Attached files
file | filename |
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EX-32.1 - EX-32.1 - HARRIS INTERACTIVE INC | d620510dex321.htm |
EX-32.2 - EX-32.2 - HARRIS INTERACTIVE INC | d620510dex322.htm |
EX-31.1 - EX-31.1 - HARRIS INTERACTIVE INC | d620510dex311.htm |
EX-31.2 - EX-31.2 - HARRIS INTERACTIVE INC | d620510dex312.htm |
EXCEL - IDEA: XBRL DOCUMENT - HARRIS INTERACTIVE INC | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTER ENDED SEPTEMBER 30, 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 November 12, 2013, 58,300,145 shares of the Registrants Common Stock, $.001 par value, were outstanding.
Table of Contents
HARRIS INTERACTIVE INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2013
2
Table of Contents
HARRIS INTERACTIVE INC.
(In thousands, except share and per share amounts)
(Unaudited)
September 30, 2013 |
June 30, 2013 |
|||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 15,888 | $ | 15,744 | ||||
Accounts receivable, net |
18,904 | 19,286 | ||||||
Unbilled receivables |
7,717 | 8,215 | ||||||
Prepaid expenses and other current assets |
3,896 | 3,890 | ||||||
Deferred tax assets |
760 | 755 | ||||||
|
|
|
|
|||||
Total current assets |
47,165 | 47,890 | ||||||
Property, plant and equipment, net |
2,500 | 2,466 | ||||||
Other intangibles, net |
7,632 | 8,061 | ||||||
Other assets |
530 | 536 | ||||||
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|
|
|||||
Total assets |
$ | 57,827 | $ | 58,953 | ||||
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|
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LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 7,543 | $ | 7,273 | ||||
Accrued expenses |
16,439 | 19,934 | ||||||
Deferred revenue |
11,746 | 11,584 | ||||||
Deferred tax liabilities |
253 | 253 | ||||||
|
|
|
|
|||||
Total current liabilities |
35,981 | 39,044 | ||||||
Deferred tax liabilities |
1,750 | 1,737 | ||||||
Other liabilities |
2,201 | 2,569 | ||||||
Commitments and contingencies (Note 10) |
||||||||
Stockholders equity: |
||||||||
Preferred stock, $.001 par value, 5,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2013 and June 30, 2013 |
| | ||||||
Common stock, $.001 par value, 100,000,000 shares authorized; 58,300,145 shares issued and outstanding at September 30, 2013 and 57,814,535 shares issued and outstanding at June 30, 2013 |
58 | 58 | ||||||
Additional paid-in capital |
191,740 | 191,164 | ||||||
Accumulated other comprehensive income |
4,232 | 3,813 | ||||||
Accumulated deficit |
(178,135 | ) | (179,432 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
17,895 | 15,603 | ||||||
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|
|
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Total liabilities and stockholders equity |
$ | 57,827 | $ | 58,953 | ||||
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|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
Table of Contents
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except share and per share amounts)
(Unaudited)
Three Months
Ended September 30, |
||||||||
2013 | 2012 | |||||||
Revenue from services |
$ | 32,370 | $ | 33,010 | ||||
Operating expenses: |
||||||||
Cost of services |
20,179 | 19,455 | ||||||
Selling, general and administrative |
10,029 | 10,778 | ||||||
Depreciation and amortization |
832 | 948 | ||||||
|
|
|
|
|||||
Total operating expenses |
31,040 | 31,181 | ||||||
|
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|
|
|||||
Operating income |
1,330 | 1,829 | ||||||
Interest expense, net |
| 101 | ||||||
|
|
|
|
|||||
Income from operations before income taxes |
1,330 | 1,728 | ||||||
Provision (benefit) for income taxes |
33 | (15 | ) | |||||
|
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|
|
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Net income |
$ | 1,297 | $ | 1,743 | ||||
|
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|
|
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Other comprehensive income: |
||||||||
Change in fair value of interest rate swap |
$ | | $ | 8 | ||||
Foreign currency translation adjustments |
419 | 334 | ||||||
|
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|
|
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Comprehensive income |
