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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Harris Interactive, Inc. (MM) | NASDAQ:HPOL | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 2.03 | 0 | 01:00:00 |
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 MARCH 31, 2013
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 000-27577
HARRIS INTERACTIVE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE | 16-1538028 | |
(State or Other Jurisdiction of
Incorporation or Organization) |
(I.R.S. Employer
Identification No.) |
60 Corporate Woods
Rochester, New York 14623
(Address of principal executive offices)
(585) 272-8400
(Registrants telephone number, including area code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 May 10, 2013, 57,788,558 shares of the Registrants Common Stock, $.001 par value, were outstanding.
HARRIS INTERACTIVE INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2013
2
HARRIS INTERACTIVE INC.
(In thousands, except share and per share amounts)
(Unaudited)
March 31,
2013 |
June 30,
2012 |
|||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 14,947 | $ | 11,456 | ||||
Accounts receivable, net |
20,220 | 19,940 | ||||||
Unbilled receivables |
6,317 | 7,513 | ||||||
Prepaid expenses and other current assets |
4,425 | 3,859 | ||||||
Deferred tax assets |
161 | 243 | ||||||
|
|
|
|
|||||
Total current assets |
46,070 | 43,011 | ||||||
Property, plant and equipment, net |
2,315 | 2,500 | ||||||
Other intangibles, net |
8,766 | 10,795 | ||||||
Other assets |
513 | 1,080 | ||||||
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|
|
|
|||||
Total assets |
$ | 57,664 | $ | 57,386 | ||||
|
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|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 6,878 | $ | 7,628 | ||||
Accrued expenses |
17,839 | 21,643 | ||||||
Current portion of long-term debt |
2,397 | 4,794 | ||||||
Deferred revenue |
12,373 | 10,088 | ||||||
Liabilities from discontinued operations |
| 181 | ||||||
|
|
|
|
|||||
Total current liabilities |
39,487 | 44,334 | ||||||
Long-term debt |
| 1,199 | ||||||
Deferred tax liabilities |
1,491 | 1,696 | ||||||
Other liabilities |
2,870 | 4,072 | ||||||
Commitments and contingencies (Note 14) |
||||||||
Stockholders equity: |
||||||||
Preferred stock, $.001 par value, 5,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2013 and June 30, 2012 |
| | ||||||
Common stock, $.001 par value, 100,000,000 shares authorized; 57,788,558 shares issued and outstanding at March 31, 2013 and 57,399,291 shares issued and outstanding at June 30, 2012 |
58 | 57 | ||||||
Additional paid-in capital |
190,585 | 188,535 | ||||||
Accumulated other comprehensive income |
3,927 | 3,833 | ||||||
Accumulated deficit |
(180,754 | ) | (186,340 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
13,816 | 6,085 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 57,664 | $ | 57,386 | ||||
|
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|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share amounts)
(Unaudited)
Three Months
Ended
March 31, |
Nine Months
Ended
March 31, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Revenue from services |
$ | 33,554 | $ | 34,117 | $ | 103,650 | $ | 111,002 | ||||||||
Operating expenses: |
||||||||||||||||
Cost of services |
20,013 | 20,791 | 61,366 | 68,799 | ||||||||||||
Selling, general and administrative |
11,501 | 12,580 | 33,487 | 35,579 | ||||||||||||
Depreciation and amortization |
902 | 1,136 | 2,813 | 3,602 | ||||||||||||
Restructuring and other charges |
| (19 | ) | | 5,348 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
32,416 | 34,488 | 97,666 | 113,328 | ||||||||||||
|
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|
|
|
|||||||||
Operating income (loss) |
1,138 | (371 | ) | 5,984 | (2,326 | ) | ||||||||||
Interest expense, net |
67 | 196 | 237 | 557 | ||||||||||||
|
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|
|||||||||
Income (loss) from continuing operations before income taxes |
1,071 | (567 | ) | 5,747 | (2,883 | ) | ||||||||||
Provision (benefit) for income taxes |
118 | (88 | ) | 161 | (85 | ) | ||||||||||
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|
|||||||||
Income (loss) from continuing operations |
953 | (479 | ) | 5,586 | (2,798 | ) | ||||||||||
Income (loss) from discontinued operations, net of tax |
| 156 | | (1,854 | ) | |||||||||||
|
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|
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|
|||||||||
Net income (loss) |
$ | 953 | $ | (323 | ) | $ | 5,586 | $ | (4,652 | ) | ||||||
|
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|
|||||||||
Other comprehensive income (loss): |
||||||||||||||||
Change in fair value of interest rate swap |
$ | (6 | ) | $ | 39 | $ | (7 | ) | $ | 120 | ||||||
Change in postretirement obligation |
| | | (63 | ) | |||||||||||
Foreign currency translation adjustments |
(384 | ) | 433 | 101 | (1,228 | ) | ||||||||||
