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EX-32.1 - EX-32.1 - HARRIS INTERACTIVE INCl37965exv32w1.htm
EX-31.2 - EX-31.2 - HARRIS INTERACTIVE INCl37965exv31w2.htm
EX-10.1 - EX-10.1 - HARRIS INTERACTIVE INCl37965exv10w1.htm
EX-31.1 - EX-31.1 - HARRIS INTERACTIVE INCl37965exv31w1.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. LOGO)
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
(Registrant’s 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 Registrant’s Common Stock, $.001 par value, were outstanding.
 
 

 


 

HARRIS INTERACTIVE INC.
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

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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.

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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.

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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.

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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 Company’s 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 Company’s 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 Company’s consolidated financial statements.

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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 Company’s references to U.S. GAAP accounting standards but did not impact the Company’s 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 Company’s 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.

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     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 Company’s 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 Company’s 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 Company’s 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.

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     The following table presents the fair value hierarchy for the Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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  
 
             

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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 Company’s 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          
 
             

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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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s business model for offering custom market research is consistent across the geographic regions in which it operates. Geographic management facilitates local execution of the Company’s 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 Company’s 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 Company’s 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 Company’s business, financial condition or results of operations.

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Item 2 — Management’s 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 Company’s ability to sustain and grow its revenue base, the Company’s 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 year’s first quarter to 33% for this year’s 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 year’s 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 management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended June 30, 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 management’s assessment of the realizability of the Company’s 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 country’s 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 management’s 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. Till’s bonus will be based upon achievement of operating income, measured and payable as provided in the Company’s 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. Till’s 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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