Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
HPOL > SEC Filings for HPOL > Form 10-Q on 15-May-2013All Recent SEC Filings

Show all filings for HARRIS INTERACTIVE INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for HARRIS INTERACTIVE INC


15-May-2013

Quarterly Report


Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

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

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

Overview

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

For the three months ended March 31, 2013:

Revenue from services was $33,554, down 1.7% from the same prior year period. Excluding foreign exchange rate differences, revenue was down 1.1% from last fiscal year's third quarter. The decrease was driven primarily by revenue declines in all of our international businesses, excluding foreign exchange rate differences.

Bookings were down 10.2% compared with the same prior year period, excluding foreign exchange rate differences. The decrease was driven mainly by decreased bookings across our U.S and international businesses.

Operating income was $1,138, compared with an operating loss of $371 for the same prior year period.

We had $14,947 in cash at March 31, 2013, up from $11,456 at June 30, 2012.

Our outstanding debt at March 31, 2013 was $2,397, down from $5,993 at June 30, 2012 as a result of quarterly principal payments made during the first three quarters of fiscal 2013.


Table of Contents

Significant Events

Restructuring and Other Charges

Fiscal 2012

During the nine months ended March 31, 2012, we continued to take actions designed to re-align the cost structure of our U.S. and U.K. operations. Specifically, we:

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

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

Reduced headcount at our U.S. facilities by a total of 10 full-time employees and incurred $260 in one-time termination benefits, all of which involved cash payments. The reductions in staff were communicated to the affected employees in October and December 2011 and all actions were completed at those respective times. Related cash payments were completed by March 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 by June 2020.

The following table summarizes the restructuring charges recognized in our unaudited consolidated statements of operations for the three and nine months ended March 31:

                                   Three Months Ended           Nine Months Ended
                                       March 31,                    March  31,
                                  2013             2012        2013           2012
         Termination benefits   $      -          $   -       $    -        $  1,657
         Lease commitments             -              -            -           4,084
         Changes in estimate           -              (7 )         -             (48 )

                                $      -          $   (7 )    $    -        $  5,693

The following table summarizes activity during the nine months ended March 31, 2013 with respect to our remaining reserves for the restructuring activities described above and those undertaken in prior fiscal years:

                                   Balance,                                                                        Balance,
                                   July 1,         Costs         Changes in        Cash           Non-Cash        March 31,
                                     2012         Incurred        Estimate       Payments        Settlements         2013
Termination benefits              $      298     $       -      $         -      $    (298 )    $          -      $       -
Lease commitments                      6,278             -                -         (1,596 )               -           4,682

Remaining reserve                 $    6,576     $       -      $         -      $  (1,894 )    $          -      $    4,682


Table of Contents

Discontinued Operations

The revenues and losses attributable to our Asian operations, which ceased in
September 2011 and are reported in discontinued operations were as follows:



                                                    For the Three           For the Nine
                                                     Months Ended           Months Ended
                                                      March 31,              March 31,
                                                   2013        2012      2013        2012
  Revenues                                        $   -        $  -      $  -      $    493
  Loss from discontinued operations, net of tax       -          156        -        (1,854 )

The balance sheet of the discontinued operations consisted solely of $181 in accrued expenses at June 30, 2012. There were no assets or liabilities of the discontinued operations at March 31, 2013.

Critical Accounting Policies and Estimates

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

Revenue recognition,

Impairment of other intangible assets,

Income taxes,

Stock-based compensation,

HIpoints loyalty program, and

Contingencies and other accruals.

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

During the nine months ended March 31, 2013, there were no changes to the items that we disclosed as our critical accounting policies and estimates in management's discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, filed by us with the SEC on September 25, 2012.