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|
|||||||||
Comprehensive income (loss) |
$ | 563 | $ | 149 | $ | 5,680 | $ | (5,823 | ) | |||||||
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|
|||||||||
Basic net income (loss) per share: |
||||||||||||||||
Continuing operations |
$ | 0.02 | $ | (0.01 | ) | $ | 0.10 | $ | (0.05 | ) | ||||||
Discontinued operations |
| 0.00 | | (0.03 | ) | |||||||||||
|
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|
|
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|
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|
|||||||||
$ | 0.02 | $ | (0.01 | ) | $ | 0.10 | $ | (0.08 | ) | |||||||
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Diluted net income (loss) per share: |
||||||||||||||||
Continuing operations |
$ | 0.02 | $ | (0.01 | ) | $ | 0.10 | $ | (0.05 | ) | ||||||
Discontinued operations |
| 0.00 | | (0.03 | ) | |||||||||||
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|
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|
|||||||||
$ | 0.02 | $ | (0.01 | ) | $ | 0.10 | $ | (0.08 | ) | |||||||
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|||||||||
Weighted-average shares outstanding basic |
56,301,471 | 55,572,845 | 56,134,161 | 55,287,089 | ||||||||||||
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|
|||||||||
Weighted-average shares outstanding diluted |
58,206,271 | 55,572,845 | 57,846,756 | 55,287,089 | ||||||||||||
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Nine Months
Ended March 31, |
||||||||
2013 | 2012 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 5,586 | $ | (4,652 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities |
||||||||
Depreciation and amortization |
3,277 | 4,398 | ||||||
Deferred taxes |
(139 | ) | (518 | ) | ||||
Stock-based compensation |
1,817 | 997 | ||||||
Amortization of deferred financing costs |
84 | 52 | ||||||
Loss on disposal of property, plant and equipment |
| 336 | ||||||
Writeoff of Asian intangible assets |
| 489 | ||||||
(Increase) decrease in assets |
||||||||
Accounts receivable |
(258 | ) | 7,351 | |||||
Unbilled receivables |
1,223 | 348 | ||||||
Prepaid expenses and other current assets |
(1,043 | ) | (2,065 | ) | ||||
Other assets |
487 | 641 | ||||||
(Decrease) increase in liabilities |
||||||||
Accounts payable |
(751 | ) | (2,295 | ) | ||||
Accrued expenses |
(3,973 | ) | 10 | |||||
Deferred revenue |
2,301 | (2,256 | ) | |||||
Other long-term liabilities |
(1,202 | ) | 752 | |||||
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|
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Net cash provided by operating activities |
7,409 | 3,588 | ||||||
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|
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Cash flows from investing activities: |
||||||||
Capital expenditures |
(584 | ) | (427 | ) | ||||
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|
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|
|||||
Net cash used in investing activities |
(584 | ) | (427 | ) | ||||
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|
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Cash flows from financing activities: |
||||||||
Proceeds from employee stock purchases |
252 | 133 | ||||||
Repayment of borrowings |
(3,596 | ) | (3,596 | ) | ||||
Repurchases of common stock |
(16 | ) | (19 | ) | ||||
Credit agreement amendment costs |
| (86 | ) | |||||
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|
|||||
Net cash used in financing activities |
(3,360 | ) | (3,568 | ) | ||||
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|
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Effect of exchange rate changes on cash and cash equivalents |
26 | (650 | ) | |||||
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|
|||||
Net increase (decrease) in cash and cash equivalents |
3,491 | (1,057 | ) | |||||
Cash and cash equivalents at beginning of period |
11,456 | 14,224 | ||||||
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Cash and cash equivalents at end of period |
$ | 14,947 | $ | 13,167 | ||||
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
( In thousands, except share and per share amounts )
1. Financial Statements
The unaudited consolidated financial statements included herein reflect, in the opinion of the management of Harris Interactive Inc. and its subsidiaries (collectively, the Company), all normal recurring adjustments necessary to fairly state the Companys unaudited consolidated financial statements for the periods presented.
2. Basis of Presentation
Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The consolidated balance sheet as of June 30, 2012 has been derived from the audited consolidated financial statements of the Company.
These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2012, filed by the Company with the Securities and Exchange Commission (SEC) on September 25, 2012.
