
|
|
|
|
351
|
|
Germany
|
|
|
208
|
|
|
|
85
|
|
Asia
|
|
|
(1,634
|
)
|
|
|
(139
|
)
|
|
|
|
|
|
|
|
|
|
Total operating loss
|
|
$
|
(5,892
|
)
|
|
$
|
(1,269
|
)
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
At
September 30,
2011
|
|
|
At
June 30,
2011
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,307
|
|
|
$
|
1,641
|
|
Canada
|
|
|
336
|
|
|
|
431
|
|
United Kingdom
|
|
|
633
|
|
|
|
976
|
|
France
|
|
|
87
|
|
|
|
108
|
|
Germany
|
|
|
118
|
|
|
|
135
|
|
Asia
|
|
|
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
2,481
|
|
|
$
|
3,447
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets (liabilities)
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
|
|
|
$
|
|
|
Canada
|
|
|
(1,206
|
)
|
|
|
(1,706
|
)
|
United Kingdom
|
|
|
|
|
|
|
|
|
France
|
|
|
(115
|
)
|
|
|
(145
|
)
|
Germany
|
|
|
71
|
|
|
|
(38
|
)
|
Asia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
$
|
(1,250
|
)
|
|
$
|
(1,889
|
)
|
|
|
|
|
|
|
|
|
|
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, 2011 from those disclosed in Note 19, 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, 2011.
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.
16
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, 2011, filed by the Company with the SEC on September 28, 2011. 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 regain 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 custom 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, 2011:
|
|
|
Revenue from services was $38,262, up 3.4% from the same prior year period. Excluding foreign exchange rate differences, revenue was up 1.0% from last fiscal
years first quarter. The increase was driven by revenue increases in the U.S., Canada, France and Germany.
|
|
|
|
Bookings were down 8.7% compared with the same prior year period, excluding foreign exchange rate differences. This decrease was driven by bookings declines in
the U.K., U.S., Germany and Asia.
|
|
|
|
Our operating loss was $5,892, compared with an operating loss of $1,269 for the same prior year period. Operating loss for the three months ended
September 30, 2011 included $6,879 in restructuring and other charges, compared with no such charges for the same prior year period.
|
|
|
|
We had $12,372 in cash at September 30, 2011, down from $14,224 at June 30, 2011.
|
|
|
|
Our outstanding debt at September 30, 2011 was $9,588, down from $10,787 at June 30, 2011 as a result of a quarterly principal payment made during the
first quarter of fiscal 2012.
|
Significant Events
Amendment Agreement and Waiver
On September 27, 2011, we entered into an amendment
and waiver to our amended and restated credit agreement.
17
At June 30, 2011, we were not in compliance with the leverage and interest coverage ratio
covenants contained in our amended and restated credit agreement largely due to the magnitude of restructuring and other charges incurred during the fiscal year ended June 30, 2011. Pursuant to the amendment and waiver, these covenant
violations were permanently waived and we regained compliance with the terms of our amended and restated credit agreement. The amendment and waiver includes both the addition and modification of certain definitions, terms, financial covenants, and
reporting requirements. Obligations under our amended and restated credit agreement continue to be secured by our domestic assets and 66% of the equity interests in first tier foreign subsidiaries. In accordance with ASC Topic 470, we evaluated the
change in cash flows, determined that there was not a greater than 10% change, and concluded that Amendment No. 2 did not result in an extinguishment of debt.
Our credit facilities under our amended and restated credit agreement consist of our previously existing term loan, which matures September 30, 2013, and a revolving line of credit. A maximum amount of $5,000
remains available under the revolving line of credit, subject to our satisfaction of certain conditions. Until we achieve trailing twelve month adjusted EBITDA of $5,000, borrowings under the revolving line of credit are limited to the lesser of
$2,000 or our net U.S. accounts receivable, defined as our U.S. accounts receivable plus our U.S. unbilled accounts receivable, less our deferred revenue. The amendment and waiver did not change the principal amount outstanding under,
or the payment terms of, the term loan. Pursuant to the amendment and waiver, the manner in which outstanding amounts accrue interest remains unchanged, except that the Eurodollar Applicable Rate (Adjusted LIBO Applicable Rate) and ABR Applicable
Rate are fixed at 5.50% and 4.50%, respectively, through March 31, 2012.
