UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Form 10-K

 

 

COMMISSION FILE NUMBER: 000-27577

 

 

 

 

HARRIS INTERACTIVE INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Registrant’s telephone number, including area code:

(212) 539-9600

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act:

NONE

 

INDICATE BY CHECK MARK IF THE REGISTRANT IS A WELL-KNOWN SEASONED ISSUER, as defined in Rule 405 of the Securities Act.  Yes o     No þ

 

INDICATE BY CHECK MARK IF THE REGISTRANT IS NOT REQUIRED TO FILE REPORTS pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ

 

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 CHECK MARK 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 IF DISCLOSURE OF DELINQUENT FILERS PURSUANT to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

 

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):

 

 

INDICATE BY CHECK MARK WHETHER REGISTRANT IS A SHELL COMPANY (as defined in Rule 12b-2 of the Act).  Yes o     No þ

 

The aggregate market value of voting and non-voting common equity securities held by non-affiliates of the registrant, computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter, December 31, 2009, was $57,381,607.

 

On August 31, 2010, 54,465,449 shares of the Registrant’s Common Stock, $.001 par value, were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

The information required by Part III of this Report, to the extent not set forth herein, is incorporated by reference from the Registrant’s definitive proxy statement relating to the annual meeting of stockholders to be held on October 26, 2010, which definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.

 

 

HARRIS INTERACTIVE INC.

 

FORM 10-K

 

FOR THE FISCAL YEAR ENDED JUNE 30, 2010

 

INDEX

 

 

The discussion in this Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 (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 of this Annual Report on Form 10-K and as set forth in other reports or documents the Company files from time to time with the Securities and Exchange Commission (the “SEC”). 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.

 

 

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. Harris Interactive^® and The Harris Poll^® are U.S. registered trademarks of Harris Interactive Inc. This Annual Report on Form 10-K may also include other trademarks, trade names, and service marks of Harris Interactive and of other parties.

 

Corporate Overview

 

Harris Interactive was founded in 1975 in upstate New York as the Gordon S. Black Corporation, however, its roots date back to the founding of Louis Harris and Associates in New York City in 1956. Today, Harris Interactive is an international, full-service, consultative market research firm widely known for The Harris Poll (one of the world’s longest-running, independent opinion polls) and for pioneering online market research methods. Harris Interactive serves clients worldwide through its offices in North America, Europe, and Asia and through a global network of independent market research firms.

 

Our corporate headquarters are located in New York City. Our fiscal year ends June 30th.

 

Mergers, Acquisitions and Sale of Business

 

The Gordon S. Black Corporation was founded in 1975 as a New York corporation. It formed and became part of the Delaware corporation now known as Harris Interactive in 1997. Since that time, our acquisitions have included:

 

 

 

In May 2005, we completed the sale of our Japanese subsidiaries, M&A Create Limited, Adams Communications Limited, and Harris Interactive Japan, K.K., in a management buy-out. In August 2007, we sold our Rent and Recruit business, which was engaged primarily in providing facilities for and conducting focus group interviews.

 

Business Overview

 

Harris Interactive is a professional services firm that serves clients in many industries and many countries. We provide full service market research and polling services which include ad-hoc and customized qualitative and quantitative research, service bureau research (conducted for other market research firms), and long-term tracking studies.

 

We serve clients in numerous industries through the following research groups:

 

 

In addition, we maintain strategic research groups that collaborate with our industry research teams to deliver consultative solutions in the following areas:

 

 

 

We conduct a significant portion of our market research using online data collection. We also conduct data collection through, among others, mail and telephone surveys, focus groups, and personal interviews. Our telephone data collection is conducted through our telephone data collection centers in the United Kingdom, Canada, Hong Kong, and Singapore. In addition to these dedicated facilities, we outsource telephone data collection and survey programming to contracted sources in a number of countries, including India and Costa Rica.

 

Our Products and Services

 

Custom Research

 

We conduct many types of custom research including customer satisfaction surveys, market share studies, new product introduction studies, brand recognition studies, reputation studies, ad concept testing and more. A custom research project has three distinct phases:

 

 

Our sample design and questionnaire development techniques help ensure that appropriate information is collected, and that the information satisfies the specific inquiries of our clients. We have developed in-depth data collection techniques to enhance the integrity and reliability of our sample database. Our survey methodology is intended to ensure that responses are derived from the appropriate decision-makers in each category. As a result, we have a solid foundation for delivering data and insight that meet our clients’ needs.

 

Tracking Study Research

 

We apply extensive expertise to the design, execution and maintenance of custom, online tracking studies for clients in a broad range of industries and around the globe. Considered by many to be a vital part of any comprehensive research program, tracking studies regularly ask identical questions to similar demographic groups within a constant interval (once a month, once a quarter, etc.) to feed business decision-makers with dynamic data and intelligence that enables them to:

 

 

 

Service Bureau Research

 

We provide our market research industry clients with mixed-mode data collection, panel development services, and syndicated and tracking research consultation through our service bureau group.

 

Research and Development

 

We have not incurred expenditures for the three fiscal years ended June 30, 2010 that would be classified as research and development as defined by accounting principles generally accepted in the United States of America (“GAAP”) under the Financial Accounting Standards Board (“FASB”) guidance for research and development expenses.

 

Our Intellectual Property and Other Proprietary Rights

 

We believe that the Harris brand and its associated intellectual property provide us with many competitive advantages. To protect our brand and our intellectual property, we rely on a combination of patent, copyright, trademark and trade-secret laws, as well as confidentiality, non-disclosure, non-compete and license agreements, and clearly defined standard terms and conditions in our sales contracts.

 

We currently have patents and patent applications pending for:

 

 

Additionally, we have registered trademarks for many of our products and services in North America, Europe, and Asia, and will continue to protect our intellectual property through those means.

 

We have licensed in the past, and expect to license in the future, certain proprietary rights, such as trademarks or copyrighted material, to third parties. While we attempt to ensure that the quality of our brand is maintained by these licenses, licensees may take actions that might harm the value of our proprietary rights or reputation.

 

Our Clients

 

At June 30, 2010 and 2009, we had approximately 1,800 clients. In fiscal 2010 and 2009, no single client accounted for more than 10% of our consolidated revenue.

 

Our Competition and Competitive Advantages

 

We compete with numerous market research firms, as well as corporations and individuals that perform market research studies on an isolated basis, many of which have market shares or financial and marketing resources larger than our own. Our competitors include, but are not limited to, Synovate (owned by Aegis Group plc), GfK AG, Ipsos SA, and TNS and Millward Brown (both owned by WPP Group plc).

During fiscal 2010, we launched four new client offerings which we believe will enhance our ability to be competitive:

 

 

We believe we have a number of competitive advantages, including:

 

 

 

 

 

 

Financial Information about Geographic Areas

 

We are 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. We also maintain a representative office in mainland China. Revenue from services is attributable to the country in which the work is performed. There were no intercompany transactions that materially affected the financial statements, and all intercompany sales have been eliminated upon consolidation.

 

Our business model for offering custom market research is consistent across the geographic regions in which we operate. Geographic management facilitates local execution of our global strategies. We maintain global leaders with responsibility across all geographic regions for the majority of our critical business processes, and the most significant performance evaluations and resource allocations are made on a global basis by our chief operating decision-maker. Accordingly, we have concluded that we have one reportable segment.

 

We have 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. We have allocated common expenses among these geographic regions differently than we would for stand-alone information prepared in accordance with GAAP. Geographic operating income (loss) may not be consistent with measures used by other companies.

