FORRESTER RESEARCH, INC. - Quarter Report: 2011 June (Form 10-Q)

 

 

FORM 10-Q

(MARK ONE)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

FOR THE QUARTERLY PERIOD ENDED June 30, 2011

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

FORRESTER RESEARCH, INC.

(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization)		04-2797789 (I.R.S. Employer Identification Number)
400 TECHNOLOGY SQUARE CAMBRIDGE, MASSACHUSETTS (Address of principal executive offices)		02139 (Zip Code)

Registrant’s telephone number, including area code: (617) 613- 6000

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 Noo

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

As of August 1, 2011, 22,694,000 shares of the registrant’s common stock were outstanding.

 

 

FORRESTER RESEARCH, INC.

INDEX TO FORM 10-Q

		PAGE
PART I. FINANCIAL INFORMATION			3
ITEM 1. Financial Statements			3
Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010 (Unaudited)			3
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2011 and 2010 (Unaudited)			4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010 (Unaudited)			5
Notes to Consolidated Financial Statements			6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			22
ITEM 4. Controls and Procedures			23
PART II. OTHER INFORMATION			23
ITEM 1A. Risk Factors			23
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			23
ITEM 5. Other Information			23
ITEM 6. Exhibits			24
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data, unaudited)

		June 30,				December 31,
		2011				2010
ASSETS
Current Assets:
Cash and cash equivalents		$	83,185			$	86,927
Marketable investments (Note 4)			135,114				119,990
Accounts receivable, net			47,714				73,574
Deferred income taxes			3,925				4,089
Deferred commissions			10,765				12,598
Prepaid expenses and other current assets			17,804				16,733
Restricted cash			2,342				3,879
Total current assets			300,849				317,790
Long-term marketable securities (Note 4)			9,259				9,117
Restricted cash			1,971				11,609
Property and equipment, net			43,090				19,838
Deferred income taxes			6,656				7,779
Goodwill			71,961				67,958
Intangible assets, net			12,099				8,487
Non-marketable investments (Note 5)			7,726				7,359
Other assets			573				540
Total assets		$	454,184			$	450,477
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	2,743			$	3,644
Accrued expenses			31,266				36,485
Deferred revenue			130,356				131,521
Total current liabilities			164,365				171,650
Non-current liabilities			11,492				6,920
Total liabilities			175,857				178,570
Stockholders’ Equity (Note 8):
Preferred stock, $.01 par value
Authorized — 500 shares, issued and outstanding — none			—				—
Common stock, $.01 par value
Authorized — 125,000 shares
Issued — 30,746 and 30,500 as of June 30, 2011 and December 31, 2010, respectively
Outstanding — 22,687 and 22,812 as of June 30, 2011 and December 31, 2010, respectively			307				305
Additional paid-in capital			366,354				358,017
Retained earnings			90,033				81,652
Treasury stock - 8,059 and 7,688 as of June 30, 2011 and December 31, 2010, respectively, at cost			(175,990	)			(162,595	)
Accumulated other comprehensive loss			(2,377	)			(5,472	)
Total stockholders’ equity			278,327				271,907
Total liabilities and stockholders’ equity		$	454,184			$	450,477

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

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data, unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2010				2011				2010
Revenues:
Research services		$	47,341			$	40,752			$	91,888			$	80,168
Advisory services and other			26,109				23,901				47,304				43,665
Total revenues			73,450				64,653				139,192				123,833
Operating expenses:
Cost of services and fulfillment			28,024				24,300				53,522				46,627
Selling and marketing			26,009				20,720				51,474				40,808
General and administrative			8,330				7,720				17,248				14,924
Depreciation			945				879				1,915				1,797
Amortization of intangible assets			526				905				1,219				1,810
Total operating expenses			63,834				54,524				125,378				105,966
Income from operations			9,616				10,129				13,814				17,867
Other income (expense), net			4				1,148				(105	)			2,223
Gains on investments, net			58				27				640				452
Income before income taxes			9,678				11,304				14,349				20,542
Income tax provision			4,208				4,402				5,968				7,868
Net income		$	5,470			$	6,902			$	8,381			$	12,674
Basic income per common share		$	0.24			$	0.31			$	0.37			$	0.56
Diluted income per common share		$	0.24			$	0.30			$	0.36			$	0.55
Basic weighted average common shares outstanding			22,684				22,517				22,698				22,453
Diluted weighted average common shares outstanding			23,203				23,135				23,227				23,006

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

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)