The amendment and waiver impacted certain financial
covenants, as follows:
|
|
|
The consolidated interest coverage ratio and consolidated total leverage ratio covenants contained in our amended and restated credit agreement were suspended
for the fiscal quarter ended September 30, 2011, and will continue to be suspended for the fiscal quarters ending December 31, 2011 and March 31, 2012. During each of those fiscal quarters, we are subject to a trailing twelve month
adjusted EBITDA covenant of $4,548, $3,817 and $4,424, respectively.
|
|
|
|
For fiscal quarters commencing on or after April 1, 2012, we will again be subject to the consolidated interest coverage ratio and consolidated total
leverage ratio covenants contained in our amended and restated credit agreement.
|
|
|
|
Cash paid to fund restructuring and other charges incurred on or before September 30, 2011 are limited to amounts agreed upon as contained in the amendment
and waiver.
|
|
|
|
We must maintain minimum global cash of $7,000 and U.S. cash of $1,000 through June 30, 2012, at which time we will again be subject to only a minimum
global cash requirement of $5,000.
|
At September 30, 2011 and 2010, we were in compliance with all of the
covenants under our amended and restated credit agreement, as in effect at such time.
Restructuring and Other Charges
During the three months ended September 30, 2011, we took actions designed to re-align the cost structure of our U.S. and
U.K. operations. Specifically, we:
|
|
|
Reduced headcount at our U.K. facilities by a total of 56 full-time employees and incurred $1,008 in one-time termination benefits, all of which involve
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 will be 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 involve
cash payments. The reductions in staff were communicated to the
|
18
|
affected employees in July and August 2011 and all actions were completed at those respective times. Related cash payments will be 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 months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Termination benefits
|
|
$
|
1,397
|
|
|
$
|
|
|
Lease commitments
|
|
|
4,084
|
|
|
|
|
|
Reversals of prior accruals
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,440
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes activity during the three months ended September 30, 2011 with respect to our
remaining reserves for the restructuring activities described above and those undertaken in prior fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
July 1,
2011
|
|
|
Costs
Incurred
|
|
|
Changes in
Estimate
|
|
|
Cash
Payments
|
|
|
Non-Cash
Settlements
|
|
|
Balance,
September 30,
2011
|
|
Termination benefits
|
|
$
|
422
|
|
|
$
|
1,397
|
|
|
$
|
|
|
|
$
|
(924
|
)
|
|
$
|
|
|
|
$
|
895
|
|
Lease commitments
|
|
|
2,212
|
|
|
|
4,084
|
|
|
|
(41
|
)
|
|
|
(237
|
)
|
|
|
|
|
|
|
6,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining reserve
|
|
$
|
2,634
|
|
|
$
|
5,481
|
|
|
$
|
(41
|
)
|
|
$
|
(1,161
|
)
|
|
$
|
|
|
|
$
|
6,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closure of Asian Operations
In July 2011, our Board of Directors approved the closure of our operations in Hong Kong, Singapore and Shanghai (collectively, Harris Asia). This decision was based on our Boards determination
that Harris Asias operations did not adequately support our strategic objectives. While the operations of Harris Asia ceased as of September 30, 2011, the future cash flows attributable to those operations as a result of collecting
outstanding accounts receivable and settling accounts payable and accrued expenses at September 30, 2011 had not yet been eliminated. As such, we determined that Harris Asias operations did not qualify for treatment as discontinued
operations for the three months ended September 30, 2011.
In connection with our closure of Harris Asia, the following charges are
recognized in the restructuring and other charges line of our unaudited consolidated statement of operations for the three months ended September 30, 2011:
|
|
|
|
|
Writeoff of intangible assets
|
|
$
|
438
|
|
Termination benefits to former employees
|
|
|
390
|
|
Payments to terminate office and equipment leases
|
|
|
231
|
|
Professional fees
|
|
|
163
|
|
Writeoff of fixed assets
|
|
|
149
|
|
Other
|
|
|
68
|
|
|
|
|
|
|
|
|
$
|
1,439
|
|
|
|
|
|
|
Cash payments for termination benefits to former employees and termination of office and equipment leases were
completed in October 2011. We expect that all significant cash flows attributable to Harris Asia will be eliminated by December 31, 2011.