Geographic information from continuing operations for the fiscal years ended June 30 was as follows (amounts in thousands):

 

 

 

 

During fiscal 2010, 2009, and 2008, 57.6%, 61.2%, and 64.0%, respectively, of our total consolidated revenue was derived from our U.S. operations, and 42.4%, 38.8%, and 36.0%, respectively, of our total consolidated revenue was derived from our non-U.S. operations.

 

See “Item 1A. Risk Factors” below for a description of certain risks attendant to our non-U.S. operations.

Backlog

 

At June 30, 2010, we had a revenue backlog, also referred to as secured revenue, of approximately $46,626, as compared to a backlog of approximately $48,811 at June 30, 2009. We estimate that substantially all of the backlog at June 30, 2010 will be recognized as revenue from services during the fiscal year ending June 30, 2011, based on our experience from prior years.

 

Employees

 

At June 30, 2010, we employed a total of 794 full-time individuals on a worldwide basis, 426 of whom were employed in the United States. In addition, we employed 148 part-time and hourly individuals on a worldwide basis for data gathering and processing activities, 12 of whom were employed in the United States. Temporary employees and hourly call center staff are not included in the headcount numbers provided herein.

 

None of our employees are represented by a collective bargaining agreement. We have not experienced any work stoppages. We consider our relationship with our employees to be good.

 

Executive Officers of Harris Interactive

 

The following table sets forth the name, age and position of each of the persons who were serving as our executive officers as of August 31, 2010. These individuals have been appointed by and are serving at the pleasure of the board of directors of the Company (the “Board”).

 

 

Kimberly Till is our President and Chief Executive Officer, positions she has held since October 2008. Ms. Till has been a director of the Company since October 2008. Prior to joining us, Ms. Till served as President and then Chief Executive Officer, TNS North America (custom business) from May 2006 to March 2008. From November 2003 to March 2006, Ms. Till served as Vice President, Worldwide Media and Entertainment Group, Communications Sector, Microsoft Corporation. Prior to joining Microsoft, from 2000 to October 2003, Ms. Till served at AOL Time Warner America Online, Inc., first as Senior Vice President of International Operations and General Manager of AOL International, then as senior strategic financial advisor at the Warner Music Group. In 1990, Ms. Till was selected for the prestigious White House Fellowship, where she served as a Special Assistant to the former U.S. Trade Representative and Secretary of Agriculture and to the Director of the FBI.

 

Patti B. Hoffman is our Executive Vice President, Global Human Resources, a position she has held since April 2010. From May 2009 to December 2009, Ms. Hoffman served as our interim Head of Human Resources. Prior to joining us, Ms. Hoffman worked for six years as an independent human resources consultant providing her clients with the design, development and implementation of human resources programs relating to compensation, including flexible pay programs, benefits, career progression plans and contingency planning. Prior to her consulting role, Ms. Hoffman spent seven

years with Total Research Corporation serving in progressively senior roles, most recently as Chief Administrative Officer. Prior to joining Total Research, Ms. Hoffman held executive level HR positions at WestAmerica Bancorporation, The Good Guys, and Fireman’s Fund Insurance Company.

 

Enzo J. Micali is our Global Executive Vice President, Technology, Operations and Panel, and Chief Information Officer, positions he has held since March 2009. Prior to joining us, Mr. Micali served as the Chief Information Officer and Executive Vice President of Operations for TNS North America (custom business), a position he assumed in January 2007. Prior to joining TNS, Mr. Micali served as Chief Information Officer and Senior Vice President for 1-800-FLOWERS.COM from 2000 through 2006, where he was responsible for overseeing all technology plans and programs for the online retailer and its eight subsidiaries. Mr. Micali also has served as Chief Technology Officer for Inslogic, a business-to-business software provider supporting financial institutions and internet portals serving the insurance industry, and has held key IT roles at Chase Manhattan Bank, PricewaterhouseCoopers Consulting, Deloitte & Touche, and Chemical Bank.

 

Marc H. Levin is our Executive Vice President, General Counsel, and Corporate Secretary. He served as our Senior Vice President, General Counsel, and Corporate Secretary from April 2009 to April 2010. He also served as our interim Head of Human Resources from January 2010 to April 2010. Prior to joining us, Mr. Levin spent five years at TNS, most recently as Senior Vice President and General Counsel, North America. Before joining TNS, Mr. Levin was a senior associate in the New York City office of the law firm Thacher Proffitt & Wood, where he specialized in corporate and securities law. Mr. Levin is a member of the New York and Massachusetts bars, and received his B.S. in Economics from Cornell University, his J.D. from Boston College Law School, and his MBA from the Carroll School of Management, Boston College.

 

Eric W. Narowski is our interim Chief Financial Officer, a position he has held since November 2009. Mr. Narowski also continues to serve as our Principal Accounting Officer and Senior Vice President, Global Controller, positions he has held since February 2006 and October 2007, respectively. From January 2000 to October 2007, Mr. Narowski served as our Vice President, Corporate Controller. Mr. Narowski joined us in July 1997 as our Controller, and is a New York State Certified Public Accountant.

 

Robert Salvoni is our President, International, a position he has held since March 2010. In this role, Mr. Salvoni is responsible for managing our operations in Canada, Europe, and Asia. Prior to March 2010, Mr. Salvoni served as Managing Director, Europe and Asia Pacific, positions he was appointed to in May 2009 and October 2009, respectively. Prior to joining us in May 2009, Mr. Salvoni served as Managing Director at Iris Accountancy Practice Solutions from 2007 to 2009. Prior to 2007, Mr. Salvoni spent 15 years at British Telecom (BT) serving in progressively senior roles, running joint ventures and subsidiary companies, and most recently as Sales Director for BT Wholesale.

 

George H. Terhanian, Ph.D. is our President, Global Solutions, a position he has held since December 2008. Prior to serving as President, Global Solutions, Dr. Terhanian served as President of Harris Interactive Europe and Global Internet Research, from July 2003 and June 2002, respectively. Prior to joining us in 1996, Dr. Terhanian taught in elementary and secondary schools in the United States. He also has served an appointment as an American Educational Research Association Fellow at the National Center for Educational Statistics.

 

Available Information

 

Information about our products and services, shareholder information, press releases and SEC filings can be found on our website at www.harrisinteractive.com. Through our website, we make available free of charge the documents and reports we file with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information on our websites (or the websites of our subsidiaries) does not constitute part of this Annual Report on Form 10-K.

The public may also read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site at www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

 

 

Factors That May Affect Future Performance.

 

We operate in a very competitive and rapidly changing environment that involves numerous risks and uncertainties, some of which are beyond our control. In addition, we and our clients are affected by global economic conditions. The following section discusses many of these risks and uncertainties, but is not intended to be all-inclusive.

 

Risks Related to Our Business

 

Our business is vulnerable to fluctuations in general economic conditions.

 

Our business tends to be adversely affected by slow or depressed business conditions in the market as a whole. Many of our clients treat all or a portion of their market research expenditures as discretionary. As global macroeconomic conditions decline and our clients seek to control variable costs, new bookings tend to slow, existing bookings become increasingly vulnerable to subsequent cancellations and delays, and our sales backlog may convert to revenue more slowly than it has historically. Any of the above factors may result in a material adverse impact to our growth, revenues, and earnings.

 

Failure to maintain our brand reputation and recognition could impair our ability to remain competitive.

 

We believe that maintaining our good brand reputation and recognition is critical to attracting and expanding our current client base as well as attracting and retaining qualified employees. If our reputation and name are damaged through our participation in surveys involving controversial topics or if the results of our surveys are inaccurate or are misused or used out of context by one of our clients, we may become less competitive or lose market share.