		Six Months Ended June 30,
		2011				2010
Cash flows from operating activities:
Net income		$	8,381			$	12,674
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			1,915				1,797
Amortization of intangible assets			1,219				1,810
Net gains from investments			(640	)			(452	)
Deferred income taxes			1,754				(660	)
Stock-based compensation			1,681				2,529
Amortization of premium on investments			1,683				972
Foreign currency (gains) losses			1,011				(849	)
Other non-cash items			—				99
Changes in assets and liabilities, net of acquisitions
Accounts receivable			27,160				26,220
Deferred commissions			1,834				526
Prepaid expenses and other current assets			(590	)			(4,367	)
Accounts payable			(1,044	)			1,382
Accrued expenses			(2,699	)			(2,927	)
Deferred revenue			(3,522	)			(6,404	)
Net cash provided by operating activities			38,143				32,350
Cash flows from investing activities:
Acquisitions			(7,031	)			(1,660	)
Purchases of property and equipment			(26,100	)			(2,442	)
Purchases of marketable investments			(48,361	)			(61,000	)
Proceeds from sales and maturities of marketable investments			31,624				78,547
Decrease in restricted cash			11,175				1,893
Other investing activity			247				162
Net cash provided by (used in) investing activities			(38,446	)			15,500
Cash flows from financing activities:
Proceeds from issuance of common stock under employee equity incentive plans			6,425				8,292
Excess tax benefits from stock-based compensation			332				260
Repurchases of common stock			(13,395	)			(5,002	)
Net cash provided by (used in) financing activities			(6,638	)			3,550
Effect of exchange rate changes on cash and cash equivalents			3,199				(5,293	)
Net increase (decrease) in cash and cash equivalents			(3,742	)			46,107
Cash and cash equivalents, beginning of period			86,927				97,805
Cash and cash equivalents, end of period		$	83,185			$	143,912

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

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Interim Consolidated Financial Statements

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Forrester Research, Inc. (“Forrester”) Annual Report on Form 10-K for the year ended December 31, 2010. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations, and cash flows as of the dates and for the periods presented have been included. The results of operations for the three and six months ended June 30, 2011 may not be indicative of the results for the year ending December 31, 2011, or any other period.

Note 2 — Revenue Recognition

Effective January 1, 2011 the Company adopted Update No. 2009-13, “Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13) for contracts entered into or materially modified after that date. ASU 2009-13 updates the previous multiple-element revenue arrangements guidance. The revised guidance primarily provides three significant changes: 1) it eliminates the need for objective and reliable evidence of the fair value of the undelivered element in order for a delivered item to be treated as a separate unit of accounting; 2) it eliminates the residual method to allocate the arrangement consideration; and, 3) it modifies the fair value requirements of EITF Issue 00-21 by providing “best estimate of selling price” in addition to vendor specific objective evidence and vendor objective evidence for determining the selling price of a deliverable. In addition, the guidance also expands the disclosure requirements for revenue recognition. The adoption of ASU 2009-13 did not have a material impact on the Company’s financial position, results of operations or cash flows.

Forrester generates revenues from licensing research (including our data products), performing advisory services and consulting projects and hosting events. Forrester executes contracts that govern the terms and conditions of each arrangement. Revenues are recognized when persuasive evidence of an arrangement exists, the fee is fixed or determinable, services have been provided to the customer, and collectability is reasonably assured. Revenue contracts may include either a single product or service or a combination of multiple products and services. Revenues from contracts that contain multiple products and services are allocated among the separate units of accounting based on their relative selling prices; however, the amount recognized is limited to the amount that is not contingent on future performance conditions. The Company obtains the selling prices of its products and services based on an analysis of standalone sales of these products and services during the year. Research service revenues are recognized ratably over the term of the contract. Advisory service revenues are recognized when the customer receives the agreed upon deliverable and consulting project revenues, which are short-term in nature and based upon fixed-fee agreements, are recognized as the services are provided. Losses on consulting project contracts, if any, would be recognized in the period in which the loss first becomes probable and reasonably estimable. Reimbursed out-of-pocket expenses are recorded as advisory services revenue. Event revenues are recognized upon completion of the event.

Annual subscriptions to our RoleView research include access to all or a designated portion of our research, and depending on the type of license, membership in one or more of our Forrester leadership boards, unlimited phone or email analyst inquiry, unlimited participation in Forrester Teleconferences, and the right to attend one event. Contracts for RoleView research entered into prior to the adoption of ASU 2009-13 on January 1, 2011, were accounted for as one unit of accounting and recognized ratably as research services revenue over the membership period. Contracts for RoleView research entered into or significantly modified after January 1, 2011 are accounted for as two units of accounting: 1) the event ticket and 2) the remaining research services that are delivered throughout the contract period, based on the new guidance that permits alternative methods of determining selling price as it relates to the components that we do not sell on a standalone basis, such as research services in this case. Arrangement consideration is allocated to each of these elements based upon their relative selling prices, which is based on standalone sales of event tickets and the estimated selling price of the remaining research services. Annual subscriptions to our data products include access to designated survey data products and access to a data specialist, which are delivered throughout the year, and are accounted for as one unit of accounting and recognized ratably as research services revenue over the membership period. Clients are offered a service guarantee, which gives them the right to cancel their contracts prior to the end of the contract term and receive a refund for unused products or services.