$ | 1,716 | $ | 2,085 | ||||
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|
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Basic net income per share |
$ | 0.02 | $ | 0.03 | ||||
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Diluted net income per share |
$ | 0.02 | $ | 0.03 | ||||
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Weighted-average shares outstanding basic |
56,727,373 | 55,952,534 | ||||||
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|
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Weighted-average shares outstanding diluted |
59,194,212 | 56,878,991 | ||||||
|
|
|
|
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, |
||||||||
2013 | 2012 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 1,297 | $ | 1,743 | ||||
Adjustments to reconcile net income to net cash provided by operating activities |
||||||||
Depreciation and amortization |
936 | 1,116 | ||||||
Deferred taxes |
(22 | ) | (8 | ) | ||||
Stock-based compensation |
536 | 569 | ||||||
Amortization of deferred financing costs |
| 28 | ||||||
(Increase) decrease in assets |
||||||||
Accounts receivable |
764 | 517 | ||||||
Unbilled receivables |
700 | (924 | ) | |||||
Prepaid expenses and other current assets |
(52 | ) | 243 | |||||
Other assets |
17 | (44 | ) | |||||
(Decrease) increase in liabilities |
||||||||
Accounts payable |
134 | (432 | ) | |||||
Accrued expenses |
(3,832 | ) | (3,809 | ) | ||||
Deferred revenue |
15 | 1,873 | ||||||
Other long-term liabilities |
(373 | ) | (566 | ) | ||||
|
|
|
|
|||||
Net cash provided by operating activities |
120 | 306 | ||||||
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|
|
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Cash flows from investing activities: |
||||||||
Capital expenditures |
(263 | ) | (58 | ) | ||||
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|
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Net cash used in investing activities |
(263 | ) | (58 | ) | ||||
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|
|
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Cash flows from financing activities: |
||||||||
Proceeds from employee stock purchases |
40 | 98 | ||||||
Repayment of borrowings |
| (1,199 | ) | |||||
Repurchases of common stock |
| (16 | ) | |||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
40 | (1,117 | ) | |||||
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Effect of exchange rate changes on cash and cash equivalents |
247 | 36 | ||||||
|
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|
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Net increase (decrease) in cash and cash equivalents |
144 | (833 | ) | |||||
Cash and cash equivalents at beginning of period |
15,744 | 11,456 | ||||||
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|
|
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Cash and cash equivalents at end of period |
$ | 15,888 | $ | 10,623 | ||||
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|
|
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)
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, 2013 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, 2013, filed by the Company with the Securities and Exchange Commission (SEC) on September 17, 2013.
3. Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (FASB) issued new accounting guidance for income tax presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. This guidance requires an entity to net its unrecognized tax benefits against the deferred tax assets for all same jurisdiction net operating loss or similar tax loss carryforwards, or tax credit carryforwards. The guidance is to be applied prospectively (with an option to apply retrospectively) and will apply to all unrecognized tax benefits that exist at the effective date. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2013, with early adoption permitted. Adoption of this guidance will have no impact on the Companys consolidated financial statements.
Other recent authoritative guidance issued by the FASB (including technical corrections to the Accounting Standards Codification) and the SEC did not, or are not expected to have a material effect on the Companys consolidated financial statements.