Future Liquidity Considerations
At March 31, 2013, the Company had cash and cash equivalents of $14,947, compared with $11,456 at June 30, 2012. Available sources of cash to support known or reasonably likely cash requirements over the next 12 months include cash and cash equivalents on hand ($7,128 held in the U.S. and $7,819 held by the Companys international operations at March 31, 2013), additional cash that may be generated from the Companys operations, and funds to the extent available through its credit facilities discussed in Note 8, Borrowings. While the Company believes that its available sources of cash, including funds available through its revolving line that are subject to certain requirements, including minimum cash balances, will support known or reasonably likely cash requirements over the next 12 months, including quarterly principal payments of $1,199 and interest payments due under the Companys credit agreement (through September 2013), the Companys ability to generate cash from its operations is dependent upon its ability to profitably generate revenue, which requires that it continually develops new business, both for growth and to replace completed projects. Although work for no one client constitutes more than 10% of revenue, the Company has had to find significant amounts of replacement and additional revenue as client relationships and work for continuing clients change and will likely have to continue to do so in the future. The Companys ability to profitably generate revenue depends not only on the execution of its business plans, but also on general market factors outside of its control. As many of the Companys clients treat all or a portion of their market research expenditures as discretionary, the Companys ability to profitably generate revenue is adversely impacted whenever there are adverse macroeconomic conditions in the markets the Company serves.
3. Recent Accounting Pronouncements
Fair Value Measurements
Effective July 1, 2012, the Company adopted the Financial Accounting Standards Board (FASB) amended guidance to achieve common fair value measurement and disclosure requirements under GAAP. This amended guidance provided clarification about the application of existing fair value measurement and disclosure requirements, and expands certain other disclosure requirements. The adoption of this amended guidance on July 1, 2012 did not have a material impact on the Companys unaudited consolidated financial statements.
6
Presentation of Comprehensive Income
Effective July 1, 2012, the Company adopted the FASB amended guidance requiring an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This amended guidance eliminated the option to present the components of other comprehensive income as part of the statement of stockholders equity. The adoption of this amended guidance on July 1, 2012 required changes in presentation only and did not have an impact on the Companys unaudited consolidated financial statements.
4. Restructuring and Other Charges
Fiscal 2012
During the nine months ended March 31, 2012, the Company continued to take actions designed to re-align the cost structure of its U.S. and U.K. operations. Specifically, the Company:
| Reduced headcount at its U.K. facilities by a total of 56 full-time employees and incurred $1,008 in one-time termination benefits, all of which involved cash payments. The reductions in staff were communicated to the affected employees in July 2011 and all actions were completed at that time. Related cash payments were completed by January 2012. |
| Reduced headcount at its U.S. facilities by a total of 23 full-time employees and incurred $389 in one-time termination benefits, all of which involved cash payments. The reductions in staff were communicated to the affected employees in July and August 2011 and all actions were completed at those respective times. Related cash payments were completed by February 2012. |
| Reduced headcount at its U.S. facilities by a total of 10 full-time employees and incurred $260 in one-time termination benefits, all of which involved cash payments. The reductions in staff were communicated to the affected employees in October and December 2011 and all actions were completed at those respective times. Related cash payments were completed by March 2012. |
| Reduced its occupancy of leased office space at the Companys 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 by June 2020. |
The following table summarizes the restructuring charges recognized in the Companys unaudited consolidated statements of operations for the three and nine months ended March 31:
Three Months Ended
March 31, |
Nine Months Ended
March 31, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Termination benefits |
$ | | $ | | $ | | $ | 1,657 | ||||||||
Lease commitments |
| | | 4,084 | ||||||||||||
Changes in estimate |
| (7 | ) | | (48 | ) | ||||||||||
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$ | | $ | (7 | ) | $ | | $ | 5,693 | ||||||||
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7
The following table summarizes activity during the nine months ended March 31, 2013 with respect to the Companys remaining reserves for the restructuring activities described above and those undertaken in prior fiscal years:
Balance,
July 1, 2012 |
Costs
Incurred |
Changes in
Estimate |
Cash
Payments |
Non-Cash
Settlements |
Balance,
March 31, 2013 |
|||||||||||||||||||
Termination benefits |
$ | 298 | $ | | $ | | $ | (298 | ) | $ | | $ | | |||||||||||
Lease commitments |
6,278 | | | (1,596 | ) | | 4,682 | |||||||||||||||||
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Remaining reserve |
$ | 6,576 | $ | | $ | | $ | (1,894 | ) | $ | | $ | 4,682 | |||||||||||
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5. Discontinued Operations
The revenues and losses attributable to the Companys Asian operations, which ceased in September 2011 and are reported in discontinued operations were as follows:
For the Three
Months Ended March 31, |
For the Nine
Months Ended 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.
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. |
8
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 March 31, 2013 |
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Financial liabilities: |
||||||||||||||||
Interest rate swap contract |
$ | | $ | 37 | $ | | $ | 37 | ||||||||
At June 30, 2012 |
||||||||||||||||
Financial liabilities: |
||||||||||||||||
Interest rate swap contract |
$ | | $ | 174 | $ | | $ | 174 |
The fair value of the Companys interest rate swap was based on quotes from the respective counterparty, which the Company corroborated using discounted cash flow calculations based upon forward interest-rate yield curves obtained from independent pricing services.