Note 3 — Acquisition

On May 12, 2011, Forrester acquired Springboard Research (“Springboard”), a provider of research and advisory services focused on Asia Pacific and emerging markets. Springboard was a former division of Knowledge Platform, Inc. The acquisition of the Springboard business further supports Forrester’s role-based strategy and expands Forrester’s coverage in the Asia Pacific region. The total purchase price was approximately $9.0 million, of which approximately $6.7 million was paid on the acquisition date and $2.3 million (the “Holdback”) is

payable at various times through June 1, 2013, subject to possible reduction to satisfy indemnification claims and specified contingencies. Of the $2.3 million Holdback, up to $0.9 million could be retained by the Company if certain key employees do not remain with the Company through May 12, 2012 or if the Company is not able to occupy one of Springboard’s facilities through September 15, 2012. The Company has recorded $1.4 million and $0.9 million of the Holdback in accrued expenses and non-current liabilities, respectively, in the Consolidated Balance Sheets. The results of Springboard, which were not material to the consolidated financial statements, have been included in Forrester’s consolidated financial statements since May 12, 2011 in the Technology Industry Client Group segment. Pro forma financial information has not been provided as it is not material to the consolidated results of operations.

A summary of the purchase price allocation for Springboard is as follows (in thousands):

Assets:
Cash		$	85
Accounts receivable			579
Other current assets			297
Goodwill			3,674
Intangible assets			4,815
Total assets			9,450
Liabilities:
Accrued expenses			138
Deferred revenue			312
Total liabilities			450
Net assets acquired		$	9,000

Approximately $2.1 million of the goodwill is deductible for tax purposes. The Company believes the goodwill reflects its expectations of synergistic revenue opportunities from the acquisition and the value of the acquired workforce.

Intangible assets are amortized according to the expected cash flows to be received. The following are the identifiable intangible assets acquired and their respective weighted average lives (dollars in thousands):

						Useful
		Assigned				Life
		Value				(in years)
Customer relationships		$	3,605				7.5
Research content			1,080				1.5
Backlog			130				1.0
		$	4,815

Note 4 — Marketable Investments

The following table summarizes the Company’s marketable investments (in thousands):

						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
		Cost				Gains				Losses				Value
June 30, 2011
Available-for-sale securities
State and municipal obligations		$	11,895			$	24			$	(10	)			11,909
Federal agency and corporate obligations			122,848				405				(48	)			123,205
Total short-term available-for-sale securities			134,743				429				(58	)			135,114
ARS, long-term			11,000				—				(1,741	)			9,259
Total available-for-sale securities		$	145,743			$	429			$	(1,799	)		$	144,373

						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
		Cost				Gains				Losses				Value
December 31, 2010
Available-for-sale securities
State and municipal obligations		$	12,011			$	23			$	(25	)		$	12,009
Federal agency and corporate obligations			107,669				483				(171	)			107,981
Total short-term available-for-sale securities			119,680				506				(196	)			119,990
ARS, long-term			11,000				—				(1,883	)			9,117
Total available-for-sale securities		$	130,680			$	506			$	(2,079	)		$	129,107

Realized gains and losses on securities are included in earnings and are determined using the specific identification method. Realized gains or losses on the sale of the Company’s federal agency, state, municipal and corporate obligations were not material in the three and six months ended June 30, 2011 or 2010.

The following table summarizes the maturity periods of the marketable securities in the Company’s portfolio as of June 30, 2011. In February 2008, certain auction rate securities (“ARS”) that Forrester held experienced failed auctions that limited the liquidity of these securities. These auction failures have continued and based on current market conditions, it is likely that auction failures will continue. The following table reflects the ARS at their contractual maturity dates of between 2024 and 2034 (in thousands).

		FY 2011				FY 2012				FY2013				Thereafter				Total
Federal agency and corporate obligations		$	36,723			$	53,559			$	31,419			$	1,504			$	123,205
State and municipal obligations			6,173				5,736				—				—				11,909
ARS							—				—				9,259				9,259
Total		$	42,896			$	59,295			$	31,419			$	10,763			$	144,373

The following table shows the gross unrealized losses and market value of Forrester’s available-for-sale securities with unrealized losses that are not deemed to be other-than-temporary, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

		As of June 30, 2011
		Less Than 12 Months								12 Months or Greater
		Market				Unrealized				Market				Unrealized
		Value				Losses				Value				Losses
State and municipal bonds		$	1,119			$	10			$	—			$	—
Federal agency and corporate obligations			32,667				48				—				—
ARS			—				—				9,259				1,741
Total		$	33,786			$	58			$	9,259			$	1,741

		As of December 31, 2010
		Less Than 12 Months								12 Months or Greater
		Market				Unrealized				Market				Unrealized
		Value				Losses				Value				Losses
State and municipal bonds		$	3,258			$	25			$	—			$	—
Federal agency and corporate obligations			45,928				171				—				—
ARS			—				—				9,117				1,883
Total		$	49,186			$	196			$	9,117			$	1,883

Fair Value

The Company measures certain financial assets at fair value on a recurring basis, including cash equivalents, available-for-sale securities and trading securities. The fair values of these financial assets have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.

