Attached files
file | filename |
---|---|
EX-10.3 - EX-10.3 - HARRIS INTERACTIVE INC | l37965exv10w3.htm |
EX-32.2 - EX-32.2 - HARRIS INTERACTIVE INC | l37965exv32w2.htm |
EX-10.2 - EX-10.2 - HARRIS INTERACTIVE INC | l37965exv10w2.htm |
EX-32.1 - EX-32.1 - HARRIS INTERACTIVE INC | l37965exv32w1.htm |
EX-31.2 - EX-31.2 - HARRIS INTERACTIVE INC | l37965exv31w2.htm |
EX-10.1 - EX-10.1 - HARRIS INTERACTIVE INC | l37965exv10w1.htm |
EX-31.1 - EX-31.1 - HARRIS INTERACTIVE INC | l37965exv31w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTER ENDED SEPTEMBER 30, 2009
OR
o | 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 | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) |
161 Sixth Avenue, New York, New York 10013
(Address of principal executive offices)
(212) 539-9600
(Registrants telephone number, including area code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
(Address of principal executive offices)
(212) 539-9600
(Registrants telephone number, including area code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes þ No o
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 o No o
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. (Check one):
Large accelerated filer o | Accelerated filero | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
On October 31, 2009, 53,949,053 shares of the Registrants Common Stock, $.001 par value, were
outstanding.
HARRIS INTERACTIVE INC.
FORM 10-Q
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2009
INDEX
Page | ||||||||
Part I: Financial Information |
||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
16 | ||||||||
22 | ||||||||
23 | ||||||||
Part II: Other Information |
||||||||
23 | ||||||||
24 | ||||||||
24 | ||||||||
24 | ||||||||
24 | ||||||||
24 | ||||||||
24 | ||||||||
26 | ||||||||
EX-10.1 | ||||||||
EX-10.2 | ||||||||
EX-10.3 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
2
Table of Contents
Part I: Financial Information
Item 1 Financial Statements
HARRIS INTERACTIVE INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
September | June 30, | |||||||
30, 2009 | 2009 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 13,886 | $ | 16,752 | ||||
Marketable securities |
507 | 1,010 | ||||||
Accounts receivable, net |
22,737 | 23,163 | ||||||
Unbilled receivables |
7,807 | 6,520 | ||||||
Prepaid expenses and other current assets |
6,322 | 7,244 | ||||||
Deferred tax assets |
685 | 632 | ||||||
Total current assets |
51,944 | 55,321 | ||||||
Property, plant and equipment, net |
7,156 | 8,015 | ||||||
Other intangibles, net |
18,646 | 18,540 | ||||||
Deferred tax assets |
296 | 284 | ||||||
Other assets |
2,097 | 2,367 | ||||||
Total assets |
$ | 80,139 | $ | 84,527 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 5,907 | $ | 6,738 | ||||
Accrued expenses |
15,561 | 18,349 | ||||||
Current portion of long-term debt |
6,925 | 6,925 | ||||||
Deferred revenue |
13,362 | 12,531 | ||||||
Total current liabilities |
41,755 | 44,543 | ||||||
Long-term debt |
13,850 | 15,581 | ||||||
Deferred tax liabilities |
3,055 | 3,163 | ||||||
Other long-term liabilities |
2,809 | 3,117 | ||||||
Commitments and contingencies (Note 13) |
||||||||
Stockholders equity: |
||||||||
Preferred stock, $.001 par value, 5,000,000
shares authorized; 0 shares issued and
outstanding at September 30, 2009 and June 30,
2009 |
| | ||||||
Common stock, $.001 par value, 100,000,000
shares authorized; 53,949,053 shares issued and
outstanding at September 30, 2009 and 53,964,482
shares issued and outstanding at June 30, 2009 |
54 | 54 | ||||||
Additional paid-in capital |
185,027 | 184,860 | ||||||
Accumulated other comprehensive income |
4,360 | 3,347 | ||||||
Accumulated deficit |
(170,771 | ) | (170,138 | ) | ||||
Total stockholders equity |
18,670 | 18,123 | ||||||
Total liabilities and stockholders equity |
$ | 80,139 | $ | 84,527 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
Table of Contents
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Revenue from services |
$ | 38,935 | $ | 50,280 | ||||
Operating expenses: |
||||||||
Cost of services |
24,431 | 31,151 | ||||||
Selling, general and administrative |
12,962 | 19,608 | ||||||
Depreciation and amortization |
1,754 | 2,083 | ||||||
Restructuring and other charges |
148 | 628 | ||||||
Total operating expenses |
39,295 | 53,470 | ||||||
Operating loss |
(360 | ) | (3,190 | ) | ||||
Interest and other income |
15 | 190 | ||||||
Interest expense |
(537 | ) | (455 | ) | ||||
Loss from operations before income taxes |
(882 | ) | (3,455 | ) | ||||
Provision (benefit) for income taxes |
(249 | ) | (1,194 | ) | ||||
Net loss |
$ | (633 | ) | $ | (2,261 | ) | ||
Basic and diluted net loss per share |
$ | (0.01 | ) | $ | (0.04 | ) | ||
Weighted-average shares outstanding basic and diluted |
53,899,842 | 53,339,387 | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
Table of Contents
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Three | ||||||||
Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (633 | ) | $ | (2,261 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities |
||||||||
Depreciation and amortization |
2,136 | 2,462 | ||||||
Deferred taxes |
(174 | ) | (1,151 | ) | ||||
Stock-based compensation |
158 | 793 | ||||||
Amortization of deferred financing costs |
111 | 30 | ||||||
Amortization of premium on marketable securities |
| 2 | ||||||
(Increase) decrease in assets |
||||||||
Accounts receivable |
690 | 1,821 | ||||||
Unbilled receivables |
(1,205 | ) | (209 | ) | ||||
Prepaid expenses and other current assets |
549 | 482 | ||||||
Other assets |
176 | (175 | ) | |||||
(Decrease) increase in liabilities |
||||||||
Accounts payable |
(878 | ) | (2,267 | ) | ||||
Accrued expenses |
(2,916 | ) | (3,549 | ) | ||||
Deferred revenue |
763 | (510 | ) | |||||
Other liabilities |
(311 | ) | (55 | ) | ||||
Net cash used in operating activities |
(1,534 | ) | (4,587 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchases of marketable securities |
| (2,193 | ) | |||||
Proceeds from maturities and sales of marketable securities |
513 | 801 | ||||||
Capital expenditures |
(62 | ) | (709 | ) | ||||
Net cash provided by (used in) investing activities |
451 | (2,101 | ) | |||||
Cash flows from financing activities: |
||||||||
Repayment of borrowings |
(1,731 | ) | (1,731 | ) | ||||
Net cash used in financing activities |
(1,731 | ) | (1,731 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
(52 | ) | (638 | ) | ||||
Net decrease in cash and cash equivalents |
(2,866 | ) | (9,057 | ) | ||||
Cash and cash equivalents at beginning of period |
16,752 | 32,874 | ||||||
Cash and cash equivalents at end of period |
$ | 13,886 | $ | 23,817 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
Table of Contents
HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
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
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
accounting principles generally accepted in the United States of America for complete financial
statements. The consolidated balance sheet as of June 30, 2009 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, 2009, filed by the Company with the Securities and Exchange
Commission (SEC) on August 31, 2009.