7. Acquired Intangible Assets Subject to Amortization
At March 31, 2013 and June 30, 2012, acquired intangible assets subject to amortization consisted of the following:
March 31, 2013 | ||||||||||||||||
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 | 3,153 | 3,145 | 8 | ||||||||||||
Customer relationships |
10 | 20,843 | 14,597 | 6,246 | ||||||||||||
Trade names |
16 | 5,261 | 2,749 | 2,512 | ||||||||||||
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Total |
$ | 31,025 | $ | 22,259 | $ | 8,766 | ||||||||||
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June 30, 2012 | ||||||||||||||||
Weighted-
Average Amortization Period (In Years) |
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Book Value |
|||||||||||||
Contract-based intangibles |
3 | $ | 1,768 | $ | 1,768 | $ | | |||||||||
Internet respondent database |
7 | 3,080 | 2,861 | 219 | ||||||||||||
Customer relationships |
10 | 20,849 | 12,974 | 7,875 | ||||||||||||
Trade names |
16 | 5,250 | 2,549 | 2,701 | ||||||||||||
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Total |
$ | 30,947 | $ | 20,152 | $ | 10,795 | ||||||||||
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9
The gross carrying amount and accumulated amortization of the Companys acquired intangible assets for the three and nine months ended March 31, 2013, as well as the related amortization expense, reflect the impact of foreign currency exchange rate fluctuations during the period.
For the Three
Months Ended March 31, |
For the Nine
Months Ended March 31, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Amortization expense |
$ | 668 | $ | 691 | $ | 2,043 | $ | 2,086 | ||||||||
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Estimated amortization expense for the fiscal years ending June 30: |
||||
2013 |
$ | 2,445 | ||
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2014 |
$ | 2,153 | ||
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2015 |
$ | 1,577 | ||
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2016 |
$ | 1,453 | ||
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2017 |
$ | 1,410 | ||
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2018 |
$ | 301 | ||
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Thereafter |
$ | 1,470 | ||
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8. Borrowings
Outstanding Debt
There were no material changes to the Companys credit facilities under its credit agreement during the three months ended March 31, 2013 from those disclosed in Note 11, Borrowings, to the audited consolidated financial statements included in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2012.
At March 31, 2013, the required principal repayments of the term loan under the Companys credit agreement for the remainder of fiscal 2013 and the succeeding fiscal year are as follows:
Total | ||||
2013 |
$ | 1,198 | ||
2014 |
1,199 | |||
|
|
|||
$ | 2,397 | |||
|
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At March 31, 2013, the Company was in compliance with all of the covenants under its credit agreement, had no outstanding borrowings under its revolving line of credit, and had $340 in outstanding letters of credit. The outstanding letters of credit reduce the remaining undrawn portion of the revolving line of credit that is available for future borrowings.
Interest Rate Swap
The Company has one interest rate swap contract, the term of which ends on September 30, 2013. The interest rate swap fixed the floating LIBOR interest portion of the rate on the term loan outstanding under the Companys credit agreement at 4.32%.
At March 31, 2013 and June 30, 2012, the Company had liabilities of $37 and $174, respectively, in the Other liabilities line item of its consolidated balance sheet to reflect the fair value of the interest rate swap. Changes in the fair value of the interest rate swap are recorded through interest expense on a quarterly basis. Such changes amounted to $35 and $65, respectively, for the three months ended March 31, 2013 and 2012, and $137 and $270, respectively, for the nine months ended March 31, 2013 and 2012.
10
9. Stock-Based Compensation
The following table illustrates the stock-based compensation expense for stock options and restricted stock issued under the Companys Long-Term Incentive Plans (the Incentive Plans), stock options issued to new employees outside the Incentive Plans, and shares issued under the Companys Employee Stock Purchase Plans (ESPPs) included in the Companys unaudited consolidated statements of comprehensive income for the three and nine months ended March 31:
Three Months Ended
March 31, |
Nine Months Ended
March 31, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Cost of services |
$ | 10 | $ | 8 | $ | 31 | $ | 17 | ||||||||
Selling, general and administrative |
559 | 439 | 1,786 | 980 | ||||||||||||
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$ | 569 | $ | 447 | $ | 1,817 | $ | 997 | |||||||||
|
|
|
|
|
|
|
|
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 nine months ended March 31, 2013:
Shares |
Weighted-
Average Exercise Price |
|||||||
Options outstanding at July 1 |
5,218,927 | $ | 1.54 | |||||
Granted |
| | ||||||
Forfeited |
(102,765 | ) | 2.53 | |||||
Exercised |
(166,000 | ) | 0.65 | |||||
|
|
|||||||
Options outstanding at March 31 |
4,950,162 | 1.55 | ||||||
|
|
The following table provides a summary of the status of the Companys employee and director restricted stock awards for the nine months ended March 31, 2013:
Shares |
Weighted-
Average Fair Value at Date of Grant |
|||||||
Restricted shares outstanding at July 1 |
1,466,032 | $ | 1.09 | |||||
Granted |
615,391 | 1.44 | ||||||
Forfeited |
(14,201 | ) | 1.45 | |||||
Vested |
(154,700 | ) | 1.19 | |||||
|
|
|||||||
Restricted shares outstanding at March 31 |
1,912,522 | 1.23 | ||||||
|
|
At March 31, 2013, there was $2,021 of total unrecognized stock-based compensation expense related to non-vested stock-based compensation arrangements granted under the Incentive Plans, outside the Incentive Plans, and under the ESPPs. That expense is expected to be recognized over a weighted-average period of 1.3 years.
