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-K on 17-Sep-2013All Recent SEC Filings

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

Form 10-K for HARRIS INTERACTIVE INC


17-Sep-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

For our fiscal year ended June 30, 2013:

Revenue from services was $140,322, down 4.9% from fiscal 2012. Excluding foreign exchange rate differences, revenue was down 4.1% from fiscal 2012. The decrease was driven by declines in the U.K. and Canada, as discussed further under "Results of Operations - Fiscal Year Ended June 30, 2013 Versus Fiscal Year Ended June 30, 2012".

Bookings were $144,292, down less than 1% from $145,294 for fiscal 2012.
Foreign exchange rate differences did not have a significant impact on bookings compared with the same prior year period. For fiscal 2013, we experienced bookings increases in Germany, France and the U.S., offset by bookings declines in the U.K. and Canada, as discussed further under "Significant Factors Affecting Company Performance - Key Operating Metrics".

Our operating income was $7,478, compared with an operating loss of $2,652 for fiscal 2012. Fiscal 2013 operating income included $1,302 in restructuring and other charges, compared with $7,530 for fiscal 2012. Despite the revenue decline noted above, the increase in operating income was driven by improved gross profit as a result of direct labor savings derived from the restructuring actions taken during fiscal 2012 and our more selective approach to accepting work based on project profitability, along with decreased selling, general and administrative expenses as a result of our continued focus on controlling costs.

We had $15,744 in cash at June 30, 2013, up from $11,456 at June 30, 2012.
The increase was driven by our improved financial performance during fiscal 2013.

We have no outstanding debt at June 30, 2013, compared with $5,993 at June 30, 2012, as we made the two remaining debt principal payments due under our credit agreement on June 28, 2013.

Significant Events

Restructuring and Other Charges

Restructuring

Fiscal 2013

During the fourth quarter of fiscal 2013, we reduced our occupancy of leased office space at our Brentford, United Kingdom, Ottawa, Canada, and Paris, France facilities. We incurred $1,302 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 in June 2013, and all cash payments will be completed in June 2015.


Table of Contents

Fiscal 2012

During fiscal 2012, we continued to take actions designed to re-align the cost structure of our U.S. and U.K. operations.

We reduced headcount at our U.S. facilities throughout fiscal 2012, as follows:

During the first quarter of fiscal 2012, we reduced headcount 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.

During the second quarter of fiscal 2012, we reduced headcount 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.

During the fourth quarter of fiscal 2012, we reduced headcount by a total of 20 full-time employees and incurred $644 in one-time termination benefits, all of which involved cash payments. The reductions in staff were communicated to the affected employees in June 2012 and all actions were completed at that time. Related cash payments were completed by December 2012.

During the first quarter of fiscal 2012, 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.

Throughout fiscal 2012, we reduced our occupancy of leased office space.
Specifically, we reduced our occupancy of leased office space at our Rochester, New York, Princeton, New Jersey, Reston, Virginia, Brentford, United Kingdom, and Ottawa, Canada facilities. We incurred $5,705 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 June 2012, and all cash payments will be completed by January 2018.

Fiscal 2011

During the second and fourth quarters of fiscal 2011, we took actions designed to re-align the cost structure of our U.K. operations. Specifically, we reduced headcount at our U.K. facilities by a total of 27 full-time employees and incurred $834 in one-time termination benefits, all of which involved cash payments. The reductions in staff were communicated to the affected employees in December 2010 and April 2011 and all actions were completed at those respective times. Related cash payments were completed in June 2011.

During the third and fourth quarters of fiscal 2011, we took actions designed to re-align the cost structure of our U.S. operations. Specifically, we reduced headcount at our U.S. facilities by a total of 21 full-time employees and incurred $330 in one-time termination benefits, all of which involved cash payments. The reductions in staff were communicated to the affected employees in December 2010 and April 2011 and all actions were completed at those respective times. Related cash payments were completed in June 2011.

During the fourth quarter of fiscal 2011, we reduced our occupancy of leased office space at our Norwalk, Connecticut, Brentford, United Kingdom, and Portland, Oregon facilities. We incurred $1,942


Table of Contents

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 in June 2011, and all cash payments will be completed in June 2015.