Table of Contents

Results of Operations

Three Months Ended March 31, 2013 Versus Three Months Ended March 31, 2012

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 March 31, 2013 and 2012, respectively:



                                                     2013           %            2012            %
Revenue from services                              $ 33,554        100.0 %     $ 34,117         100.0 %
Operating expenses:
Cost of services                                     20,013         59.6         20,791          60.9
Selling, general and administrative                  11,501         34.3         12,580          36.9
Depreciation and amortization                           902          2.7          1,136           3.3
Restructuring and other charges                          -            -             (19 )        (0.1 )

Operating income (loss)                               1,138          3.4           (371 )        (1.1 )
Interest expense, net                                    67          0.2            196           0.6

Income (loss) from continuing operations before
taxes                                                 1,071          3.2           (567 )        (1.7 )
Provision (benefit) for income taxes                    118          0.4            (88 )        (0.3 )

Income (loss) from continuing operations                953          2.8           (479 )        (1.4 )
Income from discontinued operations, net of tax          -            -             156           0.5

Net income (loss)                                  $    953          2.8       $   (323 )        (0.9 )

Revenue from services. Revenue from services decreased by $563, or 1.7%, to $33,554 for the three months ended March 31, 2013 compared with the same prior year period. Excluding foreign currency exchange rate differences, revenue from services decreased by 1.1% compared with the same prior year period. As more fully described below, revenue from services was impacted by several factors.

North American revenue increased by $569 to $26,265 for the three months ended March 31, 2013 compared with the same prior year period, an increase of 2.2%. By country, North American revenue for the three months ended March 31, 2013 was comprised of:

Revenue from U.S. operations of $21,105, up 5.4% compared with $20,020 for the same prior year period. The increase was primarily due to the revenue impact of increased bookings during the second quarter of fiscal 2013.

Revenue from Canadian operations of $5,160, down 9.1% compared with $5,676 for the same prior year period. In local currency (Canadian Dollar), Canadian revenue decreased by 6.8% compared with the same prior year period. The decrease was primarily due to our more selective approach to accepting work based on expected project profitability and a slowdown in the wholesale side of the business.

European revenue decreased by $1,132 to $7,289 for the three months ended March 31, 2013 compared with the same prior year period, a decrease of 13.4%. By country, European revenue for the three months ended March 31, 2013 was comprised of:

Revenue from French operations of $3,503, down 2.7% compared with $3,601 for the same prior year period. In local currency (Euro), French revenue decreased by 2.8% compared with the same prior year period. The decrease was primarily due to timing differences.

Revenue from U.K. operations of $2,095, down 30.0% compared with $2,991 for the same prior year period. In local currency (British Pound), U.K. revenue decreased by 27.7% compared with the same prior year period. The decrease was primarily due to the revenue impact of bookings declines throughout fiscal 2013.

Revenue from German operations of $1,691, down 7.5% compared with $1,829 for the same prior year period. In local currency (Euro), German revenue decreased by 8.1% compared with the same prior year period. The decrease was primarily due to timing differences.


Table of Contents

Cost of services. Cost of services was $20,013 or 59.6% of total revenue for the three months ended March 31, 2013, compared with $20,791 or 60.9% of total revenue for the same prior year period. Cost of services for the three months ended March 31, 2013 was principally impacted by direct labor savings derived from the restructuring actions taken during fiscal 2012 and our more selective approach to accepting work based on expected project profitability.

Selling, general and administrative. Selling, general and administrative expense for the three months ended March 31, 2013 was $11,501 or 34.3% of total revenue, compared with $12,580 or 36.9% of total revenue for the same prior year period. The decrease in selling, general and administrative expense was principally impacted by:

a $694 decrease in payroll-related expense, mainly due to headcount reductions made throughout fiscal 2012, and

a $205 decrease in rent expense, mainly due to reductions in leased office space taken throughout fiscal 2012.

Depreciation and amortization. Depreciation and amortization was $902 or 2.7% of total revenue for the three months ended March 31, 2013, compared with $1,136 or 3.3% of total revenue for the same prior year period. The decrease in depreciation and amortization expense for the three months ended March 31, 2013 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. There were no restructuring or other charges for the three months ended March 31, 2013 and March 31, 2012.

Interest expense, net. Net interest expense was $67 or less than 1% of total revenue for the three months ended March 31, 2013, compared with $196 or less than 1% of total revenue for the same prior year period. The decrease in interest expense for the three months ended March 31, 2013 when compared with the same prior year period reflects the impact of the decline in our outstanding debt as we continue to make required principal payments.