19
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 2012 include:
|
|
|
Impairment of other intangible assets,
|
|
|
|
Stock-based compensation,
|
|
|
|
HIpoints loyalty program, and
|
|
|
|
Contingencies and other accruals.
|
In each situation, management is required to make estimates about the effects of matters or future events that are inherently uncertain.
During the three months ended September 30, 2011, 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, 2011, filed by us with the SEC on September 28, 2011.
Results of Operations
Three Months Ended September 30, 2011 Versus Three Months
Ended September 30, 2010
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, 2011 and 2010, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
%
|
|
|
2010
|
|
|
%
|
|
Revenue from services
|
|
$
|
38,262
|
|
|
|
100.0
|
%
|
|
$
|
37,015
|
|
|
|
100.0
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
23,997
|
|
|
|
62.7
|
|
|
|
24,193
|
|
|
|
65.4
|
|
Selling, general and administrative
|
|
|
11,985
|
|
|
|
31.3
|
|
|
|
12,564
|
|
|
|
33.9
|
|
Depreciation and amortization
|
|
|
1,293
|
|
|
|
3.4
|
|
|
|
1,527
|
|
|
|
4.1
|
|
Restructuring and other charges
|
|
|
6,879
|
|
|
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(5,892
|
)
|
|
|
(15.4
|
)
|
|
|
(1,269
|
)
|
|
|
(3.4
|
)
|
Interest and other income
|
|
|
(48
|
)
|
|
|
(0.1
|
)
|
|
|
(14
|
)
|
|
|
(0.0
|
)
|
Interest expense
|
|
|
242
|
|
|
|
0.6
|
|
|
|
470
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations before taxes
|
|
|
(6,086
|
)
|
|
|
(15.9
|
)
|
|
|
(1,725
|
)
|
|
|
(4.7
|
)
|
Provision (benefit) for income taxes
|
|
|
(130
|
)
|
|
|
(0.3
|
)
|
|
|
(388
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,956
|
)
|
|
|
(15.6
|
)
|
|
$
|
(1,337
|
)
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from services.
Revenue from services increased by $1,247, or 3.4%, to $38,262 for the
three months ended September 30, 2011 compared with the same prior year period. Excluding foreign currency exchange rate differences, revenue from services increased by 1.0% compared with the same prior year period. As more fully described
below, revenue from services was impacted by several factors.
20
North American revenue increased by $2,203 to $28,819 for the three months ended September 30,
2011 compared with the same prior year period, an increase of 8.3%. By country, North American revenue for the three months ended September 30, 2011 was comprised of:
|
|
|
Revenue from U.S. operations of $23,078, up 5.3% compared with $21,909 for the same prior year period. The increase in U.S. revenue was mainly as a result
of the project mix, which resulted in faster turnover of work from delivering shorter duration projects when compared with the same prior year period.
|
|
|
|
Revenue from Canadian operations of $5,741, up 22.0% compared with $4,707 for the same prior year period. In local currency (Canadian Dollar), Canadian revenue
increased by 14.5% compared with the same prior year period. The increase in Canadian revenue was mainly as a result of the revenue impact from a financial services tracking study won during the second quarter of last fiscal year.
|
European revenue decreased by $429 to $8,951 for the three months ended September 30, 2011 compared with the
same prior year period, a decrease of 4.6%. By country, European revenue for the three months ended September 30, 2011 was comprised of:
|
|
|
Revenue from U.K. operations of $3,802, down 29.6% compared with $5,398 for the same prior year period. In local currency (British Pound), U.K. revenue decreased
by 31.4% compared with the same prior year period. The decrease in U.K. revenue was mainly as a result of the revenue impact from a tracking study that was lost in the prior year and the effects of our restructuring actions to scale back our U.K.
business to focus on core markets and key solutions areas.
|
|
|
|
Revenue from French operations of $3,094, up 24.9% compared with $2,478 for the same prior year period. In local currency (Euro), French revenue increased by
14.0% compared with the same prior year period. The increase in French revenue was driven primarily by continued success in selling to new and existing clients across several sectors.
|
|
|
|
Revenue from German operations of $2,055, up 36.6% compared with $1,504 for the same prior year period. In local currency (Euro), German revenue increased by
27.2% compared with the same prior year period. The increase in German revenue was driven primarily by success in selling to new and existing clients across several sectors in recent prior quarters.
|
Asian revenue decreased by $526 to $492 for the three months ended September 30, 2011, a decrease of 51.6% compared with the same prior year
period. This decrease was due to the wind down of our Asian operations throughout the quarter and closure of those operations as of September 30, 2011.