10. Income Taxes
The Company 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 the Companys 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 the Companys international jurisdictions.
11
The Company 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 the Companys 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 the Companys international jurisdictions.
A full valuation allowance continues to be recorded at March 31, 2013 against the Companys U.S. and U.K. net deferred tax assets. If the Company continues its recent trend of pre-tax book income in the U.S., it believes that, based on consideration of all sources of available evidence, including recent historical profitable operating performance and other positive and negative evidence such as financial and taxable income projections, market environment, and other factors, a determination may result during the next twelve months that a valuation allowance is no longer needed. The Company gives the most weight to the existence of cumulative losses in recent years in its evaluation of the need for a full valuation allowance. Any reversal of the Companys valuation allowance will favorably impact its results of operations in the period of reversal. The Company is currently unable to determine when that reversal might occur, but it will continue to assess the realizability of its deferred tax assets and will adjust the valuation allowances should all or a portion of the deferred tax assets become realizable in the future.
At March 31, 2013, the Company had U.S. federal and various state net operating loss carryforwards of approximately $39,900.
11. Share Repurchase Program
Under the share repurchase program authorized by the Board on March 6, 2012, the Company repurchased 14,300 shares of its common stock at an average price per share of $1.09 for an aggregate purchase price of $16 during the nine months ended March 31, 2013. All shares repurchased were subsequently retired. There were no shares repurchased during the three months ended March 31, 2013.
At March 31, 2013, the repurchase program had $2,914 in remaining capacity.
12. Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period. Diluted net income (loss) per share reflects the potential dilution of such securities that could share in earnings. When the impact of stock options or other stock-based compensation is anti-dilutive, they are excluded from the calculation.
The following table sets forth the reconciliation of the basic and diluted net income (loss) per share computations for the three and nine months ended March 31:
Three Months
Ended
March 31, |
Nine Months
Ended
March 31, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Numerator: |
||||||||||||||||
Net income (loss) used for calculating basic and diluted net income (loss) per share of common stock |
$ | 953 | $ | (323 | ) | $ | 5,586 | $ | (4,652 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Denominator: |
||||||||||||||||
Weighted average number of shares of common stock used in the calculation of basic net income (loss) per share |
56,301,471 | 55,572,845 | 56,134,161 | 55,287,089 | ||||||||||||
Dilutive effect of outstanding stock options and restricted stock |
1,904,800 | | 1,712,595 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Shares of common stock used in the calculation of diluted net income (loss) per share |
58,206,271 | 55,572,845 | 57,846,756 | 55,287,089 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) per share: |
||||||||||||||||
Basic |
$ | 0.02 | $ | (0.01 | ) | $ | 0.10 | $ | (0.08 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
$ | 0.02 | $ | (0.01 | ) | $ | 0.10 | $ | (0.08 | ) | ||||||
|
|
|
|
|
|
|
|
12
Unvested restricted stock and unexercised stock options to purchase 770,314 and 7,160,209 shares of the Companys common stock for the three months ended March 31, 2013 and 2012, respectively, at weighted-average prices per share of $5.94 and $1.44, respectively, were not included in the computations of diluted net income (loss) per share because their impact was anti-dilutive during the respective periods.
Unvested restricted stock and unexercised stock options to purchase 1,129,314 and 7,160,209 shares of the Companys common stock for the nine months ended March 31, 2013 and 2012, respectively, at weighted-average prices per share of $4.40 and $1.44, respectively, were not included in the computations of diluted net income (loss) per share because their impact was anti-dilutive during the respective periods.
13. Enterprise-Wide Disclosures
The Company is comprised of operations in North America and Europe. Non-U.S. market research is comprised of operations in Canada, France, United Kingdom and Germany. The Companys operations in Asia ceased as of September 30, 2011. There were no intercompany transactions that materially affected the Companys financial statements, and all intercompany sales have been eliminated upon consolidation.
The Companys business model for offering market research is consistent across the geographic regions in which it operates. Geographic management facilitates local execution of the Companys global strategies. The Company maintains global leaders with responsibility across all geographic regions for the majority of its critical business processes, and the most significant performance evaluations and resource allocations made by the Companys chief operating decision-maker are made on a global basis. Accordingly, the Company has concluded that it has one reportable segment.