Level 1 — Fair value based on quoted prices in active markets for identical assets or liabilities.

Level 2 — Fair value based on inputs other than Level 1 inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Fair value based on unobservable inputs that are supported by little or no market activity and such inputs are significant to the fair value of the assets or liabilities.

The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010 (in thousands):

		As of June 30, 2011
		Level 1				Level 2				Level 3				Total
Money market funds (1)		$	6,683			$	—			$	—			$	6,683
Federal agency and corporate obligations (2)			—				136,168				—				136,168
State and municipal obligations (3)			—				14,009				9,259				23,268
Total		$	6,683			$	150,177			$	9,259			$	166,119

		As of December 31, 2010
		Level 1				Level 2				Level 3				Total
Money market funds (1)		$	25,222			$	—			$	—			$	25,222
Federal agency and corporate obligations			—				107,981				—				107,981
State and municipal obligations			—				12,009				9,117				21,126
Total		$	25,222			$	119,990			$	9,117			$	154,329

Level 2 assets consist of the Company’s entire portfolio of federal, state, municipal and corporate bonds, excluding those municipal bonds described below with an auction reset feature. Level 2 assets have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, typically utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation methods, including both income and market based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events.

Level 3 assets at June 30, 2011 consist entirely of municipal bonds with an auction reset feature (ARS) and at June 30, 2010 also included the UBS Right (as defined below). Prior to 2008, the fair value of the ARS investments approximated par value due to the frequent resets through the auction process. While the Company continues to earn interest on its ARS investments at the contractual rate, these investments trade infrequently and therefore do not have a readily determinable market value. Accordingly, the estimated fair value of the ARS no longer approximates par value. At June 30, 2011, the Company held ARS with one investment advisor. The Company values the ARS using a discounted cash flow model that includes estimates of interest rates, timing and amount of cash flows, credit and liquidity premiums and expected holding periods of the securities, which is considered a Level 3 valuation. The valuation resulted in an unrealized loss recorded in other comprehensive loss in the Consolidated Balance Sheets of $1.7 million at June 30, 2011 and $1.9 million at December 31, 2010. The Company believes that the loss is temporary due to the strong underlying credit rating of the securities and the fact that the Company does not intend to sell the securities and is not likely to be required to sell the securities. The assumptions used in valuing the ARS are volatile and subject to change as the underlying sources of these assumptions and market conditions change.

Through July 1, 2010, the Company also held ARS with UBS AG (UBS). Historically, UBS provided a valuation utilizing Level 3 inputs for the ARS investments. UBS utilized a discounted cash flow approach to arrive at its valuation, which was corroborated by a separate and comparable discounted cash flow analysis prepared by the Company. The assumptions used in preparing the discounted cash flow model included estimates, based on data available at each balance sheet date, of interest rates, timing and amount of cash flows, credit and liquidity premiums, and expected holding periods of the ARS. In November 2008, the Company accepted an offer (the “Right”) from UBS entitling the Company to sell at par value ARS originally purchased from UBS at any time during a two-year period from June 30, 2010 through July 2, 2012. The Company valued the Right as an asset using a discounted cash flow approach including estimates of interest rates and timing and amount of cash flows, adjusted for any bearer risk associated with UBS’s financial ability to repurchase the ARS beginning June 30, 2010, based on data available at each balance sheet date. The combined fair value of the Right and the UBS ARS historically equaled the par value of the UBS ARS. The remaining $5.4 million of par value UBS ARS at June 30, 2010 were sold to UBS at par under the Right on July 1, 2010.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets for the six months ended June 30, 2011 and 2010 (in thousands):

		ARS
Balance at December 31, 2010		$	9,117
Sales/Maturities			—
Total gains (losses):
Included in other comprehensive income			142
Included in earnings			—
Balance at June 30, 2011		$	9,259

		UBS
		Right				ARS
Balance at December 31, 2009		$	2,100			$	39,525
Sales/Maturities			—				(26,250	)
Total gains (losses):
Included in other comprehensive income			—				122
Included in earnings			(1,613	)			1,613
Balance at June 30, 2010		$	487			$	15,010

Note 5— Non-Marketable Investments

At June 30, 2011 and December 31, 2010, the carrying value of the Company’s non-marketable investments, which were composed primarily of interests in technology-related private equity funds, were $7.7 million and $7.4 million, respectively.

One of the Company’s investments, with a book value of $1.6 million and $1.7 million at June 30, 2011 and December 31, 2010, respectively, is being accounted for using the cost method and, accordingly, is valued at cost unless an other-than-temporary impairment in its value occurs. The other investments are being accounted for using the equity method as the investments are limited partnerships and the Company has an ownership interest in excess of 5% and, accordingly, the Company records its share of the investee’s operating results each period. The Company recorded a gain from its non-marketable investments of $0.6 million and $0.5 million during the six months ended June 30, 2011 and 2010, respectively, which are included in gains on investments, net in the Consolidated Statements of Income. Gains from non-marketable investments were insignificant during the three months ended June 30, 2011 and 2010.