Cost of services.
Cost of services was $23,997 or 62.7% of total revenue for the three months ended September 30, 2011, compared with $24,193 or 65.4% of total revenue for the same prior
year period. Cost of services for the three months ended September 30, 2011 was principally impacted by the mix of projects performed, as noted above, when compared with the same prior year period.
Selling, general and administrative.
Selling, general and administrative expense for the three months ended September 30,
2011 was $11,985 or 31.3% of total revenue, compared with $12,564 or 33.9% of total revenue for the same prior year period. Selling, general and administrative expense was principally impacted by the following:
|
|
|
a $319 decrease in payroll-related expense, driven primarily by headcount reductions taken during fiscal 2011 and the first three months of fiscal 2012, and
|
|
|
|
a $220 decrease in office rent, driven by space reductions taken during fiscal 2011 and the first three months of fiscal 2012.
|
Depreciation and amortization.
Depreciation and amortization was $1,293 or 3.4% of total revenue for the three months ended
September 30, 2011, compared with $1,527 or 4.1% of total revenue for the same prior year period. The decrease in depreciation expense for the three months ended September 30, 2011 when compared with the same prior
21
year period is the result of fixed and intangible assets that became fully depreciated or amortized during fiscal 2011 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, 2010.
Interest and other income.
Interest and other income was $48 or less than 1% of total revenue for the three months ended
September 30, 2011, compared with $14 or less than 1% of total revenue for the same prior year period. The increase in interest and other income is due to higher average cash balances during the three months ended September 30, 2011 when
compared with the same prior year period.
Interest expense.
Interest expense was $242 or 0.6% of total revenue for
the three months ended September 30, 2010, compared with $470 or 1.3% of total revenue for the same prior year period. The decrease in interest expense for the three months ended September 30, 2011 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.
The forecasted effective tax rate for the fiscal year ending June 30, 2012 is 15% and is lower than the statutory U.S. federal tax rate of 35% primarily due to the valuation allowances in the U.S. and certain of our foreign
jurisdictions. Accordingly, for the three months ended September 30, 2011, we recorded an income tax benefit of $130, inclusive of a discrete tax provision of $150 recorded in Asia in connection with the planned exit from that jurisdiction. For
the three months ended September 30, 2010, we recorded a tax benefit of $388 which was comprised primarily of tax benefits related to pre-tax losses in certain of our foreign jurisdictions. No benefit was recorded for U.S., U.K. or Asian
pre-tax losses during that period due to the valuation allowances in those jurisdictions.
A full valuation allowance continues to be
recorded at September 30, 2011 against our U.S., U.K. and Asian deferred tax assets. We will continue to assess the realizability of our deferred tax assets in accordance with the FASB guidance for income taxes and will adjust the valuation
allowances should all or a portion of the deferred tax assets become realizable in the future.
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, 2011 and the four
preceding fiscal quarters were as follows (U.S. Dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1
FY2011
|
|
|
Q2
FY2011
|
|
|
Q3
FY2011
|
|
|
Q4
FY2011
|
|
|
Q1
FY2012
|
|
Bookings
|
|
$
|
35.4
|
|
|
$
|
55.3
|
|
|
$
|
40.9
|
|
|
$
|
34.6
|
|
|
$
|
31.4
|
|
Secured revenue
|
|
$
|
43.3
|
|
|
$
|
55.4
|
|
|
$
|
56.5
|
|
|
$
|
45.9
|
|
|
$
|
39.0
|
|
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.