The Company has evaluated subsequent events for recognition and disclosure in the financial
statements through the date of issuance, November 4, 2009.
3. Recent Accounting Pronouncements
Accounting for Transfers of Financial Assets
In June 2009, the Financial Accounting Standards Board (FASB) issued new guidance on the
accounting for the transfers of financial assets. The new guidance, which was issued as Statement
of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets, an
Amendment of FASB Statement No. 140 , has not yet been adopted into the Codification (defined
below). The new guidance requires additional disclosures for transfers of financial assets,
including securitization transactions, and any continuing exposure to the risks related to
transferred financial assets. There is no longer a concept of a qualifying special-purpose entity,
and the requirements for derecognizing financial assets have changed. The new guidance is
effective on a prospective basis for the annual period beginning after November 15, 2009 and
interim and annual periods thereafter. The Company will adopt this guidance on July 1, 2010, and
does not expect that it will have a material impact on the Companys consolidated financial
statements.
Amendments to Accounting for Variable Interest Entities
In June 2009, the FASB issued revised guidance on the accounting for variable interest
entities. The revised guidance, which was issued as Statement of Financial Accounting Standards
No. 167, Amendments to FASB Interpretation No. 46(R ), has not yet been adopted into the
Codification. The revised guidance will significantly affect the overall consolidation analysis
and is effective as of the beginning of the first fiscal year that begins after November 15, 2009.
The Company will adopt the revised guidance on July 1, 2010, and does not expect that it will have
a material impact on the Companys consolidated financial statements.
6
Table of Contents
Accounting Standards Codification
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162 (the Codification). The Codification reorganized existing
U.S. accounting and reporting standards issued by the FASB and other related private sector
standard setters into a single source of authoritative accounting principles arranged by topic.
The Codification supersedes all existing U.S. accounting standards; all other accounting literature
not included in the Codification (other than SEC guidance for publicly-traded companies) is
considered non-authoritative. The Codification was effective on a prospective basis for interim
and annual reporting periods ending after September 15, 2009. The adoption of the Codification
changed the Companys references to U.S. GAAP accounting standards but did not impact the Companys
consolidated financial statements.
Fair Value Measurement of Liabilities
In August 2009, the FASB issued new guidance for the accounting for the fair value measurement
of liabilities. The new guidance, which is now part of Accounting Standards Codification 820,
provides clarification that in certain circumstances in which a quoted price in an active market
for the identical liability is not available, a company is required to measure fair value using one
or more of the following valuation techniques: the quoted price of the identical liability when
traded as an asset, the quoted prices for similar liabilities or similar liabilities when traded as
assets, and/or another valuation technique that is consistent with the principles of fair value
measurements. The new guidance clarifies that a company is not required to include an adjustment
for restrictions that prevent the transfer of the liability and if an adjustment is applied to the
quoted price used in a valuation technique, the result is a Level 2 or 3 fair value measurement.
The new guidance is effective for interim and annual periods beginning after August 26, 2009. The
Company does not expect that the provisions of the new guidance will have a material effect on its
consolidated financial statements.
4. Restructuring and Other Charges
Restructuring
Fiscal 2009
During the third quarter of fiscal 2009, the Company took actions to re-align the cost
structure of its U.S. and U.K. operations. Specifically, the Company reduced headcount at its
U.S. facilities by 92 full-time employees and announced plans to reduce headcount at its U.K.
facilities by 25 full-time employees. One-time termination benefits associated with the U.S. and
U.K. actions were $2,656 and $389, respectively, all of which involved cash payments. The
reductions in staff were communicated to the affected employees in March 2009. All actions were
completed by March 2009 in the U.S. and May 2009 in the U.K. The related cash payments were
completed by June 2009 in the U.K. and will be completed by March 2010 in the U.S.
At March 31, 2009, the Company reviewed the estimate of anticipated sublease rental income for
its Rochester, New York offices, located at 135 Corporate Woods. This review, prompted by adverse
changes in real estate market conditions, resulted in a decrease to the Companys estimate of the
portion of the remaining lease obligation period over which it expects to derive sublease rental
income. This change in estimate resulted in a charge of $35 in the third quarter of fiscal 2009.
Previously, during the second quarter of fiscal 2009, the Company took actions to re-align the
cost structure of its U.S. operations. Specifically, the Company reduced headcount at its
U.S. facilities by 78 full-time employees and incurred $2,261 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 2008. All actions were completed by December 2008 and the Company
expects the related cash payments to be completed by December 2009.
Additionally during the second quarter of fiscal 2009, the Company substantially vacated
leased space at 135 Corporate Woods. The Company incurred $493 in charges related to the remaining
operating lease obligation, all of which involved cash payments. All actions associated with this
vacated space were completed by December 2008. The Company expects the related cash payments to be
completed by June 2010.
7
Table of Contents
At December 31, 2008, the Company reviewed the estimates of anticipated sublease rental income
for its Grandville, MI and Norwalk, CT offices, which were included in restructuring charges taken
during the third quarter of fiscal 2008 in conjunction with its reduction of leased space at these
facilities. This review, prompted by adverse changes in real estate market conditions within each
of these locales, resulted in a decrease to the Companys estimate of the portion of the remaining
lease obligation period over which it expects to derive sublease rental income. This change in
estimate resulted in a charge of $366 for the three months ended December 31, 2008.
The following table summarizes activity during the three months ended September 30, 2009 with
respect to the Companys remaining reserves for the restructuring activities described above and
those undertaken in prior fiscal years:
Balance, | Changes | Balance, | ||||||||||||||||||||||
July 1, | Costs | in | Cash | Non-Cash | September | |||||||||||||||||||
2009 | Incurred | Estimate | Payments | Settlements | 30, 2009 | |||||||||||||||||||
Severance payments |
$ | 1,225 | $ | | $ | (7 | ) | $ | (766 | ) | $ | | $ | 452 | ||||||||||
Lease commitments |
992 | | | (149 | ) | | 843 | |||||||||||||||||
Remaining reserve |
$ | 2,217 | $ | | $ | (7 | ) | $ | (915 | ) | $ | | $ | 1,295 | ||||||||||
Other Charges
Other charges reflected in the Restructuring and other charges line shown on the Companys
unaudited consolidated statement of operations for the three months ended September 30, 2009
included additional legal fees associated with the amendment of its credit agreement during fiscal
2009, along with costs incurred to close its telephone-based data collection center in Brentford,
United Kingdom during the quarter. Other charges for the three months ended September 30, 2008
included $628 in fees paid to Alix Partners LLP to assist with performance improvement initiatives.