4. Restructuring and Other Charges
The following table summarizes activity during the three months ended September 30, 2013 with respect to the Companys remaining reserves for the restructuring activities undertaken in prior fiscal years:
Balance, July 1, 2013 |
Costs Incurred |
Changes in Estimate |
Cash Payments |
Non-Cash Settlements |
Balance, September 30, 2013 |
|||||||||||||||||||
Termination benefits |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
Lease commitments |
5,426 | | | (718 | ) | | 4,708 | |||||||||||||||||
|
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Remaining reserve |
$ | 5,426 | $ | | $ | | $ | (718 | ) | $ | | $ | 4,708 | |||||||||||
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6
Table of Contents
5. Acquired Intangible Assets Subject to Amortization
At September 30, 2013 and June 30, 2013, acquired intangible assets subject to amortization consisted of the following:
September 30, 2013 | ||||||||||||||||
Weighted- Average Useful Amortization Period (in years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Book Value |
|||||||||||||
Contract-based intangibles |
3 | $ | 1,766 | $ | 1,766 | $ | | |||||||||
Internet respondent database |
7 | 3,151 | 3,151 | | ||||||||||||
Customer relationships |
10 | 20,748 | 15,502 | 5,246 | ||||||||||||
Trade names |
16 | 5,255 | 2,869 | 2,386 | ||||||||||||
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Total |
$ | 30,920 | $ | 23,288 | $ | 7,632 | ||||||||||
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|
June 30, 2013 | ||||||||||||||||
Weighted- Average Amortization Period (In Years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Book Value |
|||||||||||||
Contract-based intangibles |
3 | $ | 1,766 | $ | 1,766 | $ | | |||||||||
Internet respondent database |
7 | 3,148 | 3,144 | 4 | ||||||||||||
Customer relationships |
10 | 20,447 | 14,838 | 5,609 | ||||||||||||
Trade names |
16 | 5,248 | 2,800 | 2,448 | ||||||||||||
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Total |
$ | 30,609 | $ | 22,548 | $ | 8,061 | ||||||||||
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The gross carrying amount and accumulated amortization of the Companys acquired intangible assets for the three months ended September 30, 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 September 30, |
||||||||
2013 | 2012 | |||||||
Amortization expense |
$ | 536 | $ | 685 | ||||
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|
Estimated amortization expense for the fiscal years ending June 30: |
||||
2014 |
$ | 2,134 | ||
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2015 |
$ | 1,556 | ||
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2016 |
$ | 1,433 | ||
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2017 |
$ | 1,389 | ||
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2018 |
$ | 299 | ||
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2019 |
$ | 200 | ||
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Thereafter |
$ | 1,157 | ||
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6. 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 months ended September 30:
Three Months Ended September 30, |
||||||||
2013 | 2012 | |||||||
Cost of services |
$ | 9 | $ | 10 | ||||
Selling, general and administrative |
527 | 559 | ||||||
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|
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$ | 536 | $ | 569 | |||||
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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.
7
Table of Contents
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, 2013:
Shares | Weighted- Average Exercise Price |
|||||||
Options outstanding at July 1 |
4,899,746 | $ | 1.55 | |||||
Granted |
| | ||||||
Forfeited |
(46,730 | ) | 2.41 | |||||
Exercised |
(58,897 | ) | 0.93 | |||||
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Options outstanding at September 30 |
4,794,119 | 1.55 | ||||||
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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, 2013:
Shares | Weighted- Average Fair Value at Date of Grant |
|||||||
Restricted shares outstanding at July 1 |
1,494,992 | $ | 1.27 | |||||
Granted |
610,500 | 1.88 | ||||||
Forfeited |
(25,000 | ) | 1.45 | |||||
Vested |
(16,042 | ) | 1.94 | |||||
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Restricted shares outstanding at September 30 |
2,064,450 | 1.44 | ||||||
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At September 30, 2013, there was $1,994 of total unrecognized stock-based compensation expense related to non-vested stock-based compensation arrangements granted under the Incentive Plans and under the ESPPs. That expense is expected to be recognized over a weighted-average period of 0.8 years.
7. Income Taxes
The Company recorded an income tax provision of $33 for the three months ended September 30, 2013, compared with an income tax benefit of $15 for the same prior year period. The tax provision for the three months ended September 30, 2013 was comprised mainly of tax expense related to income in certain of the Companys international jurisdictions. The tax benefit for the same prior year period 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 September 30, 2013 against the Companys U.S. and U.K. net deferred tax assets. However, during the fiscal year ending June 30, 2014, the Company may realize a three year cumulative accounting profit in the U.S. If this occurs, the Company will also consider other positive and negative evidence such as reviewing its current financial performance, financial and taxable income projections, its market environment and other factors, in evaluating the need for a full, or partial, valuation allowance. Any reversal of the Companys valuation allowance will favorably impact its results of operations in the period of reversal.