Bookings for the three months ended September 30, 2011 were $31.4 million, a decrease of 11.3% compared with $35.4 million for the
same prior year period. Excluding foreign exchange rate differences, bookings were down 8.7% over
22
the same prior year period. Bookings in local currency compared with the same prior year period were principally impacted by the following:
|
|
|
a 5.6% decrease in U.S. bookings, mainly as a result of our efforts to move away from projects that do not produce sufficient profit margins, which will likely
cause a reduction in bookings in the near term,
|
|
|
|
a 43.2% increase in Canadian bookings, mainly as a result of the early renewal of a financial services tracking study,
|
|
|
|
a 40.9% decrease in U.K. bookings, mainly as a result of the effect of our restructuring actions to scale back our U.K. business to focus on core markets and key
solutions areas,
|
|
|
|
an 18.1% increase in French bookings, mainly as a result of continued success in selling to new and existing clients across several sectors, and
|
|
|
|
a 32.2% decrease in German bookings, mainly as a result of timing differences in the conversion of bookings when compared with the same prior year 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.
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, 2011 was $39.0 million, a decrease of 9.9% compared with $43.3 million for
the same prior year period. Excluding foreign exchange rate differences, secured revenue was down 9.7% over the same prior year period. The decrease in secured revenue was mainly impacted by the revenue increase and bookings decline in the quarter
discussed above.
Financial Condition, Liquidity and Capital Resources
Cash and Cash Equivalents
The following table sets forth net cash provided by (used in)
operating activities, net cash used in investing activities, and net cash used in financing activities, for the three months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Net cash provided by (used in) operating activities
|
|
$
|
175
|
|
|
$
|
(2,245
|
)
|
Net cash used in investing activities
|
|
|
(19
|
)
|
|
|
(173
|
)
|
Net cash used in financing activities
|
|
|
(1,217
|
)
|
|
|
(1,175
|
)
|
Net cash provided by (used in) operating activities.
Net cash provided by operating activities was
$175 for the three months ended September 30, 2011, compared with $2,245 used in operating activities for the same prior year period. The change was primarily due to our improved efforts in closely managing our cash inflows and outflows during
the three months ended September 30, 2011 compared with the same prior year period.
23
Net cash used in investing activities.
Net cash used in investing activities was $19 for
the three months ended September 30, 2011, compared with $173 for the same prior year period. The change was primarily due to decreased capital spending as part of our overall focus on controlling costs and cash outlay.
Net cash used in financing activities.
Net cash used in financing activities was $1,217 for the three months ended September 30,
2011, compared with $1,175 for the same prior year period. The change was primarily due to $86 in fees incurred in connection with amending our credit agreement in September 2011, offset by increased cash proceeds from employee stock purchases in
connection with stock option exercises.
Working Capital
At September 30, 2011, we had cash and cash equivalents of $12,372 compared with $14,224 at June 30, 2011. 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 amended and restated 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 $2,500 and $3,000 during the fiscal year
ending June 30, 2012.
Credit Facilities
The required principal repayments under our amended and restated credit agreement for each of the three succeeding fiscal years 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, 2011, we had no outstanding borrowings under our revolving line of credit and $356 of 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.
At June 30, 2011, we were not
in compliance with certain financial covenants under our amended and restated credit agreement largely due to the magnitude of restructuring and other charges incurred during fiscal 2011. On September 27, 2011, these covenant violations were
permanently waived through an amendment agreement and waiver, as more fully described in Note 8, Borrowings, to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.
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.
24
Off-Balance Sheet Arrangements and Contractual Obligations
At September 30, 2011, 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, 2011 to our contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011, filed by us with the SEC on September 28, 2011.
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, 2011 and for the three months then ended, as well as the expected impact on our
consolidated financial statements for future periods.
Item 3
Quantitative and Qualitative Disclosures
about Market Risk
We have two kinds of market risk exposures, interest rate exposure and foreign currency exposure. We have no
market risk sensitive instruments entered into for trading purposes.
In light of current economic conditions, we reviewed the cash
equivalents and marketable securities held by us. We do not believe that our holdings have a material liquidity risk under current market conditions.
Interest Rate Exposure
At
September 30, 2011, we had outstanding debt under our credit facilities of $9,588. 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. The additional applicable margin is set at 5.50% through March 31, 2012, resulting in an effective interest rate of 9.82% on our outstanding debt at
September 30, 2011.
Using a sensitivity analysis based on a hypothetical 1% increase in prevailing interest rates over a 12-month
period, each 1% increase from prevailing interest rates at September 30, 2011 would have decreased the fair value of the interest rate swap by $147 and each 1% decrease from prevailing interest rates at September 30, 2011 would have
increased the fair value of the interest rate swap by $160.