Note 6 — Reorganization

The following table rolls forward the activity in the reorganization accrual for the six months ended June 30, 2011 (in thousands):

		Facility
		Consolidation				Total
Accrual at December 31, 2010		$	446			$	446
Cash payments			(356	)			(356	)
Accrual at June 30, 2011		$	90			$	90

The accrued costs related to the reorganization are expected to be paid during the third quarter of 2011.

Note 7 — Net Income Per Common Share

Basic net income per common share is computed by dividing net income by the basic weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the diluted weighted average number of common shares and common equivalent shares outstanding during the period. The weighted average number of common equivalent shares outstanding has been determined in accordance with the treasury-stock method. Common equivalent shares consist of common stock issuable on the exercise of outstanding options and vesting of restricted stock units when dilutive.

Basic and diluted weighted average common shares are as follows (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Basic weighted average common shares outstanding			22,684				22,517				22,698				22,453
Weighted average common equivalent shares			519				618				529				553
Diluted weighted average common shares outstanding			23,203				23,135				23,227				23,006
Options excluded from diluted weighted average share calculation as effect would have been anti-dilutive			121				352				89				563

Note 8 — Stockholders’ Equity

Comprehensive Income

The components of total comprehensive income for the three and six months ended June 30, 2011 and 2010 are as follows (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Net income		$	5,470			$	6,902			$	8,381			$	12,674
Cumulative translation adjustment			627				(3,109	)			2,891				(5,422	)
Unrealized gain (loss) on marketable investments, net of tax			205				(293	)			204				(243	)
Total comprehensive income		$	6,302			$	3,500			$	11,476			$	7,009

Equity Plans

Stock option activity for the six months ended June 30, 2011 is presented below (in thousands, except per share data):

						Weighted -				Weighted -
						Average				Average
						Exercise				Remaining				Aggregate
		Number				Price Per				Contractual				Intrinsic
		of Shares				Share				Term (in years)				Value
Outstanding at December 31, 2010			2,215			$	26.00
Granted			117				37.55
Exercised			(194	)			25.79
Forfeited			(46	)			32.42
Outstanding at June 30, 2011			2,092			$	26.52				6.49			$	14,036
Exercisable at June 30, 2011			1,379			$	24.84				5.45			$	11,204

Restricted stock unit activity for the six months ended June 30, 2011 is presented below (in thousands, except per share data):

						Weighted-
						Average
						Grant Date
		RSUs				Fair Value
Unvested at December 31, 2010			192			$	27.64
Granted			5				36.54
Vested or settled			(9	)			29.86
Forfeited			(11	)			27.49
Unvested at June 30, 2011			177			$	27.80

Stock-Based Compensation

Forrester recognizes the fair value of stock-based compensation in net income over the requisite service period of the individual grantee, which generally equals the vesting period. Stock-based compensation was recorded in the following expense categories (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Cost of services and fulfillment		$	32			$	607			$	647			$	1,056
Selling and marketing			53				227				392				471
General and administrative			158				589				642				1,002
Total		$	243			$	1,423			$	1,681			$	2,529

In 2009, the Company issued to its employees 95,496 performance-based RSUs. The vesting of the RSUs is subject to performance criteria and will vest at 100% or 40% on April 1, 2012, or the RSUs could be forfeited, depending on whether specified revenue growth and certain operating margin targets related to full year 2011 performance are achieved. Compensation expense in 2009, 2010 and the three months ended March 31, 2011 was recognized based on an estimate of 100% vesting of the RSUs. During the three months ended June 30, 2011, the

Company modified its assessment of the likelihood of vesting to the 40% level and recorded a credit, to stock-based compensation expense, of approximately $0.8 million during the quarter resulting from the change in estimate.

Forrester utilizes the Black-Scholes valuation model for estimating the fair value of stock-based compensation. Options granted under the equity incentive plans and shares subject to purchase under the employee stock purchase plan were valued using the following assumptions:

		Three Months Ended								Three Months Ended
		June 30, 2011								June 30, 2010
		Equity Incentive				Employee Stock				Equity Incentive				Employee Stock
		Plans				Purchase Plan				Plans				Purchase Plan
Average risk-free interest rate			1.69	%			0.18	%			2.11	%			0.15	%
Expected dividend yield		None				None				None				None
Expected life		3.5 Years				0.5 Years				3.7 Years				0.5 Years
Expected volatility			40	%			28	%			40	%			25	%
Weighted average fair value		$	11.79			$	7.55			$	9.81			$	5.89

		Six Months Ended								Six Months Ended
		June 30, 2011								June 30, 2010
		Equity Incentive				Employee Stock				Equity Incentive				Employee Stock
		Plans				Purchase Plan				Plans				Purchase Plan
Average risk-free interest rate			1.63	%			0.18	%			2.09	%			0.15	%
Expected dividend yield		None				None				None				None
Expected life		3.5 Years				0.5 Years				3.7 Years				0.5 Years
Expected volatility			40	%			28	%			40	%			25	%
Weighted average fair value		$	11.54			$	7.55			$	9.65			$	5.89

Treasury Stock

Forrester’s Board of Directors has authorized an aggregate $260 million to purchase common stock under the stock repurchase program. The shares repurchased may be used, among other things, in connection with Forrester’s employee and director equity incentive and purchase plans. As of June 30, 2011, Forrester had repurchased approximately 8.1 million shares of common stock at an aggregate cost of approximately $176.0 million.