8
Table of Contents
8. Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding for the period. Diluted net income 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 per share computations for the three months ended September 30:
Three Months
Ended September 30, |
||||||||
2013 | 2012 | |||||||
Numerator: |
||||||||
Net income used for calculating basic and diluted net income per share of common stock |
$ | 1,297 | $ | 1,743 | ||||
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|
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Denominator: |
||||||||
Weighted average number of shares of common stock used in the calculation of basic net income per share |
56,727,373 | 55,952,534 | ||||||
Dilutive effect of outstanding stock options and restricted stock |
2,466,839 | 926,457 | ||||||
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Shares of common stock used in the calculation of diluted net income per share |
59,194,212 | 56,878,991 | ||||||
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Net income per share: |
||||||||
Basic |
$ | 0.02 | $ | 0.03 | ||||
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Diluted |
$ | 0.02 | $ | 0.03 | ||||
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Unvested restricted stock and unexercised stock options to purchase 738,062 and 770,314 shares of the Companys common stock for the three months ended September 30, 2013 and 2012, respectively, at weighted-average prices per share of $5.99 and $5.94, respectively, were not included in the computations of diluted net income per share because their impact was anti-dilutive during the respective periods.
9. Enterprise-Wide Disclosures
The Company is comprised principally of operations in North America and Europe. Non-U.S. market research is comprised of operations in United Kingdom, Canada, France and Germany. 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 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.
9
Table of Contents
Geographic information for the periods presented herein is as follows:
Three Months
Ended September 30, |
||||||||
2013 | 2012 | |||||||
Revenue from services |
||||||||
United States |
$ | 18,900 | $ | 20,423 | ||||
Canada |
4,977 | 4,909 | ||||||
France |
3,986 | 2,961 | ||||||
United Kingdom |
2,830 | 2,713 | ||||||
Germany |
1,677 | 2,004 | ||||||
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|
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Total revenue from services |
$ | 32,370 | $ | 33,010 | ||||
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|
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Operating income (loss) |
||||||||
United States |
$ | 1,450 | $ | 1,852 | ||||
Canada |
(261 | ) | (123 | ) | ||||
France |
145 | (42 | ) | |||||
United Kingdom |
39 | 40 | ||||||
Germany |
(43 | ) | 102 | |||||
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|
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Total operating income |
$ | 1,330 | $ | 1,829 | ||||
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|
At September 30, 2013 |
At June 30, 2013 |
|||||||
Long-lived assets |
||||||||
United States |
$ | 1,015 | $ | 1,092 | ||||
Canada |
295 | 191 | ||||||
France |
692 | 693 | ||||||
United Kingdom |
316 | 316 | ||||||
Germany |
182 | 174 | ||||||
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|
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Total long-lived assets |
$ | 2,500 | $ | 2,466 | ||||
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|
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Deferred tax assets (liabilities) |
||||||||
United States |
$ | | $ | | ||||
Canada |
(1,133 | ) | (1,144 | ) | ||||
France |
65 | 75 | ||||||
United Kingdom |
| | ||||||
Germany |
(175 | ) | (166 | ) | ||||
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|
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Total deferred tax liabilities |
$ | (1,243 | ) | $ | (1,235 | ) | ||
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10. 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, 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, 2013.
10
Table of Contents
11. Legal Proceedings
In the normal course of business, the Company is at times subject to pending and threatened legal actions and proceedings. After reviewing any pending and threatened actions and proceedings with legal counsel, management does not expect the outcome of such actions or proceedings to have a material adverse effect on the Companys business, financial condition or results of operations.
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, 2013, filed by the Company with the SEC on September 17, 2013. 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, 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 September 30, 2013:
| Revenue from services was $32,370, down 1.9% from the same prior year period. Excluding foreign exchange rate differences, revenue was down 2.1% from last fiscal years first quarter. The decrease was driven primarily by revenue declines in our U.S. and German operations, partially offset by increases in our French, Canadian and U.K. operations, excluding foreign exchange rate differences. |
| Bookings were up 2.4% compared with the same prior year period, excluding foreign exchange rate differences, driven by increases in our French, Canadian, U.K. and U.S. operations. |
| Operating income was $1,330, compared with operating income of $1,829 for the same prior year period. |
| We had $15,888 in cash at September 30, 2013, up from $15,744 at June 30, 2013. |
11
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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 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 three months ended September 30, 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, 2013, filed by us with the SEC on September 17, 2013.