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. Our Asia sales and operations ceased as of September 30, 2011. 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.
25
The impact of translation gains or losses on net income from consolidating foreign subsidiaries was not material for the periods presented. We have historically had low exposure to changes in
foreign currency exchange rates upon consolidating the results of our foreign subsidiaries with our U.S. results due to the size of our foreign operations in comparison to our consolidated operations. However, if the operating profits of our
international operations increase as a percentage of our consolidated operations, our exposure to the appreciation or depreciation in the U.S. Dollar could have a more significant impact on our net income and cash flows. Thus, we evaluate our
exposure to foreign currency fluctuation risk on an ongoing basis.
Since our foreign operations are conducted using foreign currencies,
we bear additional risk of fluctuations in exchange rates because of instruments denominated in foreign currencies. We have historically had low exposure to changes in foreign currency exchange rates with regard to instruments denominated in foreign
currencies, given the amount and short-term nature of the maturity of these instruments. The carrying values of financial instruments denominated in foreign currencies, including cash, cash equivalents, accounts receivable and accounts payable,
approximate fair value because of the short-term nature of the maturity of these instruments.
We performed a sensitivity analysis at
September 30, 2011. Holding all other variables constant, we have determined that the impact of a near-term 10% appreciation or depreciation of the U.S. Dollar would have an insignificant effect on our financial condition, results of
operations and cash flows.
Item 4
Controls and Procedures
Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended). Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our
disclosure controls and procedures as of September 30, 2011 (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 September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: Other Information
Item 1
Legal Proceedings
In the normal course of business, we are at times subject to pending and
threatened legal actions and proceedings. After reviewing with legal counsel any pending and threatened actions and proceedings, management does not expect the outcome of such actions or proceedings to have a material adverse effect on our business,
financial condition or results of operations.
Item 1A
Risk Factors
There are no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011, filed
by us with the SEC on September 28, 2011.
26
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
The following table shows our repurchases of our equity securities for the three months ended September 30, 2011:
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total Number
of Shares
Purchased (1)
|
|
|
Average
Price
Paid
per Share
|
|
|
Total Number
of
Shares
Purchased as
Part of Publicly
Announced
Program
|
|
|
Approximate
Dollar Value of
Shares That
May Yet Be
Purchased
Under
the
Program
|
|
July 1, 2011 through July 31, 2011
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
August 1, 2011 through August 31, 2011
|
|
|
548
|
|
|
|
0.67
|
|
|
|
|
|
|
|
|
|
September 1, 2011 through September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
548
|
|
|
$
|
0.67
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Consists solely of shares repurchased from employees to satisfy statutory tax withholding requirements upon the vesting of restricted stock and subsequently retired.
|
Item 3
Defaults Upon Senior Securities
None.
Item 5
Other Information
On November 10, 2011, the Compensation Committee (the Compensation
Committee) of the Board of Directors (the Board) of Harris Interactive Inc. (the Company) approved the fiscal 2012 base salaries and target bonus amounts under the Companys fiscal 2012 corporate bonus plan (the
2012 Bonus Plan) for the Companys executive officers (other than Al Angrisani, Interim Chief Executive Officer). Mr. Angrisani is not receiving a base salary in fiscal 2012 and his bonus opportunity in fiscal 2012 was agreed to in
connection with his hire and is separate and apart from the 2012 Bonus Plan. Mr. Angrisanis target bonus amount is set forth below and is based upon the Boards evaluation of his performance, with emphasis in the Boards discretion
on individual management objectives including risk management, liquidity and profitability initiatives.
The 2012 Bonus Plan is designed
to establish a pool of funds (the Bonus Pool) to be available for making bonus payments to bonus eligible employees of the Company. The funding level of the Bonus Pool is based on the Companys performance relative to budgeted
Adjusted EBITDA (EBITDA adjusted to remove the effect of non-cash stock-based compensation expense and restructuring and other charges), as approved by the Board in connection with establishing the Companys fiscal 2012 annual budget (the
Financial Target). Under the 2012 Bonus Plan, 100% of the Bonus Pool will be funded if performance is equal to 168% of the Financial Target. No bonus will be payable under the 2012 Bonus Plan if performance is less than 90% of the
Financial Target. Between 90% and 168% performance, a sliding scale applies (for example, at 100% performance, 20% of the Bonus Pool will be funded). The Board, in its discretion, has the option of increasing the size of the Bonus Pool if the
Company achieves greater than 168% performance.