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
March 31, |
Nine Months
Ended
March 31, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Revenue from services |
||||||||||||||||
United States |
$ | 21,105 | $ | 20,020 | $ | 64,565 | $ | 66,867 | ||||||||
Canada |
5,160 | 5,676 | 15,177 | 17,451 | ||||||||||||
France |
3,503 | 3,601 | 10,366 | 10,638 | ||||||||||||
United Kingdom |
2,095 | 2,991 | 7,637 | 10,602 | ||||||||||||
Germany |
1,691 | 1,829 | 5,905 | 5,444 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue from services |
$ | 33,554 | $ | 34,117 | $ | 103,650 | $ | 111,002 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss) |
||||||||||||||||
United States |
$ | 1,483 | $ | (233 | ) | $ | 5,921 | $ | 240 | |||||||
Canada |
(36 | ) | (71 | ) | (110 | ) | (270 | ) | ||||||||
France |
104 | 15 | 175 | 233 | ||||||||||||
United Kingdom |
(305 | ) | (50 | ) | (172 | ) | (2,678 | ) | ||||||||
Germany |
(108 | ) | (32 | ) | 170 | 149 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating income (loss) |
$ | 1,138 | $ | (371 | ) | $ | 5,984 | $ | (2,326 | ) | ||||||
|
|
|
|
|
|
|
|
13
At
March 31, 2013 |
At
June 30, 2012 |
|||||||
Long-lived assets |
||||||||
United States |
$ | 910 | $ | 909 | ||||
Canada |
156 | 276 | ||||||
France |
710 | 742 | ||||||
United Kingdom |
376 | 459 | ||||||
Germany |
163 | 114 | ||||||
|
|
|
|
|||||
Total long-lived assets |
$ | 2,315 | $ | 2,500 | ||||
|
|
|
|
|||||
Deferred tax assets (liabilities) |
||||||||
United States |
$ | | $ | | ||||
Canada |
(1,428 | ) | (1,458 | ) | ||||
France |
| (51 | ) | |||||
United Kingdom |
| | ||||||
Germany |
98 | 56 | ||||||
|
|
|
|
|||||
Total deferred tax liabilities |
$ | (1,330 | ) | $ | (1,453 | ) | ||
|
|
|
|
14. Commitments and Contingencies
The Company has several non-cancelable operating leases for office space and equipment. There were no material changes to the financial obligations for such leases during the three and nine months ended March 31, 2013 from those disclosed in Note 18, Commitments and Contingencies, to the audited consolidated financial statements included in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2012.
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, results of operations or cash flows.
14
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
The discussion in this Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding expectations, beliefs, plans, objectives, intentions or strategies regarding the future. In some cases, you can identify forward-looking statements by terminology such as, may, should, expects, plans, anticipates, feel, believes, estimates, predicts, potential, continue, consider, possibility, or the negative of these terms or other comparable terminology . All forward-looking statements included in this document are based on the information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statement. Actual results could differ materially from the results discussed herein. Factors that might cause or contribute to such differences include but are not limited to, those discussed in the Risk Factors section set forth in reports or documents the Company files from time to time with the Securities and Exchange Commission (SEC), such as its Annual Report on Form 10-K for the fiscal year ended June 30, 2012, filed by the Company with the SEC on September 25, 2012. Risks and uncertainties also include quarterly variations in financial results, actions of competitors, and the Companys ability to sustain and grow its revenue base, maintain and improve cost efficient operations, develop and maintain products and services attractive to the market, maintain compliance with financial covenants under its credit agreement, obtain additional cash resources should it be necessary to do so, and maintain compliance with certain Nasdaq listing requirements.
Note: Amounts shown below are in thousands of U.S. Dollars for our continuing operations, unless otherwise noted. Also, references herein to we, our, us, its, the Company or Harris Interactive refer to Harris Interactive Inc. and its subsidiaries, unless the context specifically requires otherwise.
Overview
Harris Interactive is a leading global market research firm that uses web-based, telephone and other research methodologies to provide clients with information about the views, behaviors and attitudes of people worldwide.
For the three months ended 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 years 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. |
15
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
March 31, |
Nine Months Ended
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 | |||||||||||
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16
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
Months Ended March 31, |
For the Nine
Months Ended 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 managements discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, filed by us with the SEC on September 25, 2012.
17
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. |
18
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.
19
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. |
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| 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.
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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
FY2012 |
Q4
FY2012 |
Q1
FY2013 |
Q2
FY2013 |
Q3
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 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, scope changes and other matters may affect the amount of bookings previously reported.