Summary of Restructuring Charges and Reserves

The following table summarizes the restructuring charges recognized in our
consolidated statements of operations for the fiscal years ended June 30:



                                          2013        2012        2011
                  Termination benefits   $     -     $ 2,301     $ 1,165
                  Lease commitments        1,302       5,705       1,942

                                         $ 1,302     $ 8,006     $ 3,107

The following table summarizes activity during fiscal 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          June 30,
                             2012           Incurred         Estimate       Payments        Settlements          2013
Termination benefits      $      298       $        -       $         -     $    (298 )    $           -      $        -
Lease commitments              6,278            1,302                 -        (2,154 )                -           5,426

Remaining reserve         $    6,576       $    1,302       $         -     $  (2,452 )    $           -      $    5,426

Other Charges

Other charges reflected in the "Restructuring and other charges" line shown on our consolidated statements of operations for the fiscal years ended June 30, 2012 and 2011 included the following:

Post-employment payments to former senior executives - In connection with their departures from the Company during fiscal 2011, we reached negotiated settlements with Kimberly Till, Pavan Bhalla and Enzo Micali. Under the separation agreements, as modified, all cash payments to Ms. Till were completed in December 2012, while all cash payments to Messrs. Bhalla and Micali were completed during fiscal 2012.

Other - For fiscal 2011, "Other" included costs associated with reorganizing the operational structure of our Canadian operations. In October 2011, our obligation to fund those costs lapsed and accordingly, a credit of $331 was recognized at that time.

                                                              2012        2011
      Post-employment payments to former senior executives   $  (97 )    $ 1,312
      Other                                                    (331 )        681

                                                             $ (428 )    $ 1,993

There were no such charges during the fiscal year ended June 30, 2013.

Fiscal 2013 Loan Repayment

On June 28, 2013, we completed the last two remaining term loan payments due under our credit agreement, as amended. As a result of making these payments, which totaled $2,398, we had no outstanding debt as of June 30, 2013. In connection with the debt payoff, we terminated the associated interest rate swap agreement for a nominal amount. The terms of our revolving line of credit under the credit agreement, as amended, remain unchanged.


Table of Contents

Discontinued 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 the Board's determination that Harris Asia's operations did not adequately support our strategic objectives. While the operations of Harris Asia ceased as of September 30, 2011, significant future cash flows attributable to those operations as a result of collecting outstanding accounts receivable and settling accounts payable and accrued expenses at December 31, 2011 and September 30, 2011 had not yet been eliminated. As such, we determined that Harris Asia's operations did not qualify for treatment as discontinued operations for the fiscal quarters ended September 30, 2011 and December 31, 2011.

In connection with our closure of Harris Asia, the following charges were initially recognized during fiscal 2012 in the "Restructuring and other charges" line shown on our consolidated statements of operations and were subsequently reclassified to discontinued operations during the fiscal quarter ended March 31, 2012, since all significant future cash flows attributable to Harris Asia had been eliminated at that time.

           Writeoff of intangible assets                       $   489
           Termination benefits to former employees                390
           Payments to terminate office and equipment leases       231
           Professional fees                                       180
           Writeoff of fixed assets                                149
           Other                                                   (23 )

                                                               $ 1,416

The revenues and losses attributable to Harris Asia and reported in discontinued operations were as follows for the fiscal years ended June 30:

                                                    2012         2011
              Revenues                            $    493      $ 4,600
              Loss from discontinued operations     (1,854 )       (756 )

The balance sheet of the discontinued operations consisted solely of $181 in accrued expenses at June 30, 2012. There were no assets, liabilities, revenue or expenses of the discontinued operations at June 30, 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 financial statements in fiscal 2013 include:

Revenue recognition;

Impairment of other intangible assets;

Impairment of long-lived assets;

Income taxes, including uncertain tax positions;

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.


Table of Contents

Revenue Recognition

We recognize revenue from services on a proportional performance basis. In assessing contract performance, both input and output criteria are reviewed. Costs incurred are used as an objective input measure of performance. The primary input of all work performed under these arrangements is labor. As a result of the relationship between labor and cost, there is normally a direct relationship between the costs incurred and the proportion of the contract performed to date. Costs incurred as an initial proportion of expected total costs is used as an initial proportional performance measure. This indicative proportional performance measure is always subsequently validated against more subjective criteria (i.e., relevant output measures) such as the percentage of interviews completed, percentage of reports delivered to a client and the achievement of any project milestones stipulated in the contract. In the event of divergence between the objective and more subjective measures, the more subjective measures take precedence since these are output measures.