Under the 2012 Bonus Plan, individual metrics are established for each participant.
Each executive officer (other than Al Angrisani, Interim Chief Executive Officer) has a bonus opportunity under the 2012 Bonus Plan based upon the following metrics and percentages:
|
|
|
Executive Officer
|
|
Percentage Metric
|
Marc Levin (EVP, Chief Administrative Officer, General Counsel and Corporate Secretary)
|
|
50% Company-wide Adjusted EBITDA
50% Evaluation of performance against individual management objectives (1)
|
|
|
Eric Narowski (Interim Chief Financial Officer, SVP, Global Controller and Principal Accounting Officer)
|
|
50% Company-wide Adjusted EBITDA
50% Evaluation of performance against individual management objectives (1)
|
|
|
Michael de Vere (President, U.S. Business Groups)
|
|
50% Budgeted operating income for U.S. operations
50% Evaluation of performance against individual management objectives (1)
|
|
|
Todd Myers (SVP, Interim Head of Technology, Operations and Panel)
|
|
50% Budgeted operating income for U.S. operations
50% Evaluation of performance against individual management objectives (1)
|
(1)
|
Achievement is based upon the CEOs evaluation of the executive officers performance, with emphasis in the CEOs discretion on individual management objectives
including expense reduction, revenue quality, and operating infrastructure initiatives.
|
The fiscal 2012 base salaries and
target bonus amounts for the executive officers are as follows:
|
|
|
|
|
|
|
|
|
Executive Officer
|
|
Base Salary
|
|
|
Target Bonus Amount
|
|
Al Angrisani (Interim Chief Executive Officer)
|
|
$
|
0
|
(1)
|
|
$
|
250,000
|
|
Marc Levin (EVP, Chief Administrative Officer, General Counsel and Corporate Secretary)
|
|
$
|
275,000
|
|
|
$
|
110,000
|
|
Eric Narowski (Interim Chief Financial Officer, SVP, Global Controller and Principal Accounting Officer)
|
|
$
|
183,000
|
(2)
|
|
$
|
90,000
|
|
Michael de Vere (President, U.S. Business Groups)
|
|
$
|
275,000
|
|
|
$
|
110,000
|
|
Todd Myers (SVP, Interim Head of Technology, Operations and Panel)
|
|
$
|
230,000
|
|
|
$
|
92,000
|
|
(1)
|
On June 7, 2011, Mr. Angrisani received 500,000 shares of restricted stock under the Companys 2007 Long Term Incentive Plan, one-thirteenth of which vest on the thirtieth
day of each month commencing on June 30, 2011. Angrisani Turnarounds, LLC, a company of which Mr. Angrisani serves as Chairman and Chief Executive Officer, is receiving a monthly retainer of $20,000 from the Company for making Mr. Angrisani
available to the Company as its Interim Chief Executive Officer.
|
(2)
|
Mr. Narowski is receiving a monthly bonus of $3,500, payable in bi-weekly installments, for his service as Interim Chief Financial Officer.
|
Item 6
Exhibits
|
|
|
31.1
|
|
Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
|
Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.1
|
|
Certificate of the Chief Executive Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
|
|
|
32.2
|
|
Certificate of the Chief Financial Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of
2002).
|
*
|
Denotes management contract or arrangement
|
27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
|
|
November 14, 2011
|
|
Harris Interactive Inc.
|
|
|
|
|
|
By:
|
|
/s/ Eric W. Narowski
|
|
|
|
|
Eric W. Narowski
|
|
|
|
|
Interim Chief Financial Officer
|
|
|
|
|
(On Behalf of the Registrant and as
|
|
|
|
|
Principal Financial and Accounting Officer)
|
28
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
|
29
Harris Interactive, Inc. (MM) (NASDAQ:HPOL)
Historical Stock Chart
From May 2024 to Jun 2024
Harris Interactive, Inc. (MM) (NASDAQ:HPOL)
Historical Stock Chart
From Jun 2023 to Jun 2024