Bookings for the three months ended March 31, 2013 were $34.4 million, a decrease of 12.9% compared with $39.5 million for the same prior year period. Excluding foreign exchange rate differences, bookings were down 10.2% over the same prior year period. Bookings in local currency compared with the same prior year period were principally impacted by the following:
| an 8.5% decrease in U.S. bookings, mainly as a result of bookings declines in our Healthcare business, |
| an 11.9% decrease in Canadian bookings, mainly as a result of our more selective approach to accepting work based on expected project profitability and a slowdown in the wholesale side of the business, |
| a 1.5% decrease in French bookings, mainly as a result of timing differences, |
| an 11.5% decrease in U.K. bookings, mainly as a result of delayed and reduced spending by certain of our existing clients, and |
| an 11.0% decrease in German bookings, mainly as a result of timing differences. |
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Secured revenue , also known as backlog, is defined as the contract value of firm commitment orders received for projects (plus or minus adjustments due to contract value modifications or project cancellations), less revenue from services on those projects. At March 31, 2013, secured revenue was calculated as:
Amounts in millions of USD |
||||
Secured revenue at December 31, 2012 |
$ | 54.1 | ||
Plus: Bookings for the three months ended March 31, 2013 |
34.4 | |||
Less: Revenue from services for the three months ended March 31, 2013 |
(33.6 | ) | ||
|
|
|||
Secured revenue at March 31, 2013 |
$ | 55.0 | ||
|
|
Secured revenue informs us as to the magnitude of the contract value of firm commitment orders received but not yet earned as revenue from services and, in conjunction with bookings forecasts for future periods, helps us manage our future staffing needs more accurately. It also serves as another indicator of the effectiveness of our marketing and sales initiatives. Based on our experience, projects in secured revenue at the end of a fiscal period generally convert to revenue from services during the following twelve months. However, generally, contracts may be cancelled or reduced in scope at any time.
Secured revenue at March 31, 2013 increased by 8.9% compared with $50.5 million for the same prior year period. Foreign exchange rate differences had an inconsequential impact on secured revenue when compared with the same prior year period. The increase in secured revenue was mainly due to timing differences compared with the same prior year period.
Financial Condition, Liquidity and Capital Resources
Cash and Cash Equivalents
The following table sets forth net cash provided by operating activities, net cash used in investing activities, and net cash used in financing activities, for the nine months ended March 31:
2013 | 2012 | |||||||
Net cash provided by operating activities |
$ | 7,409 | $ | 3,588 | ||||
Net cash used in investing activities |
(584 | ) | (427 | ) | ||||
Net cash used in financing activities |
(3,360 | ) | (3,568 | ) |
Net cash provided by operating activities. Net cash provided by operating activities was $7,409 for the nine months ended March 31, 2013, compared with $3,588 provided by operating activities for the same prior year period. The increase was primarily attributable to our improved profitability compared with the same prior year period.
Net cash used in investing activities. Net cash used in investing activities was $584 for the nine months ended March 31, 2013, compared with $427 for the same prior year period. Investing activities for the nine months ended March 31, 2013 and 2012 consisted solely of capital expenditures.
Net cash used in financing activities. Net cash used in financing activities was $3,360 for the nine months ended March 31, 2013, compared with $3,568 for the same prior year period. The primary use of cash during both periods was to make required principal payments on our outstanding debt.
Working Capital
At March 31, 2013, we had cash and cash equivalents of $14,947, compared with $11,456 at June 30, 2012. Available sources of cash to support known or reasonably likely cash requirements over the next 12 months include cash and cash equivalents on hand ($7,128 held in the U.S. and $7,819 held by our international operations at March 31, 2013), 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
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requirements over the next 12 months, including quarterly principal payments of $1,199 and interest payments due under our credit agreement (through September 2013), our ability to generate cash from our operations is dependent upon our ability to profitably generate revenue, which requires that we continually develop profitable new business, both for growth and to replace completed projects. Although work for no one client constitutes more than 10% of our revenue, we have had to find significant amounts of replacement and additional revenue as client relationships and work for continuing clients change and will likely have to continue to do so in the future. Our ability to profitably generate revenue depends not only on the execution of our business plans, but also on general market factors outside of our control. As many of our clients treat all or a portion of their market research expenditures as discretionary, our ability to profitably generate revenue is adversely impacted whenever there are adverse macroeconomic conditions in the markets we serve.
Our foreign earnings are not considered permanently reinvested and we are not presently aware of any restrictions on the repatriation of these funds. If these funds were needed to fund our operations in the U.S., they could be repatriated. Repatriation of our foreign funds could result in additional U.S. income taxes and foreign withholding taxes which could be partially offset by net operating losses. Determining the amount of possible future taxes is not practicable.
Our capital requirements depend on numerous factors, including but not limited to, market acceptance of our products and services, the resources we allocate to the continuing development of new products and services, our technology infrastructure and online panel, and the marketing and selling of our products and services. We are able to control or defer certain capital and other expenditures in order to help preserve cash if necessary. We expect to incur capital expenditures of between $500 and $1,000 during the fiscal year ending June 30, 2013.
Credit Facilities
The required principal repayments under our credit agreement for the remainder of fiscal 2013 and the succeeding fiscal year are set forth in Note 8, Borrowings, to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q. At March 31, 2013, we were in compliance with all of the covenants under our credit agreement, had no outstanding borrowings under our revolving line of credit, and had $340 in outstanding letters of credit. The letters of credit reduce the remaining undrawn portion of the revolving line of credit that is available for future borrowings.