Results of Operations
Three Months Ended September 30, 2013 Versus Three Months Ended September 30, 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 September 30, 2013 and 2012, respectively:
2013 | % | 2012 | % | |||||||||||||
Revenue from services |
$ | 32,370 | 100.0 | % | $ | 33,010 | 100.0 | % | ||||||||
Operating expenses: |
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Cost of services |
20,179 | 62.3 | 19,455 | 58.9 | ||||||||||||
Selling, general and administrative |
10,029 | 31.0 | 10,778 | 32.7 | ||||||||||||
Depreciation and amortization |
832 | 2.6 | 948 | 2.9 | ||||||||||||
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Operating income |
1,330 | 4.1 | 1,829 | 5.5 | ||||||||||||
Interest expense, net |
| | 101 | 0.3 | ||||||||||||
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Income from operations before taxes |
1,330 | 4.1 | 1,728 | 5.2 | ||||||||||||
Provision (benefit) for income taxes |
33 | 0.0 | (15 | ) | (0.0 | ) | ||||||||||
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Net income |
$ | 1,297 | 4.1 | $ | 1,743 | 5.2 | ||||||||||
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Revenue from services. Revenue from services decreased by $640, or 1.9%, to $32,370 for the three months ended September 30, 2013 compared with the same prior year period. Excluding foreign currency exchange rate differences, revenue from services decreased by 2.1% compared with the same prior year period. As more fully described below, revenue from services was impacted by several factors.
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North American revenue decreased by $1,455 to $23,877 for the three months ended September 30, 2013 compared with the same prior year period, a decrease of 5.7%. By country, North American revenue for the three months ended September 30, 2013 was comprised of:
| Revenue from U.S. operations of $18,900 down 7.5% compared with $20,423 for the same prior year period. The decrease was primarily due to the revenue impact of U.S. bookings declines during the second half of fiscal 2013. |
| Revenue from Canadian operations of $4,977, up 1.4% compared with $4,909 for the same prior year period. In local currency (Canadian Dollar), Canadian revenue increased by 6.1% compared with the same prior year period. The increase was primarily due to the revenue impact of bookings increases in our Canadian service bureau business. |
European revenue increased by $817 to $8,494 for the three months ended September 30, 2013 compared with the same prior year period, an increase of 10.6%. By country, European revenue for the three months ended September 30, 2013 was comprised of:
| Revenue from French operations of $3,986, up 34.7% compared with $2,961 for the same prior year period. In local currency (Euro), French revenue increased by 26.8% compared with the same prior year period. The increase was primarily due to the revenue impact of increased bookings during the first quarter of fiscal 2014. |
| Revenue from U.K. operations of $2,830, up 4.3% compared with $2,713 for the same prior year period. In local currency (British Pound), U.K. revenue increased by 5.2% compared with the same prior year period. The increase was primarily due to the revenue impact of increased bookings during the first quarter of fiscal 2014. |
| Revenue from German operations of $1,677, down 16.3% compared with $2,004 for the same prior year period. In local currency (Euro), German revenue decreased by 20.6% compared with the same prior year period. The decrease was primarily due to the revenue impact of bookings declines during the first quarter of fiscal 2014 and normal course timing differences. |
Cost of services. Cost of services was $20,179 or 62.3% of total revenue for the three months ended September 30, 2013, compared with $19,455 or 58.9% of total revenue for the same prior year period. Cost of services for the three months ended September 30, 2013 was principally impacted by the mix of projects delivered during the first quarter of fiscal 2014 compared with the same prior year period.
Selling, general and administrative. Selling, general and administrative expense for the three months ended September 30, 2013 was $10,029 or 31.0% of total revenue, compared with $10,778 or 32.7% of total revenue for the same prior year period. Selling, general and administrative expense was principally impacted by the following:
| a $413 decrease in payroll-related expense, mainly due to our continued focus on managing this expense relative to the needs of our business, and |
| a $159 decrease in rent expense, mainly due to reductions in leased office space taken during fiscal 2013. |
Depreciation and amortization. Depreciation and amortization was $832 or 2.6% of total revenue for the three months ended September 30, 2013, compared with $948 or 2.9% of total revenue for the same prior year period. The decrease in depreciation and amortization expense for the three months ended September 30, 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 2013 combined with decreased capital spending as part of our overall focus on controlling costs.
Interest expense, net. There was no interest expense for the three months ended September 30, 2013, compared with $101 or less than 1% of total revenue for the same prior year period, as we fully paid off our outstanding debt on June 28, 2013.