 

If we are unable to maintain adequate capacity and demographic composition of our existing online panel, our business, financial condition and results of operations may be adversely affected.

 

Our success is highly dependent on our ability to maintain sufficient capacity of our online panel and its specialty sub-panels. Our ability to do this may be harmed if we lose panel capacity or are unable to attract and maintain an adequate number of replacement panelists and specialty sub-panel members. There are currently no industry or other benchmarks for determining the optimal size and composition of an online respondent panel. Among other factors, panelist response rates vary with differing survey content, and the frequency with which panelists are willing to respond to survey invitations is variable. We constantly reassess our panel size and demographics as survey requests are made and, based upon availability of existing panelists to fulfill project requests, determine our need to recruit additional panelists. We are not always able to accommodate client requests to survey low-incidence, limited populations with specific demographic characteristics. If our need to recruit panelists or specialty sub-panel members increases significantly, our operating costs will rise. Further, our business will be adversely affected if we do not achieve sufficient response rates with our existing panelists or our panel narrows and we are unable to spend the funds necessary to recruit additional panelists.

We face competitive pressures within our industry and must continuously replace completed work with new projects.

 

The market research industry includes many competitors, some of which are much larger than we are, have a greater global presence, and/or have specialized products and services we do not offer. There can be no assurance that we will be able to successfully compete against current and future competitors and our failure to do so could result in loss of market share, diminished value in our products and services, reduced pricing and increased marketing expenditures. Furthermore, we may not be successful if we cannot compete effectively on quality of our services, timely delivery of information, customer service, and the ability to offer products to meet changing market needs or prices.

 

No one client accounts for more than 10% of our revenues and most of our revenues are derived on a project by project basis. We must continuously replace completed work with new projects from both existing and new clients, and these competitive pressures may make it more difficult for us to do so and to sustain and grow our revenues. Additionally, a portion of our business involves longer-term tracking studies, which are often renewable on an annual basis. Non-renewal of a large tracking study can have an immediate disproportionate impact on our revenues, and we may have a lag time in replacing the non-renewed tracking study or adjusting our cost structure to reflect the effects of the non-renewal.

 

Our outstanding debt obligations and ability to comply with related covenants could impact our financial condition or future operating results.

 

At June 30, 2010, we had $15.6 million outstanding under our credit agreement, which provides for amortizing term loans with quarterly payments and, subject to certain conditions, the availability of a maximum amount of $5.0 million under a revolving credit facility.

 

The affirmative, negative and financial covenants of our credit agreement could limit our future financial flexibility and could adversely impact our ability to conduct our business. Additionally, a failure to comply with these covenants could result in acceleration of all amounts outstanding under our credit agreement, which would materially impact our financial condition unless accommodations could be negotiated with our lenders. No assurance can be given that we would be successful in doing so in this current financial climate, or that any accommodations that we were able to negotiate would be on terms as favorable as those presently contained in our credit agreement.

 

The associated debt service costs of the borrowing arrangement under our credit agreement will continue to be reflected in operating results. The outstanding debt may limit the amount of cash or additional credit available to us, which could restrain our ability to expand or enhance products and services, respond to competitive pressures, or pursue future business opportunities requiring substantial investments of additional capital.

 

A breach of our online security measures, security concerns, or liability arising from the use of the personal information of our online panel, could adversely affect our business.

 

A failure in our online security measures could result in the misappropriation of private data. As a result, we may be required to expend capital and other resources to protect against the threat of such security breaches or to alleviate problems caused by such breaches, which could have a material adverse effect on our business, financial condition and results of operations.

 

Online security concerns could cause some online panelists to reduce their participation levels, provide inaccurate responses or end their membership in our Internet panel. This could harm our credibility with our current clients. If our clients become dissatisfied, they may stop using our products and services. In addition, dissatisfied and lost clients could damage our reputation. A loss of online panelists or a loss of clients would hurt our efforts to generate increased revenues and impair our ability to attract potential clients.

We could be subject to liability claims by our online panelists for any misuse of their demographic personal information. These claims could result in costly litigation. We could also incur additional costs and expenses if new regulations regarding the use of personal information are introduced or if our privacy practices are investigated by a governmental body.

 

We must continue to attract and retain highly skilled employees.

 

Our future success will depend, in part, on our ability to continue to attract, retain and motivate highly skilled technical, managerial, marketing, sales and client support personnel. Research managers with industry expertise are important to our ability to retain and expand our business. Intense competition for these personnel exists, and we may be unable to attract, integrate or retain the proper number of sufficiently qualified personnel that our business plan assumes. In the past, we have from time to time experienced difficulty hiring and retaining qualified employees. There are few, if any, educational institutions that provide specialized training related to market research. Therefore, employees must be recruited in competition with other industries. In the past, competition for highly skilled employees has resulted in additional costs for recruitment, training, compensation and relocation or the provision of remote access to our facilities. We may continue in the future to experience difficulty in hiring and retaining employees with appropriate qualifications. To the extent that we are unable to hire and retain skilled employees in the future, our business, financial condition and results of operations would likely suffer.

 

If our new senior management team is unsuccessful in rebuilding our business, it could have an adverse impact on our revenues, operations, results, or stock value.

 

Throughout fiscal 2009 and 2010, we rebuilt our senior management team by recruiting talent from outside the Company and also by promoting from within. Our success will be dependent upon the ability of our new senior management team to gain proficiency in leading our Company, effectively implement our corporate strategy and initiatives, and develop key professional relationships. If our new senior management team is unable to achieve success in these areas, it could have an adverse impact on our revenues, operations, results, and stock value.

 

We may require additional cash resources which may not be available on favorable terms or at all.

 

We believe that our existing cash balances, projected cash flow from operations, and the borrowing capacity we have under our revolving credit facility will be sufficient for our expected short-term and foreseeable long-term operating needs.

 

We may, however, require additional cash resources due to unanticipated business conditions, to repay indebtedness or to pursue future business opportunities requiring substantial investments of additional capital. If our existing financial resources are insufficient to satisfy our requirements, we may seek additional borrowings. Prevailing credit market conditions may negatively affect debt availability and cost, and, as a result, financing may not be available in amounts or on terms acceptable to us, if at all. In addition, the incurrence of additional indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would further restrict our operations.

 

Our international operations expose us to a variety of operational risks which could negatively impact our future revenue and growth.

 

Our operating results are subject to the risks inherent in international business activities, including general political and economic conditions in each country, changes in market demand as a result of tariffs and other trade barriers, challenges in staffing and managing foreign operations, changes in regulatory requirements, compliance with numerous foreign laws and regulations, differences between U.S. and foreign tax rates and laws, currency exchange fluctuations, problems in collecting accounts

receivable and longer collection periods, issues related to repatriation of earnings of foreign subsidiaries, Internet access restrictions, protecting intellectual property rights in international jurisdictions, political instability, and anti-U.S. sentiment or terrorist activity against U.S. interests abroad. We have little or no control over these risks. For example, we have encountered more restrictive privacy laws in connection with our business operations in Europe, which have inhibited the growth of our European online panel. As we increase our global operations in the future, we may experience some or all of these risks, which may have a material adverse effect on our business, financial condition and results of operations.

 

In addition, we rely on off-shore providers in countries such as India and Costa Rica to provide certain of our programming services, as well as telephone and online data collection. Political or economic instability in countries where such support services are provided, or a significant increase in the costs of such services, could adversely affect our business. From time to time, laws and regulations are proposed in the jurisdictions where we operate that would restrict or limit the benefits of off-shore operations, and enactment of any such legal restrictions could harm our results of operations.

 

If we are unable to enforce and protect our intellectual property rights our competitive position may be harmed.