Note 9 — Income Taxes

Forrester provides for income taxes on an interim basis according to management’s estimate of the effective tax rate expected to be applicable for the full fiscal year. Certain items such as changes in tax rates, foreign exchange gains or losses on the remeasurement of deferred tax liabilities and tax benefits related to disqualifying dispositions of incentive stock options are treated as discrete items and are recorded in the period in which they arise.

Note 10 — Operating Segments

Forrester is organized into three client groups with each client group responsible for writing relevant research for the roles within the client organization on a worldwide basis. The three client groups, which are considered operating segments, are: Information Technology (“IT”), Technology Industry (“TI”), and Marketing and Strategy (“M&S”). All of the client groups generate revenues through sales of research and advisory and other service offerings targeted at specific roles within their targeted clients. Each of the client groups consists of research personnel focused primarily on issues relevant to particular roles and to the day-to-day responsibilities of persons within the roles. Amounts included in the “Events” segment relate to the operations of the events production department. Revenue reported in the Events segment consists primarily of sponsorships and event tickets to Forrester events.

Forrester evaluates reportable segment performance and allocates resources based on direct margin. Direct margin, as presented below, is defined as operating income excluding sales expenses, certain marketing and fulfillment expenses, stock-based compensation expense, general and administrative expenses, depreciation expense, and amortization of intangibles. The accounting policies used by the reportable segments are the same as those used in the consolidated financial statements.

Forrester does not identify or allocate assets, including capital expenditures, by operating segment. Accordingly, assets are not being reported by segment because the information is not available by segment and is not reviewed in the evaluation of performance or in making decisions on the allocation of resources.

The following tables present information about reportable segments (in thousands):

		IT				TI				M&S				Events				Consolidated
Three months ended June 30, 2011
Revenue		$	24,414			$	21,079			$	21,265			$	6,692			$	73,450
Direct margin			16,066				14,550				13,020				3,605				47,241
Selling, marketing, administrative and other expenses																			(37,099	)
Amortization of intangible assets																			(526	)
Income from operations																		$	9,616

		IT				TI				M&S				Events				Consolidated
Three months ended June 30, 2010
Revenue		$	23,247			$	18,342			$	17,444			$	5,620			$	64,653
Direct margin			16,166				14,388				10,616				2,090				43,260
Selling, marketing, administrative and other expenses																			(32,226	)
Amortization of intangible assets																			(905	)
Income from operations																		$	10,129

		IT				TI				M&S				Events				Consolidated
Six months ended June 30, 2011
Revenue		$	48,447			$	40,719			$	41,329			$	8,697			$	139,192
Direct margin			32,254				29,150				25,228				4,192				90,824
Selling, marketing, administrative and other expenses																			(75,791	)
Amortization of intangible assets																			(1,219	)
Income from operations																		$	13,814

		IT				TI				M&S				Events				Consolidated
Six months ended June 30, 2010
Revenue		$	46,126			$	36,275			$	34,244			$	7,188			$	123,833
Direct margin			32,079				28,303				20,775				1,970				83,127
Selling, marketing, administrative and other expenses																			(63,450	)
Amortization of intangible assets																			(1,810	)
Income from operations																		$	17,867

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “intends,” “plans,” “estimates,” or similar expressions are intended to identify these forward-looking statements. These statements include, but are not limited to, statements about the adequacy of our liquidity and capital resources, anticipated property and equipment purchases, anticipated increases in our sales force, future depreciation expenses and anticipated continued repurchases of our common stock. These statements are based on our current plans and expectations and involve risks and uncertainties that could cause actual future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual future activities and results to differ include, among others, our ability to retain and enrich memberships for our research products and services, technology spending, our ability to respond to business and economic conditions and market trends, the risks and challenges inherent in international business activities, competition and industry consolidation, the ability to attract and retain professional staff, our dependence on key personnel, and possible variations in our quarterly operating results. These risks are described more completely in our Annual Report on Form 10-K for the year ended December 31, 2010. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

We derive revenues from memberships to our research products and services, performing advisory services and consulting projects, and hosting events. We offer contracts for our research products that are typically renewable annually and payable in advance. Research revenues are recognized as revenue ratably over the term of the contract. Accordingly, a substantial portion of our billings are initially recorded as deferred revenue. Clients purchase advisory services independently and/or to supplement their memberships to our research. Billings attributable to advisory services and consulting projects are initially recorded as deferred revenue. Advisory service revenues are recognized when the customer receives the agreed upon deliverable. Consulting project revenues, which generally are short-term in nature and based upon fixed-fee agreements, are recognized as the services are provided. Event billings are also initially recorded as deferred revenue and are recognized as revenue upon completion of each event.