Income taxes. We recorded an income tax provision of $33 for the three months ended September 30, 2013, compared with an income tax benefit of $15 for the same prior year period. The tax provision for the three months ended September 30, 2013 was comprised mainly of tax expense related to income in certain of our international jurisdictions. The tax benefit for the same prior year period was comprised primarily of tax benefits related to pre-tax losses in certain of our international jurisdictions.
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A full valuation allowance continues to be recorded at September 30, 2013 against our U.S. and U.K. net deferred tax assets. However, during fiscal 2014, we may realize a three year cumulative accounting profit in the U.S. If this occurs, we will also consider other positive and negative evidence such as reviewing our current financial performance, financial and taxable income projections, our market environment and other factors, in evaluating the need for a full, or partial, valuation allowance. Any reversal of our valuation allowance will favorably impact our results of operations in the period of reversal.
Significant Factors Affecting our Performance
Key Operating Metrics
We closely track certain key operating metrics, specifically bookings and secured revenue. These key operating metrics enable us to measure the current and forecasted performance of our business relative to historical trends.
Key operating metrics for continuing operations for the three months ended September 30, 2013 and the four preceding fiscal quarters were as follows (U.S. Dollar amounts in millions):
Q1 FY2013 |
Q2 FY2013 |
Q3 FY2013 |
Q4 FY2013 |
Q1 FY2014 |
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Bookings |
$ | 33.9 | $ | 47.8 | $ | 34.4 | $ | 28.2 | $ | 34.8 | ||||||||||
Secured revenue |
$ | 43.4 | $ | 54.1 | $ | 55.0 | $ | 46.5 | $ | 48.9 |
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 September 30, 2013 were $34.8 million, compared with $33.9 million for same prior year period. Excluding foreign exchange rate differences, bookings were up 2.4% over the same prior year period. Bookings in local currency for the three months ended September 30, 2013 compared with the same prior year period were principally impacted by the following:
| a 1.0% increase in U.S. bookings, mainly as a result of normal course timing differences, |
| a 14.5% increase in Canadian bookings, mainly as a result of increases in our Canadian service bureau business, |
| a 14.6% increase in French bookings, mainly as a result of success in selling to new and existing clients across several areas of our French business, |
| a 17.1% increase in U.K. bookings, mainly as a result of increased spending by existing clients, and |
| a 47.2% decrease in German bookings, mainly as a result of delayed and reduced spending by certain of our existing clients. |
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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 September 30, 2013, secured revenue was calculated as:
Amounts in millions of USD |
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Secured revenue at June 30, 2013 |
$ | 46.5 | ||
Plus: Bookings for the three months ended September 30, 2013 |
34.8 | |||
Less: Revenue from services for the three months ended September 30, 2013 |
(32.4 | ) | ||
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Secured revenue at September 30, 2013 |
$ | 48.9 | ||
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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 September 30, 2013 was $48.9 million, compared with $43.4 million at September 30, 2012. The increase in secured revenue was mainly due to the impact of increased bookings and normal course timing differences compared with the same prior year period.
We define adjusted EBITDA, a non-GAAP financial measure, as earnings before net interest expense, income taxes, depreciation and amortization, and stock based compensation. Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. We are presenting adjusted EBITDA because it provides investors with an additional way to view our operations, when considered with both our GAAP results and the reconciliation to net income, which we believe provides a more complete understanding of our business than could be obtained absent this disclosure. Adjusted EBITDA is presented solely as a supplemental disclosure because:
| It is a useful tool for our management and investors to assess the operating performance of the business without the effect of non-cash depreciation, amortization and stock based compensation expenses, and |
| It is a metric we use in determining the level of incentive compensation we award to senior management and other key employees. |
The use of adjusted EBITDA has limitations and should not be considered in isolation from or as an alternative to GAAP measures, such as net income, operating income or other data prepared in accordance with GAAP.
Adjusted EBITDA after the effect of restructuring and other charges, also a non-GAAP financial measure, is a key operating metric that we believe is useful to investors because it provides a means for them to better understand our ongoing operations.