5. 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
Table of Contents
The following table presents the fair value hierarchy for the Companys financial assets and
liabilities measured at fair value on a recurring basis:
Quoted | Significant | |||||||||||||||
Prices in | Other | Significant | ||||||||||||||
Active | Observable | Unobservable | ||||||||||||||
Markets | Inputs | Inputs | ||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
At September 30, 2009 |
||||||||||||||||
Financial assets: |
||||||||||||||||
Cash equivalents |
$ | | $ | 3,230 | $ | | $ | 3,230 | ||||||||
Available for sale marketable securities |
| 507 | | 507 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Interest rate swap contract |
$ | | $ | 1,279 | $ | | $ | 1,279 | ||||||||
At June 30, 2009 |
||||||||||||||||
Financial assets: |
||||||||||||||||
Cash equivalents |
$ | | $ | 2,720 | $ | | $ | 2,720 | ||||||||
Available for sale marketable securities |
| 1,010 | | 1,010 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Interest rate swap contract |
$ | | $ | 1,351 | $ | | $ | 1,351 |
The fair value of the Companys cash equivalents and available for sale marketable securities
were derived from quoted market prices for similar instruments, with all significant inputs derived
from or corroborated by observable market data. The fair value of the Companys interest rate swap
was based on quotes from the respective counterparty, which are corroborated by the Company using
discounted cash flow calculations based upon forward interest-rate yield curves obtained from
independent pricing services.
6. Derivative Financial Instruments
As discussed in Note 8, Borrowings, the Company uses an interest rate swap to manage the
economic effect of the variable interest obligation on its outstanding debt under the Credit
Facilities so that the interest payable on the outstanding debt effectively becomes fixed at a
certain rate, thereby reducing the impact of future interest rate changes on the Companys future
interest expense. The critical terms of the interest rate swap match those of the outstanding
debt, including the notional amounts, interest rate reset dates, maturity dates and underlying
market indices. Accordingly, the Company has designated its interest rate swap as a qualifying
instrument. The unrealized losses on the interest rate swap are included in accumulated other
comprehensive loss and the corresponding fair value payables are included in other liabilities in
the Companys unaudited consolidated balance sheet. The periodic interest settlements, which occur
at the same interval as the outstanding debt, are recorded as interest expense.
Fair Value of Derivative Instruments in Unaudited Consolidated Balance Sheet
September 30, 2009 | ||||||||
Balance Sheet Location | Fair Value | |||||||
Interest rate swap agreements designated as cash flow hedges |
Other liabilities | $ | 1,279 | |||||
Total derivatives designated as hedging instruments |
$ | 1,279 | ||||||
Total derivatives |
$ | 1,279 | ||||||
9
Table of Contents
Effects of Derivative Instruments on Income and Accumulated Other Comprehensive Income (OCI)
Amount of Gain | ||||||||||||||||||||
(Loss) Recognized in | Amount and Location of | Amount and Location of Gain (Loss) | ||||||||||||||||||
Accumulated OCI on | Gain (Loss) Reclassified | Recognized in Income on Derivative | ||||||||||||||||||
Derivative (Effective | from Accumulated OCI into | (Ineffective Portion and Amount | ||||||||||||||||||
Portion) | Income (Effective Portion) | Excluded from Effectiveness Testing) | ||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2009 | ||||||||||||||||||
Cash flow hedges: |
||||||||||||||||||||
Interest rate swap |
$ | 72 | $ | 257 | Interest expense | $ | | Interest and other income |
7. Acquired Intangible Assets Subject to Amortization
Acquired intangible assets subject to amortization consisted of the following:
September 30, 2009 | ||||||||||||||||
Weighted- | ||||||||||||||||
Average | ||||||||||||||||
Useful | ||||||||||||||||
Amortization | Gross | Net | ||||||||||||||
Period (in | Carrying | Accumulated | Book | |||||||||||||
years) | Amount | Amortization | Value | |||||||||||||
Contract-based intangibles |
3.4 | $ | 1,768 | $ | 1,768 | $ | | |||||||||
Internet respondent database |
7.1 | 3,463 | 2,284 | 1,179 | ||||||||||||
Customer relationships |
9.6 | 21,265 | 7,194 | 14,071 | ||||||||||||
Trade names |
16.2 | 5,324 | 1,928 | 3,396 | ||||||||||||
Total |
$ | 31,820 | $ | 13,174 | $ | 18,646 | ||||||||||
June 30, 2009 | ||||||||||||||||
Weighted- | ||||||||||||||||
Average | ||||||||||||||||
Useful | ||||||||||||||||
Amortization | Gross | Net | ||||||||||||||
Period (in | Carrying | Accumulated | Book | |||||||||||||
years) | Amount | Amortization | Value | |||||||||||||
Contract-based intangibles |
3.4 | $ | 1,768 | $ | 1,768 | $ | | |||||||||
Internet respondent database |
7.1 | 3,330 | 2,100 | 1,230 | ||||||||||||
Customer relationships |
9.6 | 20,286 | 6,436 | 13,850 | ||||||||||||
Trade names |
16.3 | 5,298 | 1,838 | 3,460 | ||||||||||||
Total |
$ | 30,682 | $ | 12,142 | $ | 18,540 | ||||||||||
Changes in the gross carrying amount of the Companys acquired intangible assets from June 30,
2009 to September 30, 2009 were the result of foreign currency exchange rate fluctuations during
the period.
2009 | 2008 | |||||||
Aggregate amortization expense: |
||||||||
For the three months ended September 30 |
$ | 699 | $ | 817 | ||||
Estimated amortization expense for the fiscal years ending June 30: |
||||||||
2010 |
$ | 2,700 | ||||||
2011 |
$ | 2,784 | ||||||
2012 |
$ | 2,784 | ||||||
2013 |
$ | 2,610 | ||||||
2014 |
$ | 2,161 | ||||||
Thereafter |
$ | 6,306 | ||||||
10
Table of Contents
8. Borrowings
On September 21, 2007, the Company entered into a Credit Agreement (the 2007 Credit
Agreement) with JPMorgan Chase Bank, N.A. (JPMorgan), as Administrative Agent, and the Lenders
party thereto, pursuant to which the Lenders made available certain credit facilities. At
December 31, 2008, the Company was in violation of the leverage and interest coverage covenants
under the terms of the 2007 Credit Agreement. The Company obtained a 30-day waiver of the covenant
violations from the Lenders on February 5, 2009, and in connection with the waiver, the 2007 Credit
Agreement was amended. The Company obtained an additional 60-day extension of the waiver on
March 6, 2009, and in connection with the waiver, the 2007 Credit Agreement was further amended in
immaterial respects. On May 6, 2009 and effective as of that date, the Company entered into a
further amendment to the 2007 Credit Agreement, pursuant to which the prior covenant defaults were
permanently waived and the Company was again in compliance with the terms of the 2007 Credit
Agreement, as amended (the Amended Credit Agreement).