 

We rely on a combination of copyright, trademark, trade secret, confidentiality, non-compete and other contractual provisions to protect our intellectual property rights. Despite our efforts to protect our intellectual property rights, unauthorized third parties may obtain and use technology or other information that we regard as proprietary. Our intellectual property rights may not survive a legal challenge to their validity or provide significant protection for us. The laws of certain countries do not protect our proprietary rights to the same extent as the laws of the United States. Accordingly, we may not be able to protect our intellectual property in such countries against unauthorized third-party copying or use, which could adversely affect our competitive position.

 

We may be subject to liability for publishing or distributing content over the Internet.

 

We may be subject to claims relating to content that is published on or downloaded from our websites. We may also be subject to liability for content that is accessible from our website through links to other websites. For example, as part of our surveys panelists sometimes access, through our websites or linkages to our clients’ or other third parties’ websites, content provided by our clients, such as advertising copy, that may be incomplete or contain inaccuracies. We also recruit panelists to participate in research sponsored and hosted by our clients on their websites, and we cannot completely control breaches of privacy policies, warranties, or other claims that may be made by those third parties. We may be accused of sending bulk unsolicited email and have our email blocked by one or more Internet service providers and, therefore, our online data collection efforts may suffer.

 

Although we carry general and professional liability insurance, our insurance may not cover potential liability claims for publishing or distributing content over the Internet, or may not be adequate to cover all costs incurred in defense of potential claims or to indemnify us for all liability that may be imposed. In addition, any claims of this type, with or without merit, would result in the diversion of our financial resources and management personnel.

 

Any failure in the performance of our technology infrastructure could harm our business.

 

Any system delays or failures, including network, software or hardware failures, that cause an interruption in our ability to communicate with our Internet panel, collect research data, or protect visual materials included in our surveys, could result in reduced revenue, impair our reputation, and have a material adverse effect on our business, financial condition and results of operations.

 

Our systems and operations are vulnerable to damage or interruption from fire, earthquake, flooding, power loss, telecommunications failure, break-ins and similar events. The redundancy of our

systems may not be adequate, as we depend upon third-party suppliers to protect our systems and operations from the events described above. We have experienced technical difficulties and downtime of individual components of our systems in the past, and we believe that technical difficulties and downtime may occur from time to time in the future. The impact of technical difficulties and downtime may be severe. We have developed, however have not fully implemented, a formal disaster recovery plan, and our business interruption insurance may not adequately compensate us for any losses that may occur due to failures in our systems.

 

Risks Related to Our Common Stock

 

Our business may be harmed if we cannot maintain our listing on the Nasdaq Global Select Stock Market.

 

Variations in our operating results may cause our stock price to fluctuate. Our quarterly operating results have in the past, and may in the future, fluctuate significantly and we may incur losses in any given quarter. Our future results of operations may fall below the expectations of public market analysts and investors. If this happens, the price of our common stock would likely decline. Other factors, such as general market conditions and investor’s perceptions of our longer term prospects, also may cause fluctuations in the price of our common stock.

 

To maintain our listing on the Nasdaq Global Select Market we must satisfy certain minimum financial and other continued listing standards, including, among other requirements:

 

 

Any failure to meet the market value requirement must continue for 10 consecutive days and may be cured within 30 days after notification by Nasdaq of non-compliance by meeting the standard for 10 consecutive business days. Any failure to meet the minimum bid price requirement must continue for 30 consecutive business days and may be cured within 180 days after notification by Nasdaq of non-compliance by meeting the standard for 10, or in Nasdaq’s discretion 20 or more, consecutive business days. If we fail to meet these requirements, we would have the option to apply to transfer our securities to the Nasdaq Capital Market, which would provide us with an additional 180 days to meet the $1.00 minimum bid requirement. If we fail to meet the minimum bid requirement after that additional 180 days have elapsed, Nasdaq may provide written notification to us regarding the de-listing of our common stock. At that time, we would have the right to request a hearing to appeal the Nasdaq de-listing determination.

 

On September 15, 2009, we received a letter from Nasdaq (the “Notice”) notifying us that for 30 consecutive trading days preceding the date of the Notice, the bid price of our common stock had closed below the $1.00 per share minimum required for continued trading on the Nasdaq Global Market. On November 24, 2009, we received a letter from Nasdaq’s Listing Qualifications Department stating that we regained compliance with the minimum bid price rule due to the fact that the closing bid price of our common stock had been $1.00 or greater for at least 10 consecutive business days. However, there can be no assurance that we will continue to meet the listing requirements for the Nasdaq Global Select Market, or that any appeal of a decision to de-list our common stock will be successful. If our common stock loses its status on the Nasdaq Global Select Market and we are not successful in obtaining a listing on the Nasdaq Capital Market, shares of our common stock would likely trade in the over-the-counter market bulletin board, commonly referred to as the “pink sheets.” If our stock were to trade on the over-the-counter market, selling our common stock could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be

delayed, and security analysts’ coverage of us may be reduced. In addition, in the event our common stock is de-listed, broker-dealers have certain regulatory burdens imposed upon them, which may discourage broker-dealers from effecting transactions in our common stock, further limiting the liquidity of our common stock. These factors could have a material adverse effect on the trading price, liquidity, value and marketability of our common stock.

 

Our operating results may fluctuate from period to period and may not meet the expectations of securities analysts or investors or forward-looking statements we have made, which may cause the price of our common stock to decline.

 

Our quarterly and annual operating results may fluctuate in the future as a result of many factors, some of which are outside our control, including declines in general economic conditions or the budgets of our clients, changes in the demand for market research and polling products and services, currency fluctuations, the timing of client projects, and competition in the industry, and others which are partially within our control, including the amount of new business generated, effective management of the professional services aspects of our business, including utilization and realization rates, the mix of domestic and international business, and the timing of the development, introduction and marketing of new products and services. An inability to generate sufficient earnings and cash flow may impact our operating and other activities. The potential fluctuations in our operating results could cause period-to-period comparisons of operating results not to be meaningful and may provide an unreliable indication of future operating results. Furthermore, our operating results may not meet the expectations of securities analysts or investors in the future or forward-looking statements we have made. If this occurs, the price of our stock would likely decline.

 

Our stock price may be volatile, and you may not be able to resell shares of our common stock at or above the price you paid.

 

The trading prices of our common stock could be subject to significant fluctuations in response to, among other factors, variations in operating results, developments in the industries in which we do business, general economic conditions, general market conditions, changes in the nature and composition of our stockholder base, changes in securities analysts’ recommendations regarding our securities, and our performance relative to securities analysts’ expectations for any quarterly period. Further, even though our stock is quoted on the Nasdaq Global Select Market, our stock has had and may continue to have low trading volume and high volatility. The historically low trading volume of our stock makes it more likely that a significant fluctuation in volume, either up or down, will significantly impact the stock price. Because of the relatively low trading volume of our stock, our stockholders may have difficulty selling our common stock. In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Such volatility may adversely affect the market price of our common stock.

 

Anti-takeover provisions in our charter and applicable law could delay or prevent an acquisition of our company.

 

Our restated certificate of incorporation provides for the division of the Board into three classes, eliminates the right of stockholders to act by written consent without a meeting, and provides the Board with the power to issue shares of preferred stock without stockholder approval. The preferred stock could have voting, dividend, liquidation, and other rights established by the Board that are superior to those of our common stock. In addition, Section 203 of the Delaware General Corporation Law contains provisions that impose restrictions on stockholder action to acquire our company. The effect of these provisions of our certificate of incorporation and Delaware law could discourage or prevent third parties from seeking to obtain control of us, including transactions in which the holders of common stock might receive a premium for their shares over prevailing market prices.