Clients are obligated to pay based upon services performed, and in the event that a client cancels the contract, the client is responsible for payment for services performed through the date of cancellation. Invoices to clients in the ordinary course are generated based upon the achievement of specific events, as defined by each contract, including deliverables, timetables, and incurrence of certain costs. Such events may not be directly related to the performance of services. Revenues earned on contracts in progress in excess of billings are classified as unbilled receivables. Amounts billed in excess of revenues earned are classified as deferred revenue.

Revisions to project scope could affect both the timing of revenue allocated and the results of our operations.

Impairment of Other Intangible Assets

Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to the estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important that could trigger a review for impairment include the following:

Significant under-performance relative to historical or projected future operating results;

Significant changes in the manner of our use of acquired assets or the strategy for our overall business;

Significant negative industry or economic trends;

Significant decline in our stock price for a sustained period; and

Significant decline in our market capitalization relative to net book value.

We are required to amortize intangible assets with estimable useful lives over their respective estimated useful lives to the estimated residual values, and to review intangible assets with estimable useful lives for impairment in accordance with the FASB guidance for property, plant and equipment.

Impairment of Long-Lived Assets

We account for the impairment or disposal of long-lived assets in accordance with the FASB guidance for property, plant and equipment. Events that trigger a test for recoverability include material adverse changes in the projected revenues and expenses, significant underperformance relative to historical or projected future operating results, and significant negative industry or economic trends. A test for recoverability also is performed when we have committed to a plan to sell or otherwise dispose of an asset group and the plan is expected to be completed within a year. Recoverability of an asset group is evaluated by comparing its carrying value to the future net undiscounted cash flows expected to be generated by the asset group. If the comparison indicates that the carrying value of an asset group is not recoverable, an impairment loss is recognized. The impairment loss is measured by the


Table of Contents

amount by which the carrying amount of the asset group exceeds the estimated fair value. When an impairment loss is recognized for assets to be held and used, the adjusted carrying amount of those assets is depreciated over its remaining useful life. Restoration of a previously-recognized long-lived asset impairment loss is not allowed.

We estimate the fair value of an asset group based on market prices (i.e., the amount for which the asset could be bought by or sold to a third party), when available. When market prices are not available, we estimate the fair value of the asset group using the income approach and/or the market approach. The income approach uses cash flow projections. Inherent in our development of cash flow projections are assumptions and estimates derived from a review of our operating results, approved business plans, expected growth rates and cost of capital, among others. We also make certain assumptions about future economic conditions, interest rates, and other market data. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates can change in future periods.

Changes in assumptions or estimates could materially affect the determination of fair value of an asset group, and therefore could affect the amount of potential impairment of the asset. The following assumptions are key to our income approach:

Business Projections - We make assumptions about the level of demand for our services in the marketplace. These assumptions drive our planning assumptions for revenue growth. We also make assumptions about our cost levels. These assumptions are key inputs for developing our cash flow projections. These projections are derived using our internal business plans.

Growth Rate - The growth rate is the expected rate at which an asset group's earnings stream is projected to grow beyond the planning period.

Economic Projections - Assumptions regarding general economic conditions are included in and affect our assumptions regarding revenue from services. These macroeconomic assumptions include inflation, interest rates and foreign currency exchange rates.

Income Taxes

We account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for future tax consequences attributable to operating loss carryforwards and temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases.

The FASB guidance for income taxes requires the establishment of a valuation allowance to reflect the likelihood of the realization of deferred tax assets. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We evaluate the weight of the available evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The decision to record a valuation allowance requires varying degrees of judgment based upon the nature of the item giving rise to the deferred tax asset. The amount of the deferred tax asset considered realizable is based on significant estimates, and it is at least reasonably possible that changes in these estimates in the near term could materially affect our financial condition and results of operations. During fiscal 2013, 2012 and 2011, we evaluated the need to continue to maintain a full valuation against our net U.S. and U.K. deferred tax assets and concluded that maintaining the full valuation allowance in both jurisdictions at June 30, 2013, 2012 and 2011 was appropriate due to, among other reasons, (i) the realized cumulative accounting losses sustained in the U.S. and U.K., and (ii) our uncertainty with respect to generating future U.S. and U.K. taxable income in the near-term given our recently completed U.S. and U.K. projections. The amount of the deferred tax asset considered realizable is based on significant estimates, and it is at least reasonably possible that changes in these estimates in the near term could materially affect our financial condition and results of operations.