Income taxes. We recorded an income tax provision in continuing operations of $118 for the three months ended March 31, 2013, compared with an income tax benefit in continuing operations of $88 for the same prior year period. The tax provision for the three months ended March 31, 2013 was related primarily to pre-tax income in certain of our international jurisdictions. The tax benefit for the three months ended March 31, 2012 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 March 31, 2013 against our U.S. and U.K. net deferred tax assets. If we continue our recent trend of pre-tax book income in the U.S., we believe that, based on consideration of all sources of available evidence, including recent historical profitable operating performance and other positive and negative evidence such as financial and taxable income projections, market environment, and other factors, a determination may result during the next twelve months that a valuation allowance is no longer needed. We give the most weight to the existence of cumulative losses in recent years in our evaluation of the need for a full valuation allowance. Any reversal of our valuation allowance will favorably impact our results of operations in the period of reversal. We are currently unable to determine when that reversal might occur, but we will continue to assess the realizability of our deferred tax assets and will adjust the valuation allowances should all or a portion of the deferred tax assets become realizable in the future.


Table of Contents

Nine Months Ended March 31, 2013 Versus Nine Months Ended March 31, 2012

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 nine
months ended March 31, 2013 and 2012, respectively:



                                                   2013            %            2012             %
Revenue from services                            $ 103,650        100.0 %     $ 111,002         100.0 %
Operating expenses:
Cost of services                                    61,366         59.2          68,799          62.0
Selling, general and administrative                 33,487         32.3          35,579          32.1
Depreciation and amortization                        2,813          2.7           3,602           3.2
Restructuring and other charges                         -            -            5,348           4.8

Operating income (loss)                              5,984          5.8          (2,326 )        (2.1 )
Interest expense, net                                  237          0.2             557           0.5

Income (loss) from continuing operations
before taxes                                         5,747          5.6          (2,883 )        (2.6 )
Provision for income taxes                             161          0.2             (85 )        (0.1 )

Income (loss) from continuing operations             5,586          5.4          (2,798 )        (2.5 )
Loss from discontinued operations, net of tax           -            -           (1,854 )        (1.7 )

Net income (loss)                                $   5,586          5.4       $  (4,652 )        (4.2 )

Revenue from services. Revenue from services decreased by $7,352, or 6.6%, to $103,650 for the nine months ended March 31, 2013 compared with the same prior year period. Excluding foreign currency exchange rate differences, revenue from services decreased by 5.7% compared with the same prior year period. As more fully described below, revenue from services was impacted by several factors.

North American revenue decreased by $4,577 to $79,742 for the nine months ended March 31, 2013 compared with the same prior year period, a decrease of 5.4%. By country, North American revenue for the nine months ended March 31, 2013 was comprised of:

Revenue from U.S. operations of $64,565, down 3.4% compared with $66,867 for the same prior year period. The decrease was primarily due to the continued revenue impact from bookings declines in our U.S. operations during the latter part of fiscal 2012.

Revenue from Canadian operations of $15,177, down 13.0% compared with $17,451 for the same prior year period. In local currency (Canadian Dollar), Canadian revenue decreased by 12.6% compared with the same prior year period. The decrease was primarily due to our more selective approach to accepting work based on expected project profitability and a slowdown in the wholesale side of the business.

European revenue decreased by $2,776 to $23,908 for the nine months ended March 31, 2013 compared with the same prior year period, a decrease of 10.4%. By country, European revenue for the nine months ended March 31, 2013 was comprised of:

Revenue from French operations of $10,366, down 2.6% compared with $10,638 for the same prior year period. In local currency (Euro), French revenue increased by 3.1% compared with the same prior year period. The increase was primarily due to the revenue impact from bookings increases in our French operations during the first nine months of fiscal 2013.

Revenue from U.K. operations of $7,637, down 28.0% compared with $10,602 for the same prior year period. In local currency (British Pound), U.K. revenue decreased by 27.3% compared with the same prior year period. The decrease was primarily due to the revenue impact of bookings declines in our U.K. operations throughout fiscal 2013.