The Board also adopted a stockholder rights plan, pursuant to which we declared and paid a dividend of one right for each share of common stock outstanding as of March 29, 2005, and one right attaches to each share issued thereafter until a specified date. Unless redeemed by us prior to the time the rights are exercised, upon the occurrence of certain events, the rights will entitle the holders to receive upon exercise of each right shares of our preferred stock, or shares of an acquiring entity, having a value equal to the exercise price of the right divided by 50% of the then market price of our common stock. The issuance of the rights could have the effect of delaying or preventing a change in control of our company.

 

 

None.

 

 

Our corporate headquarters and principal United States operating facility is located at 161 Sixth Avenue, New York, New York, under an operating lease that expires in April 2012. In addition, we lease data collection centers to house our telephone interviewing centers in both Canada and the United Kingdom. We also lease service offices to house our project, administrative and processing staff in the following locations:

 

 

We lease all of our facilities and believe our current facilities are adequate to meet our needs for the foreseeable future. We continually assess the adequacy of our space needs relative to the size and scope of our business and may, from time to time, reduce our leased space accordingly. We believe that additional or alternative facilities can be leased to meet our future needs on commercially reasonable terms.

Information concerning each of our properties with material remaining lease obligations is as follows (amounts in thousands):

 

 

 

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 believes that the outcome of such actions or proceedings is not expected to have a material adverse effect on our business, financial condition or results of operations.

 

 

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2010.

 

 

 

Market Information

 

Our common stock is traded on the Global Select Market of Nasdaq under the symbol “HPOL”. The following table shows, the high and low sales prices per share of our common stock on the Nasdaq exchange for fiscal 2010 and 2009.

 

 

Holders

 

At August 18, 2010, our common stock was held by approximately 5,500 stockholders, reflecting stockholders of record or persons holding stock through nominee or street name accounts with brokers.

 

Dividends

 

We have never declared nor paid any cash dividends on our common stock. We currently anticipate that we will retain any future earnings for internal purposes, such as investing in our key strategic initiatives. Accordingly, we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

 

Issuer Purchases of Equity Securities

 

There were no repurchases of our equity securities for the three months ended June 30, 2010.

Performance Graph

 

The graph below matches the cumulative 5-year total return of holders of our common stock with the cumulative total returns of the NASDAQ Composite index, the S&P Smallcap 600 index and a customized peer group of four companies that includes Aegis Group plc, GfK AG, Ipsos SA, and WPP Group plc (“New Peer Group”) and another customized peer group of seven companies that includes Aegis Group plc, GfK AG, Intage Inc., National Research Corp., Ipsos SA, WPP Group plc, and Yougov plc (“Old Peer Group”). The graph tracks the performance of a $100 investment in our common stock, in each index and in the peer group (assuming the reinvestment of all dividends) from June 30, 2005 to June 30, 2010.

 

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Harris Interactive Inc., The S&P Smallcap 600 Index,
The NASDAQ Composite Index, an Old Peer Group and a New Peer Group

 

 

 

* $100 invested on 6/30/05 in stock or index, including reinvestment of dividends. Fiscal year ending June 30. Copyright^© 2010 S&P, a division of The McGraw -Hill Companies Inc. All rights reserved.

 

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

 

The cumulative total shareholder return graph and accompanying information shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C promulgated by the SEC or the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act or the Exchange Act. The cumulative total shareholder return graph and accompanying information shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent Harris Interactive specifically incorporates it by reference.

 

The following selected consolidated financial data of Harris Interactive should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes to those statements and other financial information appearing elsewhere in this Annual Report on Form 10-K. The selected consolidated financial data reported below includes the financial results of the following entities which we acquired as of the dates indicated: Decima (August 2007), Marketshare (August 2007), and MediaTransfer (April 2007). In addition, information reported for fiscal years 2006 through 2008 has been reclassified to reflect our Rent and Recruit operations as discontinued operations for all periods presented.

 

 

Note: All amounts shown below are in thousands of U.S. Dollars, unless otherwise noted.

 

Overview

 

For our fiscal year ended June 30, 2010, financial highlights include:

 

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein. The most significant of these areas involving difficult or complex judgments made by management with respect to the preparation of our financial statements in fiscal 2010 include:

 

 

In each situation, management is required to make estimates about the effects of matters or future events that are inherently uncertain.

Revenue Recognition

 

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

 

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

 

Revisions to estimated costs and differences between actual contract losses and estimated contract losses would affect both the timing of revenue allocated and the results of our operations.

 

Impairment of Intangible Assets

 

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

 

 

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

 

Impairment of Long-Lived Assets

 

We account for the impairment or disposal of long-lived assets in accordance with the FASB guidance for property, plant, and equipment. Events that trigger a test for recoverability include material adverse changes in the projected revenues and expenses, significant underperformance relative to historical or projected future operating results, and significant negative industry or economic trends. A test for recoverability also is performed when we have committed to a plan to sell or otherwise dispose of an asset group and the plan is expected to be completed within a year. Recoverability of an asset group is evaluated by comparing its carrying value to the future net

undiscounted cash flows expected to be generated by the asset group. If the comparison indicates that the carrying value of an asset group is not recoverable, an impairment loss is recognized. The impairment loss is measured by the amount by which the carrying amount of the asset group exceeds the estimated fair value. When an impairment loss is recognized for assets to be held and used, the adjusted carrying amount of those assets is depreciated over its remaining useful life. Restoration of a previously-recognized long-lived asset impairment loss is not allowed.

 

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

 

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

 

 

Income Taxes

 

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

 

The FASB guidance for income taxes requires the establishment of a valuation allowance to reflect the likelihood of the realization of deferred tax assets. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We evaluate the weight of the available evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The decision to record a valuation allowance requires varying degrees of judgment based upon the nature of the item giving rise to the deferred tax asset. The amount of the deferred tax asset considered realizable is based on significant estimates, and it is at least reasonably possible that changes in these estimates in the near term could materially affect our financial condition and results of operations.

 

We apply the FASB guidance for uncertain tax positions, which contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Although we believe we have adequately provided for our

uncertain tax positions, no assurance can be given with respect to the final outcome of these matters. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact our provision for income taxes in the period in which such a determination is made. Our provisions for income taxes include the impact of reserve provisions and changes to reserves that are considered appropriate and also include the related interest and penalties.

 

Stock-Based Compensation

 

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

 

 

Expected volatility and the expected life of the options granted, both of which impact the fair value of the option calculated under the Black-Scholes option pricing model, involve management’s best estimates at that time. The weighted-average assumptions used to value options during the fiscal years ended June 30, 2008, 2009, and 2010, respectively, are set forth in Note 14, “Stock-Based Compensation,” to our consolidated financial statements contained in this Annual Report on Form 10-K. The fair value of restricted stock awards is based on the price per share of our common stock on the date of grant. We grant options to purchase our stock at fair value as of the date of grant.

 

We recognize compensation expense for only the portion of options or restricted shares that are expected to vest. Therefore, we apply estimated forfeiture rates that are derived from historical employee termination behavior and the vesting period of the respective stock options or restricted shares. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

 

HIpoints Loyalty Program

 

In July 2001, we initiated HIpoints, a loyalty program designed to reward respondents who register for our online panel, complete online surveys and refer others to join our online panel. The earned points are non-transferable and may be redeemed for gifts from a specific product folio at any time prior to expiration. We maintain a reserve for our obligations with respect to future redemption of outstanding points based on the expected redemption rate of the points. This expected redemption rate is based on our actual redemption rates since the inception of the program. An actual redemption rate that differs from the expected redemption rate could have a material impact on our results of operations.