The principal terms of the Amended Credit Agreement are described below:
Amended Credit Agreement
Availability:
$5,000 Revolving Line
§ | Until certain leverage ratios are achieved, advances require minimum cash balances and no outstanding balance may exist at least 5 consecutive days in every 30-day period | ||
§ | The Revolving Line may be used to back Letters of Credit | ||
§ | No Revolving Line increased availability at Lender discretion |
Term Loan A original principal, $12,000
Term Loan B, as consolidated with Term Loan C original principal $22,625
No additional Term Loan availability at Company discretion
Interest:
Company option:
§ | Base Rate (greater of Federal Funds Rate plus 0.5%, LIBOR plus 1%, or Prime) plus 4% |
OR
§ | LIBOR plus 5% |
The Company elected LIBOR and the interest swap agreement, which fixed the LIBOR-based portion of the
rate at 5.08%, remained unchanged. With the spread, the effective rate on the Term Loans is 10.08%.
Interest payments are due at end of LIBOR interest periods, but at least quarterly in arrears
Interest Rate Swap:
Fixes the floating LIBOR interest portion of the rates on the amounts outstanding under Term Loans A and
B (reflecting the consolidation of Term Loans B and C into Term Loan B) at 5.08% through September 21,
2012
Three-month LIBOR rate received on the swap matches the base rate paid on the Term Loans
Notional amount of $20,775 at September 30, 2009, equal to outstanding amount of the Term Loans
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Amended Credit Agreement
Unused Facility Fees:
Fee fixed at 1.0% of unused Revolving Line amount
Principal Payments:
Term Loan A and B Maturity September 21, 2012
Revolving Line Maturity July 15, 2010
Revolving Line payable at maturity
Quarterly Term Loan Payments:
§ | Term Loan A $600 quarterly | ||
§ | Term Loan B $1,131 quarterly |
Financial Covenants:
Minimum Consolidated Interest Coverage Ratio ranging over various quarters between 3.00:1.00 and 1.75:1.00
Maximum Consolidated Leverage Ratio ranging over various quarters between 6.40:1.00 and 2.00:1.00
Minimum Consolidated Revenue (trailing 3 months) ranging over various quarters between $33,200 and $45,400
Collateral:
Secured by all domestic assets and 66% of equity interests in first tier foreign subsidiaries
The Amended Credit Agreement contains customary representations, default provisions, and
affirmative and negative covenants, including among others prohibitions of dividends, sales of
certain assets and mergers, and restrictions related to acquisitions, indebtedness, liens,
investments, share repurchases and capital expenditures. Among others, the Company may freely
transfer assets and incur obligations among its domestic subsidiaries, but limitations apply to
transfers of assets and loans to foreign subsidiaries.
At September 30, 2009, the Company was in compliance with all of the covenants under the
Amended Credit Agreement.
At September 30, 2009, the required principal repayments of Term Loans A and B (reflecting the
consolidation of Term Loans B and C into Term Loan B) for the remaining nine months of the fiscal
year ending June 30, 2010 and the three succeeding fiscal years are as follows:
Term Loan A | Term Loan B | Total | ||||||||||
2010 |
$ | 1,800 | $ | 3,394 | $ | 5,194 | ||||||
2011 |
2,400 | 4,525 | 6,925 | |||||||||
2012 |
2,400 | 4,525 | 6,925 | |||||||||
2013 |
600 | 1,131 | 1,731 | |||||||||
$ | 7,200 | $ | 13,575 | $ | 20,775 | |||||||
At September 30, 2008, the Company had $27,700 outstanding under the Amended Credit Agreement.
At September 30, 2009 and 2008, the Company did not have any amounts outstanding under its
revolving line of credit.
9. Stock-Based Compensation
For the three months ended September 30, 2009 and 2008, the Company recognized $158 and $793,
respectively, of stock-based compensation expense for the cost of stock options and restricted
stock issued under its 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).
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The Company did not capitalize stock-based compensation expense as part of the cost of an
asset for any periods presented. The following table illustrates the stock-based compensation
expense included in the Companys unaudited consolidated statements of operations for the three
months ended September 30:
2009 | 2008 | |||||||
Cost of services |
$ | 4 | $ | 36 | ||||
Selling, general and administrative |
154 | 757 | ||||||
$ | 158 | $ | 793 | |||||
The following table provides a summary of the status of the Companys employee and director
stock options (including options issued under the Incentive Plans and options issued outside the
Incentive Plans to new employees) for the three months ended September 30, 2009:
Weighted- | ||||||||
Average | ||||||||
Exercise | ||||||||
Shares | Price | |||||||
Options outstanding at July 1 |
3,857,209 | $ | 3.09 | |||||
Granted |
575,000 | 0.80 | ||||||
Forfeited |
(280,036 | ) | 4.07 | |||||
Exercised |
| | ||||||
Options outstanding at September 30 |
4,152,173 | 2.71 | ||||||
The following table provides a summary of the status of the Companys employee and director
restricted stock awards for the three months ended September 30, 2009:
Weighted- | ||||||||
Average | ||||||||
Fair Value at | ||||||||
Shares | Date of Grant | |||||||
Restricted shares outstanding at July 1 |
110,718 | $ | 2.86 | |||||
Granted |
| | ||||||
Forfeited |
(22,681 | ) | 4.61 | |||||
Vested |
(35,582 | ) | 1.59 | |||||
Restricted shares outstanding at September 30 |
52,455 | 2.96 | ||||||
At September 30, 2009, there was $1,300 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 3.1 years.
10. Comprehensive Income (Loss)
The following table sets forth the components of the Companys total comprehensive income
(loss) for the three months ended September 30:
2009 | 2008 | |||||||
Net loss, as reported |
$ | (633 | ) | $ | (2,261 | ) | ||
Foreign currency translation adjustments |
1,140 | (4,030 | ) | |||||
Change in fair value of interest rate swap, net of tax |
(123 | ) | 19 | |||||
Unrealized loss on marketable securities |
(4 | ) | (10 | ) | ||||
Total comprehensive income (loss) |
$ | 380 | $ | (6,282 | ) | |||
11. Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of
common shares outstanding for the period. Diluted net loss per share reflects the potential
dilution of securities that could share in
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earnings. When the impact of stock options or other
stock-based compensation is anti-dilutive, they are excluded from the calculation.
The following table sets forth the reconciliation of the basic and diluted net loss per share
computations for the three months ended September 30:
2009 | 2008 | |||||||
Numerator: |
||||||||
Net loss used for calculating basic and diluted net loss per share of common stock |
$ | (633 | ) | $ | (2,261 | ) | ||
Denominator: |
||||||||
Shares used in the calculation of basic and diluted net loss per share |
53,899,842 | 53,339,387 | ||||||
Net loss per share: |
||||||||
Basic and diluted |
$ | (0.01 | ) | $ | (0.04 | ) | ||
Unvested restricted stock and unexercised stock options to purchase 4,204,628 and 6,106,095
shares of the Companys common stock for the three months ended September 30, 2009 and 2008,
respectively, at weighted-average prices per share of $2.71 and $5.18, respectively, were not
included in the computation of diluted net loss per share because their inclusion would have been
anti-dilutive.
12. Enterprise-Wide Disclosures
The Company is comprised principally of operations in North America, Europe and Asia.
Non-U.S. market research is comprised of operations in United Kingdom, Canada, France, Germany,
Hong Kong and Singapore. The Company also maintains a representative office in mainland China.