Table of Contents
Revenue from German operations of $5,905, up 8.5% compared with $5,444 for the same prior year period. In local currency (Euro), German revenue increased by 13.1% 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 nine months of fiscal 2013.

Cost of services. Cost of services was $61,366 or 59.2% of total revenue for the nine months ended March 31, 2013, compared with $68,799 or 62.0% of total revenue for the same prior year period. Cost of services for the nine months ended March 31, 2013 was principally impacted by direct labor savings derived from the restructuring actions taken during fiscal 2012 and our more selective approach to accepting work based on expected project profitability.

Selling, general and administrative. Selling, general and administrative expense for the nine months ended March 31, 2013 was $33,487 or 32.3% of total revenue, compared with $35,579 or 32.1% of total revenue for the same prior year period. Selling, general and administrative expense for the nine months ended March 31, 2013 was principally impacted by:

a $1,566 decrease in payroll-related expense, mainly due to headcount reductions made throughout fiscal 2012, and

a $663 decrease in rent expense, mainly due to reductions in leased office space taken throughout fiscal 2012.

Depreciation and amortization. Depreciation and amortization was $2,813 or 2.7% of total revenue for the nine months ended March 31, 2013, compared with $3,602 or 3.2% of total revenue for the same prior year period. The decrease in depreciation and amortization expense for the nine months ended March 31, 2013 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 nine months ended March 31, 2012. There were no restructuring or other charges for the nine months ended March 31, 2013.

Interest expense, net. Net interest expense was $237 or less than 1% of total revenue for the nine months ended March 31, 2013, compared with $557 or less than 1% of total revenue for the same prior year period. The decrease in interest expense for the nine months ended March 31, 2013 when compared with the same prior year period reflects the impact of the decline in our outstanding debt as we continue to make required principal payments.

Income taxes. We recorded an income tax provision in continuing operations of $161 for the nine months ended March 31, 2013, compared with an income tax benefit in continuing operations of $85 for the same prior year period. The tax provision for the nine months ended March 31, 2013 was comprised primarily of pre-tax income in certain of our international jurisdictions. The tax benefit for the nine months ended March 31, 2012 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 March 31, 2013 against our U.S. and U.K. net deferred tax assets. If we continue our recent trend of pre-tax book income in the U.S., we believe that, based on consideration of all sources of available evidence, including recent historical profitable operating performance and other positive and negative evidence such as financial and taxable income projections, market environment, and other factors, a determination may result during the next twelve months that a valuation allowance is no longer needed. We give the most weight to the existence of cumulative losses in recent years in our evaluation of the need for a full valuation allowance. Any reversal of our valuation allowance will favorably impact our results of operations in the period of reversal. We are currently unable to determine when that reversal might occur, but we will continue to assess the realizability of our deferred tax assets and will adjust the valuation allowances should all or a portion of the deferred tax assets become realizable in the future.


Table of Contents

Significant Factors Affecting our Performance

Key Operating Metrics

We closely track certain key operating metrics, specifically bookings and secured revenue. Each of these key operating metrics help us to manage our business and evaluate our financial results and operating performance.

Bookings and secured revenue for continuing operations for the three months ended March 31, 2013 and the four preceding fiscal quarters were as follows (U.S. Dollar amounts in millions):

                                Q3          Q4          Q1          Q2          Q3
                              FY2012      FY2012      FY2013      FY2013      FY2013
            Bookings          $  39.5     $  28.5     $  33.9     $  47.8     $  34.4
            Secured revenue   $  50.5     $  42.5     $  43.4     $  54.1     $  55.0

Bookings are defined as the contract value of firm commitment orders received during the current fiscal period. It is anticipated that projects included in bookings for the current fiscal period will be earned as revenue from services within the next four fiscal quarters, the specific timing for which is determined by the nature and scope of each project. Bookings for the current fiscal period include adjustments to prior fiscal period bookings due to contract value adjustments or project cancellations during the current fiscal 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 . . .

  Add HPOL to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for HPOL - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.