Prior to December 2007, points under the HIpoints program expired after one year of account inactivity. In December 2007, we modified the expiration parameters of the program such that points now expire after nine months of account inactivity and tightened the rules around expirations to more accurately account for panelists that are not truly engaged in the program.

 

Contingencies and Other Accruals

 

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

 

Explanation of Key Financial Statement Captions

 

Revenue from Services

 

We recognize revenue from services on a proportional performance basis, as more particularly described above in “Critical Accounting Policies and Estimates — Revenue Recognition”.

 

Our revenue from services is derived principally from the following:

 

 

Cost of Services

 

Our direct costs associated with generating revenues principally consist of the following items:

 

 

 

Selling, General, and Administrative

 

Selling, general, and administrative expense includes the following:

 

 

Operating Income (Loss)

 

We calculate operating income (loss) as revenue from services less total operating expenses. Operating income (loss) represents only those amounts that relate to our consolidated operations and does not include interest income and expense, amortization of debt issuance costs, or loss on extinguishment of debt.

 

Provision (Benefit) for Income Taxes

 

The provision for income taxes includes current and deferred income taxes. A valuation allowance is recorded when it is necessary to reduce a deferred tax asset to an amount that we expect to realize in the future. We continually review the adequacy of our valuation allowance and adjust it based on whether or not our assessment indicates that it is more likely than not that these benefits will be realized.

Results of Operations

 

The following table sets forth the results of our continuing operations, expressed both as a dollar amount and as a percentage of revenue from services, for the fiscal years ended June 30:

 

 

The results of continuing operations as presented and discussed herein do not include the results of our discontinued Rent and Recruit business.

 

Fiscal Year Ended June 30, 2010 Versus Fiscal Year Ended June 30, 2009

 

Revenue from services.  Revenue from services decreased by $15,919, or 8.6%, to $168,415 for fiscal 2010 compared with fiscal 2009. As more fully described below, revenue from services was impacted by several factors. Foreign currency exchange rate differences had a neutral impact on revenue from services in fiscal 2010 compared with fiscal 2009.

 

North American revenue decreased by $15,165 to $117,595 for fiscal 2010 compared with fiscal 2009, a decrease of 11.4%. By country, North American revenue for fiscal 2010 was comprised of:

 

 

European revenue decreased by $1,039 to $45,951 for fiscal 2010 compared with fiscal 2009, a decrease of 2.2%. By country, European revenue for fiscal 2010 was comprised of:

 

 

Revenue from Asia operations increased by $284 to $4,868 for fiscal 2010, an increase of 6.2% compared with fiscal 2009. The impact of foreign exchange rate differences on Asian revenue was inconsequential compared with fiscal 2009. The increase in Asian revenue was driven primarily by the positive effects of the management changes we made in the region during fiscal 2010.

 

Cost of services.  Cost of services was $107,266 or 63.7% of total revenue for fiscal 2010, compared with $115,235 or 62.5% of total revenue for fiscal 2009. Cost of services as a percentage of revenue for fiscal 2010 was greater than fiscal 2009 principally due to the mix of research projects performed when compared with fiscal 2009.

 

Selling, general, and administrative.  Selling, general and administrative expense for fiscal 2010 was $54,335 or 32.3% of total revenue, compared with $65,678 or 35.6% of total revenue for fiscal 2009. Selling, general and administrative expense was principally impacted by the following:

 

 

The remainder of the decrease in selling, general and administrative expense was the result of decreases across a number of other operating expense categories driven primarily by our continued focus on ensuring appropriate alignment of our cost structure relative to the needs of our business.

 

Depreciation and amortization.  Depreciation and amortization was $6,714 or 4.0% of total revenue for fiscal 2010, compared with $7,610 or 4.1% of total revenue for fiscal 2009. The decrease in depreciation and amortization expense for fiscal 2010 when compared with the same prior year period is the result of fixed and intangible assets that became fully depreciated or amortized during fiscal 2010 combined with decreased capital spending during both fiscal 2009 and 2010 as part of our overall focus on controlling costs.

 

Restructuring and other charges.  Restructuring and other charges were $623 or less than 1% of total revenue for fiscal 2010, compared with $12,010 or 6.5% of total revenue for fiscal 2009. There

were no restructuring activities during fiscal 2010. Other charges for fiscal 2010 included costs associated with reorganizing the operational structure of our Asia operations and costs incurred to close our telephone-based data collection center in Brentford, United Kingdom. For fiscal 2009, we incurred restructuring charges of $5,657 related to headcount reductions and consolidations of leased office space at our U.S. facilities, and $6,353 of other charges, which included fees incurred for services provided by a consulting firm engaged to assist us with performance improvement and other activities, contractually obligated post-termination payments to former executives, legal fees associated with the waiver and amendment of our credit agreement due to certain financial covenant violations, a bad debt expense for a note receivable for which collectability became doubtful, and recruitment fees for senior executives. Further financial information about restructuring and other charges is included in Note 4, “Restructuring and Other Charges,” to our consolidated financial statements contained in this Annual Report on Form 10-K.

 

Goodwill impairment charge.  We did not incur a goodwill impairment charge during fiscal 2010. During fiscal 2009, we recognized a goodwill impairment charge of $40,250 at December 31, 2008. We completed our two-step goodwill impairment evaluation at that time, outside of our annual impairment evaluation date (June 30), after considering certain factors related to our business and the market research industry. Further financial information about goodwill impairment charges and related considerations is included in Note 8, “Goodwill,” to our consolidated financial statements contained in this Annual Report on Form 10-K.

 

Interest and other income.  Interest and other income was $58 or less than 1% of total revenue for fiscal 2010, compared with $400 or less than 1% of total revenue for fiscal 2009. The decrease in interest and other income was principally the result of having a lower average cash balance and lower rate of return during fiscal 2010 when compared with fiscal 2009.

 

Loss on extinguishment of debt.  We incurred a loss on extinguishment of debt of $724, of which $550 represented unamortized debt issuance costs, during fiscal 2010 as a result of amending and restating our credit agreement on June 30, 2010. We did not incur a similar loss during fiscal 2009. Further financial information about our amended and restated credit agreement is included in Note 11, “Borrowings,” to our consolidated financial statements contained in this Annual Report on Form 10-K.

 

Interest expense.  Interest expense was $2,029 or 1.2% of total revenue for fiscal 2010, compared with $3,433 or 1.9% of total revenue for fiscal 2009. Interest expense for fiscal 2009 included a $1,017 charge to reflect the ineffectiveness of our interest rate swap as a cash flow hedge as a result of the violation of certain financial covenants under our credit agreement. There was no such charge during fiscal 2010. The decrease in interest expense for fiscal 2010 as compared with fiscal 2009 resulted from the decline in our outstanding debt as we continue to make required principal payments.

 

Income taxes.  We recorded an income tax benefit of $1,052 for fiscal 2010, compared with an income tax provision of $15,849 for fiscal 2009. The tax benefit for fiscal 2010 was principally due to a U.S. tax law change which resulted in the recognition of an additional tax benefit of $1,103. In addition, a valuation allowance of approximately $300 was recorded during the three months ended June 30, 2010 against the net deferred tax assets of the U.K. operations due to the continued impact of the global recession on revenues. The tax provision for fiscal 2009 was principally impacted by the valuation allowance of $18,861 recorded against our U.S. deferred tax assets. A full valuation allowance continues to be recorded at June 30, 2010 against our U.S. deferred tax assets. We will continue to assess the realizability of our deferred tax assets in accordance with the FASB guidance for income taxes and will adjust the valuation allowances should all or a portion of the deferred tax assets become realizable in the future.