Interest Rate Swap
The principal terms of our interest rate swap are described in Note 8, Borrowings, to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements and Contractual Obligations
At March 31, 2013, 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 March 31, 2013 to our contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, filed by us with the SEC on September 25, 2012.
Recent Accounting Pronouncements
See Note 3, Recent Accounting Pronouncements, to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q for a discussion of the impact of recently issued accounting pronouncements on our unaudited consolidated financial statements at March 31, 2013 and for the nine months then ended, as well as the expected impact on our consolidated financial statements for future periods.
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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 held by us. We do not believe that our holdings have a material liquidity risk under current market conditions.
Interest Rate Exposure
At March 31, 2013, we had outstanding debt under our credit facilities of $2,397. 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.
Foreign Currency Exposure
As a result of operating in foreign markets, our financial results could be affected by significant changes in foreign currency exchange rates. We have international sales and operations in North America and Europe. Therefore, we are subject to foreign currency rate exposure. Non-U.S. transactions are denominated in the functional currencies of the respective countries in which our foreign subsidiaries reside. Our consolidated assets and liabilities are translated into U.S. Dollars at the applicable exchange rates in effect as of the balance sheet date. Consolidated income and expense items are translated into U.S. Dollars at the average exchange rates for each period presented. Accumulated net translation adjustments are recorded in the accumulated other comprehensive income component of stockholders equity. We measure our risk related to foreign currency rate exposure on two levels, the first being the impact of operating results on the consolidation of foreign subsidiaries that are denominated in the functional currencies of their home countries, and the second being the extent to which we have instruments denominated in foreign currencies.
Foreign exchange translation gains and losses are included in our results of operations since we consolidate the results of our international operations, which are denominated in each countrys functional currency, with our U.S. results. The impact of translation gains or losses on net income from consolidating foreign subsidiaries was not material for the periods presented. We have historically had low exposure to changes in foreign currency exchange rates upon consolidating the results of our foreign subsidiaries with our U.S. results due to the size of our foreign operations in comparison to our consolidated operations. However, if the operating profits of our international operations increase as a percentage of our consolidated operations, our exposure to the appreciation or depreciation in the U.S. Dollar could have a more significant impact on our net income and cash flows. Thus, we evaluate our exposure to foreign currency fluctuation risk on an ongoing basis.
Since our foreign operations are conducted using foreign currencies, we bear additional risk of fluctuations in exchange rates because of instruments denominated in foreign currencies. We have historically had low exposure to changes in foreign currency exchange rates with regard to instruments denominated in foreign currencies, given the amount and short-term nature of the maturity of these instruments. The carrying values of financial instruments denominated in foreign currencies, including cash, cash equivalents, accounts receivable and accounts payable, approximate fair value because of the short-term nature of the maturity of these instruments.
25
At March 31, 2013, we performed the following sensitivity analysis to determine the impact of a 10% appreciation or depreciation in the U.S. Dollar:
Impact of 10% Appreciation or
Depreciation in U.S. Dollar |
||||||||||||
Currency |
Cash | Revenue |
Operating
Income (Loss) |
|||||||||
Canadian Dollar |
$ | 193 | $ | 526 | $ | 4 | ||||||
British Pound |
138 | 210 | (31 | ) | ||||||||
Euro: |
||||||||||||
France |
149 | 345 | 10 | |||||||||
Germany |
302 | 169 | (11 | ) |
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 March 31, 2013 (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 March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In the normal course of business, we are at times subject to pending and threatened legal actions and proceedings. After reviewing with legal counsel any pending and threatened actions and proceedings, management does not expect the outcome of such actions or proceedings to have a material adverse effect on our business, financial condition, results of operations or cash flows.
There are no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, filed by us with the SEC on September 25, 2012.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3 Defaults Upon Senior Securities
None.
Item 4 Mine Safety Disclosures
Not applicable.
26
None.
31.1 | Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certificate of the Chief Executive Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002). |
32.2 | Certificate of the Chief Financial Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002). |
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Calculation Linkbase Document
101.LAB XBRL Taxonomy Label Linkbase Document
101.PRE XBRL Taxonomy Presentation Linkbase Document
101.DEF XBRL Taxonomy Definition Document
* | Denotes management contract or arrangement |
27
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.
May 15, 2013
Harris Interactive Inc. | ||
By: | /s/ Eric W. Narowski | |
Eric W. Narowski | ||
Chief Financial Officer (On Behalf of the Registrant and as Principal Financial and Accounting Officer) |
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). |
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Calculation Linkbase Document
101.LAB XBRL Taxonomy Label Linkbase Document
101.PRE XBRL Taxonomy Presentation Linkbase Document
101.DEF XBRL Taxonomy Definition Document
* | Denotes management contract or arrangement |
29
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