There were no intercompany transactions that materially affected the financial statements, and all
intercompany sales have been eliminated upon consolidation.
The Companys business model for offering custom market research is consistent across the
geographic regions in which it operates. Geographic management facilitates local execution of the
Companys global strategies. The Company maintains global leaders with responsibility across all
geographic regions for the majority of its critical business processes, and the most significant
performance evaluations and resources 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 accounting principles generally accepted in the United States of America. Geographic operating
income (loss) may not be consistent with measures used by other companies.
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Geographic information for the periods presented herein is as follows:
Three Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Revenue from services |
||||||||
United States |
$ | 22,832 | $ | 30,469 | ||||
United Kingdom |
6,715 | 9,402 | ||||||
Canada |
4,527 | 5,620 | ||||||
Other European countries |
3,957 | 3,727 | ||||||
Asia |
904 | 1,062 | ||||||
Total revenue from services |
$ | 38,935 | $ | 50,280 | ||||
Operating income (loss) |
||||||||
United States |
$ | 786 | $ | (2,388 | ) | |||
United Kingdom |
(351 | ) | 298 | |||||
Canada |
(789 | ) | (1,011 | ) | ||||
Other European countries |
366 | 9 | ||||||
Asia |
(372 | ) | (98 | ) | ||||
Total operating income (loss) |
$ | (360 | ) | $ | (3,190 | ) | ||
At | ||||||||
September | At June | |||||||
30, | 30, | |||||||
2009 | 2009 | |||||||
Long-lived assets |
||||||||
United States |
$ | 4,239 | $ | 4,879 | ||||
Canada |
1,662 | 1,693 | ||||||
United Kingdom |
872 | 1,039 | ||||||
Other European countries |
291 | 301 | ||||||
Asia |
92 | 103 | ||||||
Total long-lived assets |
$ | 7,156 | $ | 8,015 | ||||
Deferred tax assets |
||||||||
United States |
$ | | $ | | ||||
Canada |
(1,962 | ) | (2,018 | ) | ||||
United Kingdom |
370 | 283 | ||||||
Other European countries |
(479 | ) | (512 | ) | ||||
Asia |
(3 | ) | | |||||
Total deferred tax assets |
$ | (2,074 | ) | $ | (2,247 | ) | ||
13. Commitments and Contingencies
The Company has several non-cancelable operating leases for office space and equipment. There
were no material changes to the financial obligations for such leases during the three months ended
September 30, 2009 from those disclosed in Note 19, Commitments and Contingencies, to the audited
consolidated financial statements included in the Companys Annual Report on Form 10-K for the
fiscal year ended June 30, 2009.
14. Legal Proceedings
In the normal course of business, the Company is at times subject to pending and threatened
legal actions and proceedings. After reviewing pending and threatened actions and proceedings with
counsel, management does not expect the outcome of such actions or proceedings to have a material
adverse effect on the Companys business, financial condition or results of operations.
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Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
The discussion in this Form 10-Q contains forward-looking statements that involve risks and
uncertainties. The statements contained in this 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 Harris Interactive on the date hereof, and Harris Interactive 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 Harris
Interactive files from time to time with the SEC, such as this Quarterly Report on Form 10-Q and
our Annual Report on Form 10-K for the fiscal year ended June 30, 2009 filed on August 31, 2009.
Risks and uncertainties also include the continued volatility of the global macroeconomic
environment and its impact on the Company and its clients, the Companys ability to sustain and
grow its revenue base, the Companys ability to maintain and improve cost efficient operations, the
impact of reorganization and restructuring and related charges, quarterly variations in financial
results, actions of competitors, and our ability to develop and maintain products and services
attractive to the market.
Note: Amounts shown below are in thousands of U.S. Dollars, 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 Inc. is a leading global custom market research firm that uses online,
telephone and other research methodologies to provide clients with information about the views,
behaviors and attitudes of people worldwide.
Year-to-Date
Our financial performance for the three months ended September 30, 2009 showed continued
trends which we believe clearly demonstrate the positive impact of the proactive decisions we made
during fiscal 2009 to realign our cost structure with our revenue. Specifically:
| we achieved operating income in our U.S. operations for the second consecutive quarter, and | ||
| we saw significant improvement in selling, general and administrative expense as a percentage of revenue from 39% for last years first quarter to 33% for this years first quarter. |
Our first quarter has historically been our lowest quarter from a revenue standpoint. We
experienced a 23% decline in our consolidated revenues for this years first quarter compared with
the same period a year ago. To put this into context, it is important to note that we did not
begin to see significant impact of the global recession on our performance until the second quarter
of fiscal 2009. We will continue to focus heavily on rebuilding our revenue base, controlling our
costs, and executing on our key strategic initiatives that we set out to accomplish in fiscal
2010.
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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 2010 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 three months ended September 30, 2009, 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, 2009, filed by us with the SEC on August 31, 2009.
Results of Operations
Three Months Ended September 30, 2009 Versus Three Months Ended September 30, 2008
The following table sets forth the results of our operations, expressed both as a dollar
amount and as a percentage of revenue from services, for the three months ended September 30, 2009
and 2008, respectively:
2009 | % | 2008 | % | |||||||||||||
Revenue from services |
$ | 38,935 | 100.0 | % | $ | 50,280 | 100.0 | % | ||||||||
Operating expenses: |
||||||||||||||||
Cost of services |
24,431 | 62.7 | 31,151 | 62.0 | ||||||||||||
Selling, general and administrative |
12,962 | 33.3 | 19,608 | 39.0 | ||||||||||||
Depreciation and amortization |
1,754 | 4.5 | 2,083 | 4.1 | ||||||||||||
Restructuring and other charges |
148 | 0.4 | 628 | 1.2 | ||||||||||||
Operating loss |
(360 | ) | (0.9 | ) | (3,190 | ) | (6.3 | ) | ||||||||
Interest and other income |
15 | 0.0 | 190 | 0.4 | ||||||||||||
Interest expense |
(537 | ) | (1.4 | ) | (455 | ) | (0.9 | ) | ||||||||
Loss from operations before taxes |
(882 | ) | (2.3 | ) | (3,455 | ) | (6.9 | ) | ||||||||
Provision (benefit) for income taxes |
(249 | ) | (0.6 | ) | (1,194 | ) | (2.4 | ) | ||||||||
Net loss |
$ | (633 | ) | (1.6 | ) | $ | (2,261 | ) | (4.5 | ) | ||||||
Revenue from services. Revenue from services decreased by $11,345, or 22.6%, to $38,935 for
the three months ended September 30, 2009 compared with the same prior year period and included a
negative foreign exchange rate impact of $1,425. The timing of the global recession was such that
we did not begin to see its significant impact on our operations until the three months ended
December 31, 2008. Revenue from services for the three months ended September 30, 2009 across
North America, Europe and Asia generally continued to show the effects of a challenging economic
environment, which in turn has resulted in decreases in the research budgets of many of our
clients.