Our primary operating expenses consist of cost of services and fulfillment, selling and marketing expenses and general and administrative expenses. Cost of services and fulfillment represents the costs associated with the production and delivery of our products and services, including salaries, bonuses, employee benefits and stock-based compensation expense for research personnel and all associated editorial, travel, and support services. Selling and marketing expenses include salaries, sales commissions, bonuses, employee benefits, stock-based compensation expense, travel expenses, promotional costs and other costs incurred in marketing and selling our products and services. General and administrative expenses include the costs of the technology, operations, finance, and human resources groups and our other administrative functions, including salaries, bonuses, employee benefits, and stock-based compensation expense. Overhead costs such as facilities are allocated to these categories according to the number of employees in each group.

Deferred revenue, agreement value, client retention, dollar retention and enrichment are metrics we believe are important to understanding our business. We believe that the amount of deferred revenue, along with the agreement value of contracts to purchase research and advisory services, provide a significant measure of our business activity. We define these metrics as follows:

	•		Deferred revenue - billings in advance of revenue recognition as of the measurement date.
	•		Agreement value - the total revenues recognizable from all research and advisory service contracts in force at a given time (but not including advisory-only contracts), without regard to how much revenue has already been recognized.
	•		Client retention - the percentage of client companies with memberships expiring during the most recent twelve-month period that renewed one or more of those memberships during that same period.
	•		Dollar retention - the percentage of the dollar value of all client membership contracts renewed during the most recent twelve-month period to the total dollar value of all client membership contracts that expired during the period.
	•		Enrichment - the percentage of the dollar value of client membership contracts renewed during the most recent twelve-month period to the dollar value of the corresponding expiring contracts.

Client retention, dollar retention, and enrichment are not necessarily indicative of the rate of future retention of our revenue base. A summary of our key metrics is as follows (dollars in millions):

		As of								Absolute				Percentage
		June 30,								Increase				Increase
		2011				2010				(Decrease)				(Decrease)
Deferred revenue		$	130.4			$	108.5			$	21.9				20	%
Agreement value		$	207.6			$	189.3			$	18.3				10	%
Client retention			81	%			79	%			2				3	%
Dollar retention			91	%			89	%			2				2	%
Enrichment			103	%			101	%			2				2	%
Number of clients			2,647				2,523				124				5	%

The increase in deferred revenue and agreement value from June 30, 2010 to June 30, 2011 is primarily due to increased demand for our products and services. Client and dollar retention rates as well as our enrichment rate have all increased from the June 30, 2010 period which is consistent with improved economic activity.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our policies and estimates, including but not limited to, those related to our revenue recognition, stock-based compensation, non-marketable investments, goodwill and other intangible assets, income taxes and valuation and impairment of marketable investments. Management bases its estimates on historical experience, data available at the time the estimates are made and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have updated our critical accounting policies for “revenue recognition” and “valuation and impairment of marketable investments” below. Our other critical accounting policies and estimates are described in our Annual Report on Form 10-K for the year ended December 31, 2010.

Revenue Recognition.

Effective January 1, 2011 we adopted Update No. 2009-13, “Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13). ASU 2009-13 updates the previous multiple-element revenue arrangements guidance. The revised guidance primarily provides three significant changes: 1) it eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting; 2) it eliminates the residual method to allocate the arrangement consideration; and, 3) it modifies the fair value requirements of EITF Issue 00-21 by providing “best estimate of selling price” in addition to vendor specific objective evidence and vendor objective evidence for determining the selling price of a deliverable.

We generate revenues from licensing memberships to our research (including our data products), performing advisory services and consulting projects and hosting events. We execute contracts that govern the terms and conditions of each arrangement. Revenues are recognized when persuasive evidence of an arrangement exists, the fee is fixed or determinable, services have been provided to the customer, and collectability is reasonably assured. Our contracts may include either a single product or service or a combination of multiple products and services. Revenues from contracts that contain multiple products or services are allocated among the separate units of accounting based on their relative selling prices; however, the amount recognized is limited to the amount that is not contingent on future performance conditions. For example, when a discount off of list price is provided in a multiple element contract, the discount is applied ratably to the research and data products only (which commence delivery on the first day of the contract), as the undelivered products in the contract (advisory services or events) would be refundable to the customer at list price. We obtain the selling prices of our products and services based upon an analysis of standalone sales of these products and services during the year. Research service revenues are recognized ratably over the term of the contract. Advisory service revenues are recognized when the customer receives the agreed upon deliverable and consulting project revenues are recognized as the services are provided. Reimbursed out-of-pocket expenses are recorded as advisory services revenue. Event revenues are recognized upon completion of the event.