Table of Contents

We apply the FASB guidance for uncertain tax positions, which contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Although we believe we have adequately provided for our uncertain tax positions, no assurance can be given with respect to the final outcome of these matters. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact our provision for income taxes in the period in which such a determination is made. Our provisions for income taxes include the impact of reserve provisions and changes to reserves that are considered appropriate and also include the related interest and penalties.

Stock-Based Compensation

We account for stock-based compensation in accordance with the FASB guidance for stock-based compensation. For share-based payments granted subsequent to July 1, 2005, compensation expense based on the grant date fair value is recognized in our consolidated statements of operations over the requisite service period. In determining the fair value of stock options, we use the Black-Scholes option pricing model, which employs the following assumptions:

Expected volatility - based on historical volatilities from daily share price observations for our stock covering a period commensurate with the expected term of the options granted.

Expected life of the option - based on the vesting terms of the respective option and a contractual life of ten years, calculated using the "simplified method" as allowed by ASC 718-10 and corroborated through review of the expected life assumptions of publicly-traded market research companies.

Risk-free rate - based on the implied yield available at the time the options were granted on U.S. Treasury zero coupon issues with a remaining term equal to the expected life of the option when granted.

Dividend yield - based on our historical practice of electing not to pay dividends to our stockholders.

Expected volatility and the expected life of the options granted, both of which impact the fair value of the options calculated under the Black-Scholes option pricing model, involve management's best estimates at that time. The weighted-average assumptions used to value options during the fiscal years ended June 30, 2013, 2012 and 2011, respectively, are set forth in Note 13, "Stock-Based Compensation", to our consolidated financial statements included in this Annual Report on Form 10-K.

The fair value of restricted stock awards is based on the price per share of our common stock on the date of grant. We grant options to purchase our stock at fair value as of the date of grant. We recognize compensation expense for only the portion of options or restricted shares that are expected to vest. Therefore, we apply estimated forfeiture rates that are derived from historical employee termination behavior and the vesting period of the respective stock options or restricted shares. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

HIpoints Loyalty Program

Our HIpoints loyalty program is designed to reward respondents who register for our online panel, complete online surveys and refer others to join our online panel. The earned points are non-transferable and may be redeemed for gifts from a specific product folio at any time prior to expiration.


Table of Contents

Points awarded under the HIpoints program expire after twelve months of account inactivity, if a panelist cancels his or her registration or opts out of the program, or if the e-mail address used by a panelist for the program is no longer valid. We maintain a reserve for our obligations with respect to future redemption of outstanding points based on the expected redemption rate of the points. This expected redemption rate is based on our actual redemption rates since the inception of the program. An actual redemption rate that differs from the expected redemption rate could have a material impact on our results of operations.

Contingencies and Other Accruals

From time to time, we record accruals for severance costs both in connection with formal restructuring programs and in the normal course, lease costs associated with excess facilities, contract terminations, and asset impairments as a result of actions we undertake to streamline our organization, reposition certain businesses and reduce ongoing costs. Estimates of costs to be incurred to complete these actions, such as future lease payments, sublease income, the fair value of assets, and severance and related benefits, are based on assumptions at the time the actions are initiated. To the extent actual costs differ from those estimates, reserve levels may need to be adjusted. In addition, these actions may be revised due to changes in business conditions that we did not foresee at the time such actions were approved. Additionally, we record accruals for estimated incentive compensation costs during each year. Amounts accrued at the end of each reporting period are based on our estimates and may require adjustment as the ultimate amount paid for these incentives are sometimes not finally determinable until the completion of our fiscal year end closing process.

Explanation of Key Financial Statement Captions

Revenue from Services

We recognize revenue from services on a proportional performance basis, as more . . .

  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.