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North American revenue decreased by $8,729 to $27,359 for the three months ended September 30,
2009 compared with the same prior year period, a decrease of 24.2%. By country, North American
revenue for the three months ended September 30, 2009 was comprised of:
| Revenue from U.S. operations of $22,832 down 25.1% compared with $30,469 for the same prior year period. | ||
| Revenue from Canadian operations of $4,527, down 19.4% compared with $5,620 for the same prior year period, which included a $212 negative foreign exchange rate impact on Canadian revenue compared with the same prior year period. On a local currency basis, Canadian revenue for the three months ended September 30, 2009 decreased by 15.5% compared with the same prior year period. |
European revenue decreased by $2,458 to $10,672 for the three months ended September 30, 2009
compared with the same prior year period, a decrease of 18.7%. By country, European revenue for the
three months ended September 30, 2009 was comprised of:
| Revenue from U.K. operations of $6,715, down 28.6% compared with $9,402 for the same prior year period, which included a $994 negative foreign exchange rate impact compared with the same prior year period. On a local currency basis, U.K. revenue for the three months ended September 30, 2009 decreased by 17.4% compared with the same prior year period. | ||
| Revenue from French operations of $2,590, up 30.3% compared with $1,987 for the same prior year period. On a local currency basis, French revenue for the three months ended September 30, 2009 increased by 35.2% compared with the same prior year period. The increase in French revenue was principally driven by growth within the Healthcare and Qualitative research groups, partially offset by a $137 negative foreign exchange rate impact compared with the same prior year period. | ||
| Revenue from German operations of $1,367, down 21.5% compared with $1,741 for the same prior year period, which included a $78 negative foreign exchange rate impact compared with the same prior year period. On a local currency basis, German revenue for the three months ended September 30, 2009 decreased by 19.2% compared with the same prior year period. |
Asian revenue decreased by $158 to $904 for the three months ended September 30, 2009, a
decrease of 14.9% compared with the same prior year period. The impact of the foreign exchange
rate on Asian revenue for the three months ended September 30, 2009 was inconsequential compared
with the same prior year period.
Cost of services. Cost of services was $24,431 or 62.7% of total revenue for the three months
ended September 30, 2009, compared with $31,151 or 62.0% of total revenue for the same prior year
period. Cost of services for the three months ended September 30, 2009 was impacted by the
declines in revenue discussed above, as well as the differing types of custom research projects
performed when compared with the same prior year period.
Selling, general and administrative. Selling, general and administrative expense for the
three months ended September 30, 2009 was $12,962 or 33.3% of total revenue, compared with $19,608
or 39.0% of total revenue for the same prior year period. Selling, general and administrative
expense was principally impacted by the following:
| a $3,509 decrease in payroll-related expense, driven by headcount reductions taken throughout fiscal 2009, | ||
| a $634 decrease in stock-based compensation expense, driven by the forfeiture of stock options and restricted stock upon the departure of several senior executives throughout fiscal 2009, | ||
| a $469 decrease in travel expense, driven by our continued focus on controlling these costs, and | ||
| a $304 decrease in office rent, driven by space reductions taken during fiscal 2009. |
The remainder of the decrease in selling, general and administrative expense was the result of
decreases across a number of other operating expense categories because of our continued focus on
ensuring appropriate alignment of our cost structure relative to the needs of our business.
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Depreciation and amortization. Depreciation and amortization was $1,754 or 4.5% of total
revenue for the three months ended September 30, 2009, compared with $2,083 or 4.1% of total
revenue for the same prior year period. The decrease in depreciation and amortization expense for
the three months ended September 30, 2009 when compared with the same prior year period is the
result of fixed and intangible assets that became fully depreciated or amortized during fiscal 2009
combined with decreased capital spending as part of our overall focus on controlling costs.
Restructuring and other charges. Restructuring and other charges were $148 or 0.4% of total
revenue for the three months ended September 30, 2009, compared with $628 or 1.2% for the same
prior year period. Other charges for the three months ended September 30, 2009 consisted of $148
additional legal fees associated with the amendment of our credit agreement during fiscal 2009,
along with costs incurred to close our telephone-based data collection center in Brentford, United
Kingdom during the three months ended September 30, 2009. Other charges for the three months ended
September 30, 2008 consisted of $628 in fees paid to Alix Partners LLP to assist with performance
improvement initiatives. There were no restructuring activities during the three months ended
September 30, 2009 or the same prior year period.
Interest and other income. Interest and other income was $15 or less than 1% of total revenue
for the three months ended September 30, 2009, compared with $190 or 0.4% of total revenue for the
same prior year period. The decrease in interest and other income was principally the result of
having a lower average cash balance for the three months ended September 30, 2009 when compared
with the same prior year period.
Interest expense. Interest expense was $537 or 1.4% of total revenue for the three months
ended September 30, 2009, compared with $455 or less than 1% of total revenue for the same prior
year period. The increase in interest expense compared with the same prior year period is
principally the result of an increase in the effective interest rate on our outstanding debt from
5.95% at September 30, 2008 to 10.08% at September 30, 2009, offset by the impact of the decline in
outstanding debt as we continue to make required principal payments.
Income taxes. We recorded an income tax benefit of $(249) for the three months ended
September 30, 2009, compared with an income tax benefit of $(1,194) for the same prior year period.
The tax benefit for the three months ended September 30, 2009 was principally impacted by the tax
benefits related to operating losses in certain of our foreign jurisdictions. Based upon
managements assessment of the realizability of the Companys U.S. deferred tax assets, a full
valuation allowance continues to be recorded at September 30, 2009.
Significant Factors Affecting Our Performance
Key Operating Metrics
We closely track certain key operating metrics, specifically bookings and ending sales
backlog. These key operating metrics enable us to measure the current and forecasted performance of
our business relative to historical trends.
Key operating metrics for the three months ended September 30, 2009 and the four preceding
fiscal quarters were as follows (U.S. Dollar amounts in millions):
Q1 | Q2 | Q3 | Q4 | Q1 | ||||||||||||||||
FY2009 | FY2009 | FY2009 | FY2009 | FY2010 | ||||||||||||||||
Cash & marketable securities |
$ | 25.2 | $ | 26.1 | $ | 16.9 | $ | 17.8 | $ | 14.4 | ||||||||||
Bookings |
$ | 43.5 | $ | 48.6 | $ | 37.9 | $ | 36.3 | $ | 32.7 | ||||||||||
Secured revenue |
$ | 60.1 | $ | 58.0 | $ | 56.0 | $ | 48.8 | $ | 42.5 |
Additional information regarding each of the key operating metrics noted above is as follows:
Bookings are defined as the contract value of revenue-generating projects that are anticipated
to take place during the next four fiscal quarters for which a firm client commitment was received
during the current period, less any adjustments to prior period bookings due to contract value
adjustments or project cancellations during the current period.
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Bookings for the three months ended September 30, 2009 were $32.7 million, compared with
$43.5 million for the same prior year period. Bookings for the current quarter continued to show
the effects of a challenging economic environment, which in turn has resulted in decreases in the
research budgets of many of our clients.
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, extensions and other matters may affect the amount
of bookings previously reported.
Secured Revenue (formerly referred to as ending sales backlog) is defined as prior period
secured revenue plus current period bookings, less revenue recognized on outstanding projects as of
the end of the period.