Fiscal Year Ended June 30, 2009 Versus Fiscal Year Ended June 30, 2008

 

Revenue from services.  Revenue from services decreased by $54,389, or 22.8%, to $184,334 for fiscal 2009 compared with fiscal 2008. As more fully described below, revenue from services was impacted by several factors and included a negative foreign exchange rate impact of $12,148 in fiscal 2009 compared with fiscal 2008.

 

North American revenue decreased by $44,762 to $132,760 for fiscal 2009 compared with fiscal 2008, a decrease of 25.2%. By country, North American revenue for fiscal 2009 was comprised of:

 

 

European revenue decreased by $11,691 to $46,990 for fiscal 2009 compared with fiscal 2008, a decrease of 19.9%. By country, European revenue for fiscal 2009 was comprised of:

 

 

Revenue from Asia operations increased by $2,064 to $4,584 for fiscal 2009, an increase of 81.9% compared with fiscal 2008. The impact of the foreign exchange rate on Asian revenue was inconsequential compared with fiscal 2008. The increase in Asian revenue was principally impacted by increased focus on driving business with clients in the pharmaceutical, telecommunications and hotel industries.

 

Cost of services.  Cost of services was $115,235 or 62.5% of total revenue for fiscal 2009, compared with $140,578 or 58.9% of total revenue for fiscal 2008. Cost of services was impacted by the declines in revenue discussed above, the headcount reductions taken throughout fiscal 2009, as more fully described in Note 4, “Restructuring and Other Charges,” to our consolidated financial statements contained in this Annual Report on Form 10-K, and the differing types of custom research projects performed in fiscal 2009 compared with fiscal 2008. Cost of services as a percentage of revenue for fiscal 2009 was greater than fiscal 2008 given the pace of the declines in revenue relative to the timing of our cost reductions.

 

Selling, general, and administrative.  Selling, general and administrative expense for fiscal 2009 was $65,678 or 35.6% of total revenue for fiscal 2009, compared with $83,084 or 34.8% of total

revenue for fiscal 2008. Selling, general and administrative expense was principally impacted by the following:

 

 

The remainder of the decrease in selling, general and administrative expense was the result of decreases across a number of other operating expense categories driven primarily by the continued focus on ensuring appropriate alignment of our cost structure relative to the needs of our business in fiscal 2009.

 

Depreciation and amortization.  Depreciation and amortization was $7,610 or 4.1% of total revenue for fiscal 2009, compared with $8,526 or 3.6% of total revenue for fiscal 2008. The decrease in depreciation and amortization expense when compared with fiscal 2008 was the result of fixed and intangible assets that became fully depreciated or amortized during fiscal 2009 combined with decreased capital spending during fiscal 2009 as part of our overall focus on controlling costs.

 

Restructuring and other charges.  For fiscal 2009, we incurred restructuring charges of $5,657 related to headcount reductions and consolidations of leased office space at our U.S. facilities, and $6,353 of other charges, which included fees incurred for services provided by a consulting firm engaged to assist us with performance improvement and other activities, contractually obligated post-termination payments to former executives, legal fees associated with the waiver and amendment of our credit agreement due to certain financial covenant violations, a bad debt expense for a note receivable for which collectability became doubtful, and recruitment fees for senior executives. For fiscal 2008, we incurred restructuring charges of $2,263 related to headcount reductions and consolidations of leased office space at our U.S. facilities, and $2,346 of other charges, which included contractually obligated payments to a former executive and fees incurred in connection with a decision by the Board to investigate strategic alternatives available to us. Further financial information about restructuring and other charges is included in Note 4, “Restructuring and Other Charges,” to our consolidated financial statements contained in this Annual Report on Form 10-K.

 

Goodwill impairment charge.  During fiscal 2009, we recognized a goodwill impairment charge of $40,250 at December 31, 2008. We completed our two-step goodwill impairment evaluation at that time, outside of our annual impairment evaluation date (June 30), after considering certain factors related to our business and the market research industry. For fiscal 2008, we recognized a goodwill impairment charge of $86,497 at June 30, 2008 after completing our annual two-step goodwill impairment evaluation. Further financial information about goodwill impairment charges and related considerations is included in Note 8, “Goodwill,” to our consolidated financial statements contained in this Annual Report on Form 10-K.

 

Interest and other income.  Interest and other income was $400 or less than 1% of total revenue for fiscal 2009, compared with $1,119 or less than 1% of total revenue for fiscal 2008. The decrease in interest and other income was principally the result of having a lower average cash balance and lower rate of return for fiscal 2009 when compared with fiscal 2008.

 

Interest expense.  Interest expense was $3,433 or 1.9% of total revenue for fiscal 2009, compared with $1,951 or less than 1% of total revenue for fiscal 2008. The increase in interest expense was principally the result of a $1,017 charge recorded during fiscal 2009 to reflect the ineffectiveness of our interest rate swap as a cash flow hedge during the second and third quarters of

fiscal 2009, along with an increase in the applicable spread under our credit facilities from 0.875% to 5.00%, each as a result of the covenant violations and subsequent waivers and amendments to our credit agreement during fiscal 2009.

 

Income taxes.  We recorded an income tax provision of $15,849 for fiscal 2009, compared with an income tax benefit of $(661) for fiscal 2008. The tax provision for fiscal 2009 was principally impacted by the valuation allowance of $18,861 recorded against our U.S. deferred tax assets.

 

Significant Factors Affecting Company 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, by quarter, for the fiscal years ended June 30, 2009 and 2010, were as follows (U.S. Dollar amounts in millions):

 

 

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.

 

Bookings for the three months ended June 30, 2010 were $35.7 million, compared with $36.3 million for the same prior year period. Excluding foreign exchange rate differences, bookings were up 5% over the same prior year period. The increase in bookings in local currency compared with the same prior year period was principally driven by the following:

 

 

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. Based on our experience, projects included in secured revenue at the end of a fiscal period generally convert to revenue from services during the following twelve months.

 

Secured revenue for the three months ended June 30, 2010 was $46.6 million, compared with $48.8 million for the same prior year period. The decrease was due primarily to the loss of a large tracking study and the reduction in size of another earlier in the fiscal year, along with a $1.0 million unfavorable foreign exchange rate impact compared with the same prior year period.

 

Liquidity and Capital Resources

 

Cash and Cash Equivalents

 

The following table sets forth net cash provided by (used in) operating activities, net cash provided by (used in) investing activities and net cash provided by (used in) financing activities, for the fiscal years ended June 30:

 

 

Net cash provided by (used in) operating activities.  Net cash provided by operating activities was $6,461 for fiscal 2010, compared with $4,334 used in operating activities for the same prior year period. The change was principally the result of a decrease in the net loss for fiscal 2010 when compared with fiscal 2009, along with timing differences in cash payments and receipts when compared with fiscal 2009.

 

Net cash used in operating activities was $4,334 for fiscal 2009, compared with $17,972 provided by operating activities for fiscal 2008. The change from fiscal 2008 was principally the result of our net loss for fiscal 2009 and decreases in accounts payable and accrued expenses, many of which were project-related and were impacted by fiscal 2009 revenue declines, partially offset by decreases in accounts receivable and unbilled receivables.

 

Net cash used in investing activities.  Net cash used in investing activities was $631 for fiscal 2010, compared with $2,256 for fiscal 2009. 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 to $998 for fiscal 2010, offset by an increase in capital expenditures from $1,241 for fiscal 2009 to $1,629 for fiscal 2010 as a result of leasehold improvements made to our U.K. office space.