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Reconciliations of net income to adjusted EBITDA and net income to adjusted EBITDA after the effect of restructuring and other charges are presented below:
September 30, 2013 |
September 30, 2012 |
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GAAP net income |
$ | 1,297 | $ | 1,743 | ||||
Interest expense, net |
| 101 | ||||||
Provision (benefit) for income taxes |
33 | (15 | ) | |||||
Depreciation and amortization |
936 | 1,116 | ||||||
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EBITDA |
$ | 2,266 | $ | 2,945 | ||||
Stock-based compensation |
536 | 569 | ||||||
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Adjusted EBITDA |
$ | 2,802 | $ | 3,514 | ||||
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Adjusted EBITDA |
$ | 2,802 | $ | 3,514 | ||||
Add back of restructuring and other charges |
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Adjusted EBITDA after the effect of restructuring and other charges |
$ | 2,802 | $ | 3,514 | ||||
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Liquidity and Capital Resources
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 provided by (used in) financing activities, for the three months ended September 30:
2013 | 2012 | |||||||
Net cash provided by operating activities |
$ | 120 | $ | 306 | ||||
Net cash used in investing activities |
(263 | ) | (58 | ) | ||||
Net cash provided by (used in) financing activities |
40 | (1,117 | ) |
Net cash provided by operating activities. Net cash provided by operating activities was $120 for the three months ended September 30, 2013, compared with $306 provided by operating activities for the same prior year period. The decrease was driven mainly by the decrease in net income compared with the same prior year period, offset by normal course fluctuations in working capital.
Net cash used in investing activities. Net cash used in investing activities was $263 for the three months ended September 30, 2013, compared with $58 for the same prior year period. Investing activities for both periods consisted solely of capital expenditures, which increased for the three months ended September 30, 2013 compared with the same prior year period. The increase was driven by certain routine capital expenditures made during the first quarter of fiscal 2014 that had been previously deferred as a result of our cost control initiatives that were in effect during the same prior year period.
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Net cash provided by (used in) financing activities. Net cash provided by financing activities was $40 for the three months ended September 30, 2013, compared with $1,117 used in financing activities for the same prior year period. The primary source of cash during the three months ended September 30, 2013 was the cash proceeds from stock option exercises, while the primary use of cash during the same prior year period was to make required principal payments on our outstanding debt, which was paid in full on June 28, 2013.
Working Capital
At September 30, 2013, we had cash and cash equivalents of $15,888 compared with $15,744 at June 30, 2013. Available sources of cash to support known or reasonably likely cash requirements over the next 12 months include cash and cash equivalents on hand and additional cash that may be generated from our operations. While we believe that our available sources of cash will support known or reasonably likely cash requirements over the next 12 months, 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 our 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 panels, 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 $1,500 and $2,000 during the fiscal year ending June 30, 2014.
Credit Facilities
On September 30, 2013, our revolving line of credit expired and was not renewed. At September 30, 2013, we had $351 in outstanding letters of credit under our credit agreement.
Off-Balance Sheet Arrangements and Contractual Obligations
At September 30, 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 September 30, 2013 to our contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2013, filed by us with the SEC on September 17, 2013.
Recent Accounting Pronouncements
See Note 3, Recent Accounting Pronouncements, to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q for a discussion of the impact of recently issued accounting pronouncements on our unaudited consolidated financial statements at September 30, 2013 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 one kind of market risk exposure, foreign currency exposure. We have no market risk sensitive instruments entered into for trading purposes.
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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.
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.
At September 30, 2013, we performed the following sensitivity analysis to determine the impact of a 10% appreciation or depreciation in the U.S. Dollar:
Currency |
Impact of 10% Appreciation or Depreciation in U.S. Dollar |
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Canadian Dollar |
$ | 234 | $ | 498 | $ | (26 | ) | |||||
British Pound |
89 | 283 | 4 | |||||||||
Euro: |
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France |
136 | 399 | 15 | |||||||||
Germany |
365 | 168 | (4 | ) |
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
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Financial Officer concluded that our disclosure controls and procedures as of September 30, 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 September 30, 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 or results of operations.
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, 2013, filed by us with the SEC on September 17, 2013.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3 Defaults Upon Senior Securities
None.
Item 4 Mine Safety Disclosures
None.
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 |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
November 14, 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) |
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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 |
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