Secured revenue helps us manage our future staffing levels more accurately and is also an
indicator of the effectiveness of our marketing and sales initiatives. Generally, projects included
in secured revenue at the end of a fiscal period convert to revenue from services during the
following twelve months, based on our experience from prior years.
Secured revenue for the three months ended September 30, 2009 was $42.5 million, compared with
$60.1 million for the same prior year period. Secured revenue for the current quarter continued to
show the effects of a challenging economic environment, which in turn has resulted in decreases in
the research budgets of many of our clients.
Financial Condition, Liquidity and Capital Resources
Liquidity and Capital Resources
At September 30, 2009, we had cash, cash equivalents, and marketable securities of
$14,393, compared with $17,762 at June 30, 2009. Available sources of cash to support known or
reasonably likely cash requirements over the next 12 months include cash, cash equivalents and
marketable securities on hand at September 30, additional cash that may be generated from our
operations and funds to the extent available through our credit facilities discussed below. Until
we achieve leverage ratios specified in our credit agreement, we must have minimum cash balances
ranging between 1.2 and 1.5 times the amount of borrowings we make under the revolving line that is
part of our amended credit facilities. While we believe that our available sources of cash will
support known or reasonably likely cash requirements over the next 12 months, including quarterly
principal payments of $1,731 and interest payments due under our credit agreement, our ability to
generate cash from our operations is dependent upon on our ability to profitably generate revenue,
which requires that we continually develop new business, both for growth and to replace completed
projects. Although work for no one client constitutes more than 10% of our revenue, we have had to
find significant amounts of replacement and additional revenue as client relationships and work for
continuing clients change and will likely have to continue to do so in the future. Our ability to
profitably generate revenue depends not only on execution of our business plans, but also on
general market factors outside of our control. As many of our clients treat all or a portion of
their market research expenditures as discretionary, our ability to profitably generate revenue is
adversely impacted whenever there are adverse macroeconomic conditions in the markets we serve.
Our capital requirements depend on numerous factors, including but not limited to, market
acceptance of our products and services, the resources we allocate to the continuing development of
new products and services, our technology infrastructure and online panel, and the marketing and
selling of our products and services. We would be able to control or defer certain capital and
other expenditures in order to help preserve cash if necessary. Our capital expenditures during
the three months ended September 30, 2009 were $62, and are not expected to exceed $4,500 for
fiscal 2010.
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The following table sets forth net cash used in operating activities, net cash provided
by (used in) investing activities and net cash used in financing activities, for the three months
ended September 30:
2009 | 2008 | |||||||
Net cash used in operating activities |
$ | (1,534 | ) | $ | (4,587 | ) | ||
Net cash provided by (used in) investing activities |
451 | (2,101 | ) | |||||
Net cash used in financing activities |
(1,731 | ) | (1,731 | ) |
Net cash used in operating activities. Net cash used in operating activities was $(1,534) for
the three months ended September 30, 2009, compared with $(4,587) for the same prior year period.
The change from the same prior year period was principally the result of a decrease in our net loss
for the three months ended September 30, 2009 compared with the same prior year period, along with
timing differences in cash payments and receipts when compared with the same prior year period.
Net cash provided by (used in) investing activities. Net cash provided by investing
activities was $451 for the three months ended September 30, 2009, compared with $(2,101) used in
investing activities for the same prior year period. The change from the same prior year period
was principally the result of an increase in the net proceeds from the maturities and sales of
marketable securities from $(1,392) for the three months ended September 30, 2008 to $513 for the
three months ended September 30, 2009.
Net cash used in financing activities. Net cash used in financing activities was $(1,731) for
the three months ended September 30, 2009, consistent with $(1,731) for the same prior year period.
Cash used during both periods was for required principal payments on our outstanding debt.
Credit Facilities
On September 21, 2007, we entered into a Credit Agreement (the 2007 Credit Agreement) with
JPMorgan Chase Bank, N.A. (JPMorgan), as Administrative Agent, and the Lenders party thereto,
pursuant to which the Lenders made available certain credit facilities. As of December 31, 2008, we
were in violation of the leverage and interest coverage covenants under the terms of the 2007
Credit Agreement. We obtained a 30-day waiver of the covenant violations from the Lenders on
February 5, 2009, and in connection with the waiver, the 2007 Credit Agreement was amended. We
obtained an additional 60-day extension of the waiver on March 6, 2009, and in connection with the
waiver, the 2007 Credit Agreement was further amended in immaterial respects. On May 6, 2009 and
effective as of that date, we entered into a further amendment to the 2007 Credit Agreement,
pursuant to which the prior covenant defaults were permanently waived and we were again in
compliance with the terms of the 2007 Credit Agreement, as amended (the Amended Credit
Agreement).
The principal terms of the Amended Credit Agreement are described in Note 8, Borrowings, to
our unaudited consolidated financial statements.
At September 30, 2009, we were in compliance with all of the covenants under the Amended
Credit Agreement. For the three months ended September 30, 2009, our financial covenants were:
Covenant | Required | Actual | ||||||
Minimum Consolidated Interest Coverage Ratio |
1.75:1.00 | 3:79:1.00 | ||||||
Maximum Consolidated Leverage Ratio |
6.40:1.00 | 2:55:1.00 | ||||||
Minimum Consolidated Revenue |
$ | 33,200 | $ | 38,935 |
At September 30, 2009, we had $20,775 outstanding under the Amended Credit Agreement compared
with $27,700 for the same prior year period. At September 30, 2009 and 2008, we did not have any
amounts outstanding under our revolving line of credit.
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Interest Rate Swap
Effective September 21, 2007, we entered into an interest rate swap agreement with JPMorgan,
which effectively fixed the floating LIBOR interest portion of the rates on the amounts outstanding
under Term Loans A and B (reflecting the consolidation of Term Loans B and C into Term Loan B) at
5.08% through September 21, 2012. The three-month LIBOR rate received on the swap matches the base
rate paid on the term loan since both use three-month LIBOR. The swap had an initial notional value
of $34,625 which declines as payments are made on Term Loans A and B so that the amount outstanding
under those term loans and the notional amount of the swap are always equal. The interest rate swap
had a notional amount of $20,775 at September 30, 2009, which was the same as the outstanding
amount of the term loans. The applicable spread referenced in the table above is added to the 5.08%
rate fixed by the interest rate swap. The terms of the interest rate swap were unaffected by the
amendments to the Amended Credit Agreement.
At September 30, 2009, we recorded a liability of $1,279 in the Other liabilities line item
of our unaudited 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 other comprehensive
income.
Off-Balance Sheet Arrangements and Contractual Obligations
At September 30, 2009, we did not have any transaction, agreement or other contractual
arrangement constituting an off-balance sheet arrangement as defined in Item 303(a)(4) of
Regulation S-K.
There have been no material changes outside the ordinary course of business during the three
months ended September 30, 2009 to our contractual obligations as disclosed in our Annual Report on
Form 10-K for the fiscal year ended June 30, 2009, filed by us with the SEC on August 31, 2009.