 

Net cash used in investing activities was $2,256 for fiscal 2009, compared with $20,813 for fiscal 2008. This change was principally the result of having no cash outlay for acquisitions during fiscal 2009, compared with $21,727 used during fiscal 2008 for acquisitions, and $1,015 in net purchases of marketable securities during fiscal 2009, compared with net proceeds from the maturities and sales of marketable securities of $4,420 during fiscal 2008.

 

Net cash provided by (used in) financing activities.  Net cash used in financing activities was $7,031 for fiscal 2010, compared with $8,015 for fiscal 2009. This change was principally the result of a decrease in the costs associated with modifications to our credit agreement from $1,274 in fiscal 2009 to $296 in fiscal 2010.

 

Net cash used in financing activities was $8,015 for fiscal 2009, compared with $6,436 provided by financing activities for fiscal 2008. This change was partially the result of having no borrowings during fiscal 2009, compared with $14,525 in net borrowings for fiscal 2008, and a $1,723 decrease in repayments of outstanding borrowings for fiscal 2009 when compared with fiscal 2008. In addition, fiscal 2009 included $1,274 in cash used to pay the costs associated with amendments to our credit agreement.

Working Capital

 

At June 30, 2010, we had cash, cash equivalents, and marketable securities of $14,158, 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, additional cash that may be generated from our operations, and funds to the extent available through our credit facilities discussed below. We must maintain a minimum cash balance of the greater of $5,000 and 1.2 times the amount of borrowings we make under the revolving line that is part of our credit facilities (including outstanding letters of credit). While we believe that our available sources of cash, including funds available through our revolving line, will support known or reasonably likely cash requirements over the next 12 months, including quarterly principal payments of $1,199 and interest payments due under our credit agreement, our ability to generate cash from our operations is dependent upon 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 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 $2,500 and $3,500 during the fiscal year ending June 30, 2011.

 

Credit Facilities

 

On June 30, 2010, we entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMC”), as Administrative Agent (the “Administrative Agent”) and Issuing Bank (the “Issuing Bank”), and the Lenders party thereto (the “Lenders”). The Amended and Restated Credit Agreement supersedes and replaces the Credit Agreement, dated September 21, 2007, as amended on December 31, 2008, March 6, 2009 and May 6, 2009 (the “Original Credit Agreement”), by and among us, JPMC, as Administrative Agent, and the Lenders party thereto. Pursuant to the Amended and Restated Credit Agreement, the Lenders made available credit facilities (the “Credit Facilities”) in the form of a $5,000 revolving line of credit (the “Revolving Line”) and a $15,581 term loan (the “New Term Loan”), as more fully described in Note 11, “Borrowings,” to our consolidated financial statements included in this Annual Report on Form 10-K. The Credit Facilities replace existing credit arrangements under the Original Credit Agreement. Amounts outstanding under the Original Credit Agreement were treated as extinguished for accounting purposes and accordingly, a loss on extinguishment of $724, of which $550 represented unamortized debt issuance costs, was recorded in our consolidated statement of operations at June 30, 2010.

 

The Amended and Restated Credit Agreement contains various representations and warranties, events of default, and financial and other covenants, including covenants regarding maintenance of a certain minimum cash balance and certain consolidated interest coverage and leverage ratios. At June 30, 2010, we were in compliance with all of the covenants under the Amended and Restated Credit Agreement.

 

The required principal repayments under the Amended and Restated Credit Agreement for each of the four succeeding fiscal years are set forth in Note 11, Borrowings,” to our consolidated financial statements included in this Annual Report on Form 10-K. At June 30, 2010, we had no outstanding

borrowings under our Revolving Line and $381 of outstanding letters of credit. The letters of credit reduce the remaining undrawn portion of the Revolving Line that is available for future borrowings.

 

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 LIBOR rates on the term loans under the Original Credit Agreement at 5.08% through September 21, 2012. The three-month LIBOR rate received on the swap matched the LIBOR base rate paid on the term loans since both used three-month LIBOR. The swap had an initial notional value of $34,625, which declined as payments were made on the term loans so that the amount outstanding under those term loans and the notional amount of the swap were always equal.

 

As a result of the Amended and Restated Credit Agreement, we modified the terms of our interest rate swap to ensure that the notional amount of the swap matches the outstanding amount of the New Term Loan and the three-month LIBOR rate received on the swap matches the base rate on the New Term Loan. The term of the interest rate swap was extended through September 30, 2013 to be consistent with the maturity date of the New Term Loan. As a result of these modifications, we re-designated the interest rate swap as a cash flow hedge and determined it to be highly effective at that time. The modifications effectively fixed the floating LIBOR interest portion of the rates on the New Term Loan at 4.32% through September 30, 2013.

 

The interest rate swap had a notional amount of $15,581 at June 30, 2010, which was the same as the outstanding amount of the New Term Loan.

 

At June 30, 2010, we recorded a liability of $889 in the “Other liabilities” line item of our consolidated balance sheet to reflect the fair value of the interest rate swap. As the interest rate swap was effective at June 30, 2010, changes in the fair value of the interest rate swap continue to be recorded through other comprehensive income, with any ineffectiveness recorded through interest expense.

 

Off-Balance Sheet Risk Disclosure

 

At June 30, 2010 and 2009, we did not have any transactions, agreements or other contractual arrangements constituting an “off-balance sheet arrangement” as defined in Item 303(a)(4) of Regulation S-K.

 

Contractual Obligations

 

Our consolidated contractual obligations and other commercial commitments at June 30, 2010 are as follows (amounts in thousands):

 

 

 

 

Recently Adopted Accounting Pronouncements and Accounting Pronouncements Not Yet Adopted

 

See “Recently Adopted Accounting Pronouncements and Accounting Pronouncements Not Yet Adopted” in Note 2, “Summary of Significant Accounting Policies,” to our consolidated financial statements contained in this Annual Report on Form 10-K for a discussion of the impact of recently issued accounting pronouncements on our consolidated financial statements at June 30, 2010, for the fiscal year then ended, as well as the expected impact on our consolidated financial statements for future periods.

 

 

We have two kinds of market risk exposures, interest rate exposure and foreign currency exposure. We have no market risk sensitive instruments entered into for trading purposes.

 

In light of 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 June 30, 2010, we had outstanding debt under our credit facilities of $15,581. The debt matures September 30, 2013 and bears interest at the floating adjusted LIBOR plus an applicable margin. Our interest rate swap fixes the floating adjusted LIBOR portion of the interest rate at 4.32% through September 30, 2013. The additional applicable margin is determined quarterly using a pricing grid based on our consolidated total leverage ratio. At June 30, 2010, the additional applicable margin was 4.75%, resulting in an effective interest rate of 9.07% on our outstanding debt.

 

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 June 30, 2010 would have increased the fair value of the interest rate swap by $227 and each 1% decrease from prevailing interest rates at June 30, 2010 would have decreased the fair value of the interest rate swap by $261.

 

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, Europe, 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 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 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 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.

 

We performed a sensitivity analysis at June 30, 2010. 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.

 

Index to Consolidated Financial Statements

 

 

All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and have therefore been omitted.

 

To the Board of Directors and Stockholders of Harris Interactive Inc.

 

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Harris Interactive Inc. and its subsidiaries at June 30, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2010 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ PricewaterhouseCoopers LLP

 

Rochester, New York

August 31, 2010

HARRIS INTERACTIVE INC.

 

(in thousands, except share and per share amounts)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

HARRIS INTERACTIVE INC.

 

(in thousands, except share and per share amounts)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

HARRIS INTERACTIVE INC.

 

(In thousands)