Recent Accounting Pronouncements
See Note 3, Recent Accounting Pronouncements, to our unaudited consolidated financial
statements contained in this Form 10-Q for a discussion of the impact of recently issued accounting
pronouncements on our unaudited consolidated financial statements at September 30, 2009 and for the
three months then ended, as well as the expected impact on our consolidated financial statements
for future periods.
Item 3 Quantitative and Qualitative Disclosures about Market Risk
We have two kinds of market risk exposures, interest rate exposure and foreign currency
exposure. We have no market risk sensitive instruments entered into for trading purposes.
As we continue to increase our debt and expand globally, the risk of interest rate and foreign
currency exchange rate fluctuation may increase. On an ongoing basis, we will continue to assess
the need to utilize interest rate swaps and financial instruments to mitigate such risk.
In light of recent economic conditions, we reviewed the cash equivalents and marketable
securities held by us. We do not believe that our holdings have a material liquidity risk under
current market conditions.
Interest Rate Exposure
At September 30, 2009, we had outstanding debt under our Amended Credit Agreement of $20,775.
The debt matures September 21, 2012 and bears interest at the floating adjusted LIBOR plus an
applicable margin. On September 21, 2007, we entered into an interest rate swap agreement, which
fixed the floating adjusted LIBOR portion of the interest rate at 5.08% through September 21, 2012.
The additional applicable margin is fixed at 5%.
Using a sensitivity analysis based on a hypothetical 1% increase in prevailing interest rates
over a 12-month period, each 1% increase from prevailing interest rates at September 30, 2009 would
have increased the fair value of the interest
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rate swap by $288 and each 1% decrease from prevailing interest rates at September 30, 2009
would have decreased the fair value of the interest rate swap by $304.
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 Europe, North America, and Asia. 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 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 currency of their home
country, 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 as a
result of consolidating 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, our exposure to the appreciation or depreciation in the
U.S. Dollar could have a more significant impact on our net income and cash flows. Thus, we
evaluate our exposure to foreign currency fluctuation risk on an ongoing basis.
Since our foreign operations are conducted using foreign currencies, we bear additional risk
of fluctuations in exchange rates because of instruments denominated in foreign currencies. We have
historically had low exposure to changes in foreign currency exchange rates with regard to
instruments denominated in foreign currencies, given the amount and short-term nature of the
maturity of these instruments. The carrying values of financial instruments denominated in foreign
currencies, including cash, cash equivalents, accounts receivable and accounts payable, approximate
fair value because of the short-term nature of the maturity of these instruments.
We performed a sensitivity analysis at September 30, 2009. Holding all other variables
constant, we have determined that the impact of a near-term 10% appreciation or depreciation of the
U.S. Dollar would have an insignificant effect on our financial condition, results of operations
and cash flows.
Item 4 Controls and Procedures
Our management, with the participation of our Principal Executive Officer and Principal
Financial Officer, evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as
amended (the Exchange Act)). Based on that evaluation, our Principal Executive Officer and
Principal Financial Officer concluded that our disclosure controls and procedures as of September
30, 2009 (the end of the period covered by this Quarterly Report on Form 10-Q) have been designed
and are functioning effectively. Further, there have been no changes in our internal control over
financial reporting identified in connection with managements evaluation thereof during the
quarter ended September 30, 2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART II: Other Information
Item 1 Legal Proceedings
In the normal course of business, we are at times subject to pending and threatened legal
actions and proceedings. After reviewing with counsel pending and threatened actions and
proceedings, management does not expect the outcome of such actions or proceedings will have a
material adverse effect on our business, financial condition or results of operations.
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Item 1A Risk Factors
We have no additional risk factors related to our business other than those disclosed in our
Annual Report on Form 10-K for the fiscal year ended June 30, 2009, filed by us with the SEC on
August 31, 2009.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
The following table shows our repurchases of our equity securities for the three
months ended September 30, 2009:
ISSUER PURCHASES OF EQUITY SECURITIES
Approximate | ||||||||||||||||
Total Number | Dollar Value of | |||||||||||||||
of Shares | Shares That | |||||||||||||||
Average | Purchased as | May Yet Be | ||||||||||||||
Total Number | Price | Part of Publicly | Purchased | |||||||||||||
of Shares | Paid | Announced | Under the | |||||||||||||
Period | Purchased (1) | per Share | Program | Program | ||||||||||||
July 1, 2009 through July 31, 2009 |
| $ | | | $ | | ||||||||||
August 1, 2009 through August 31, 2009 |
954 | 0.87 | | | ||||||||||||
September 1, 2009 through September 30, 2009 |
| | | | ||||||||||||
Total |
954 | $ | 0.87 | | $ | | ||||||||||
(1) | Consists solely of shares repurchased from employees to satisfy statutory tax withholding requirements upon the vesting of restricted stock and subsequently retired. |
Item 3 Defaults Upon Senior Securities
None.
Item 4 Submission of Matters to a Vote of Security Holders
None.
Item 5 Other Information
On November 2, 2009, the Compensation Committee and Independent Directors approved performance
metrics for fiscal year 2010 applicable to the $600,000 target incentive bonus to which Kimberly
Till, President and Chief Executive Officer, is contractually entitled if the metrics are achieved.
64% of Ms. Tills bonus will be based upon achievement of operating income, measured and payable
as provided in the Companys Corporate Bonus Plan. The remainder of her bonus will be paid upon
achievement of three management objectives, with the degree of achievement to be determined by the
Compensation Committee in its discretion. Each management objective, if fully achieved, would
result in a payout of 12% of Ms. Tills target bonus. The management objectives relate to strengthening client relationships and sales, bringing new products to market, and building a strong management team.
Item 6 Exhibits
10.1
|
Second Amendment to Lease Agreement for 1920 Association Drive, Reston Virginia, between the Company and Richard B. Wirthlin Family LLC, dated as of September 1, 2009. | |
10.2*
|
Compensation Arrangement by and between the Company and Eric W. Narowski. |
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10.3*
|
Description of Bonus Arrangement by and between the Company and Kimberly Till. | |
31.1
|
Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Certificate of the Chief Executive Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002). | |
32.2
|
Certificate of the Chief Financial Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002). |
* | Denotes management contract or arrangement |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
November 4, 2009 | Harris Interactive Inc. |
|||
By: | /s/ Robert J. Cox | |||
Robert J. Cox | ||||
Executive Vice President, Chief Financial Officer and Treasurer (On Behalf of the Registrant and as Principal Financial Officer) |
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Exhibit Index
10.1
|
Second Amendment to Lease Agreement for 1920 Association Drive, Reston Virginia, between the Company and Richard B. Wirthlin Family LLC, dated as of September 1, 2009. | |
10.2*
|
Compensation Arrangement for Executive Officer by and between the Company and Eric W. Narowski. | |
10.3*
|
Description of Fiscal 2010 Bonus Arrangement by and between the Company and Kimberly Till. | |
31.1
|
Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Certificate of the Chief Executive Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002). | |
32.2
|
Certificate of the Chief Financial Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002). |
* | Denotes management contract or arrangement |
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