Annual subscriptions to our RoleView research include access to all or a designated portion of our research, and depending on the type of license, membership in one or more of our Forrester leadership boards, unlimited phone or email analyst inquiry, unlimited participation in Forrester Teleconferences, and the right to attend one event. Contracts for RoleView research entered into prior to the adoption of ASU 2009-13 on January 1, 2011, were accounted for as one unit of accounting and recognized ratably as research services revenue over the membership period. Contracts for RoleView research entered into or significantly modified after January 1, 2011 are accounted for as two units of accounting: 1) the event ticket and 2) the remaining research services that are delivered throughout the contract period based on the new guidance that permits alternative methods of determining selling prices as it relates to the components that we do not sell on a standalone basis, such as research services in our case. Arrangement consideration is allocated to each element based upon its relative selling price, which is determined based on standalone sales of event tickets and the estimated selling price of the remaining research services. Annual

subscriptions to our data products include access to designated survey data products and access to a data specialist, which are delivered throughout the year, and are accounted for as one unit of accounting and recognized ratably as research services revenue over the membership period. We offer our clients a service guarantee, which gives our clients the right to cancel their contracts prior to the end of the contract term and receive a refund for unused products or services. Furthermore, our revenue recognition determines the timing of commission expenses, as commissions are earned during the month a contract is booked and are deferred and recognized as expense as the related revenue is recognized. We evaluate the recoverability of deferred commissions at each balance sheet date.

Valuation and Impairment of Marketable Investments.

Our investment portfolio may at any time contain investments in U.S. Treasury and U.S. government agency securities, taxable and/or tax exempt municipal notes (some of which may have an auction reset feature), corporate notes and bonds, commercial paper and money market funds. The assessment of the fair value of certain of the debt securities (e.g. those containing an auction reset feature) can be difficult and subjective due in part to limited trading activity of certain of these debt instruments.

In accordance with the accounting standard for fair value measurements, we have classified our marketable investments as Level 1, 2 or 3 within the fair value hierarchy. Fair values determined by Level 1 inputs utilize quoted prices in active markets for identical assets. Fair values determined by Level 2 inputs utilize data points that are observable, either directly or indirectly, such as quoted prices for similar assets, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets. Fair values determined by Level 3 inputs utilize unobservable data points.

As of June 30, 2011, we held municipal bonds with a fair value of $9.3 million ($11.0 million at par value) with an auction reset feature (“auction rate securities” or “ARS”). The fair value of the ARS was determined by utilizing a discounted cash flow approach, which is considered a Level 3 valuation. The assumptions used in preparing the discounted cash flow model include estimates, based on data available at June 30, 2011, of interest rates, timing and amount of cash flows, credit and liquidity premiums, and expected holding periods of the ARS. The assumptions used in valuing the ARS are volatile and subject to change as the underlying sources of these assumptions and market conditions change, which may lead us in the future to record additional losses for these securities. We classified these ARS as available-for-sale securities and determined that the losses were not considered other-than-temporary and were not due to credit losses. Accordingly, changes in the market value of the ARS have been recorded in other comprehensive loss in the Consolidated Balance Sheets for the three and six month periods ended June 30, 2011 and 2010. If market conditions deteriorate further, we may be required to record unrealized losses in other comprehensive loss or impairment charges within the Consolidated Statements of Income. We may not be able to liquidate these investments unless the issuer calls the security, a successful auction occurs, a buyer is found outside of the auction process, or the security matures.

At June 30, 2011, we held $150.2 million of marketable investments, excluding ARS, which were valued using Level 2 inputs. Level 2 investments are initially valued at the transaction price and subsequently valued, at the end of each reporting period, by our investment managers utilizing third party pricing services, which consists of one price per instrument. We do not obtain pricing or quotes from brokers directly and historically we have not adjusted prices obtained from our investment managers for our non-ARS portfolio. We verify the pricing information obtained from our investment managers by obtaining an understanding of the pricing methodology and inputs utilized by the pricing services to value our particular investments, as well as an understanding of the controls and procedures utilized by our investment managers to both ensure the accurate recording and to validate the pricing of our investments obtained from the pricing services on an annual basis. Our marketable investments consist solely of high credit quality corporate and municipal bonds with a weighted average credit rating AA and do not include difficult to value features. The majority of our marketable investments are in large corporate notes.

We conduct periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with the meaning of other-than-temporary impairment and its application to certain investments, as required under current accounting standards. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses on available-for-sale securities that are determined to be temporary, and not related to credit loss, are recorded, net of tax, in accumulated other comprehensive loss.

For available-for-sale debt securities with unrealized losses, management performs an analysis to assess whether we intend to sell or whether we would more likely than not be required to sell the security before the expected recovery of the amortized cost basis. Where we intend to sell a security, or may be required to do so, the security’s decline in fair value would be deemed to be other-than-temporary and the full amount of the unrealized loss would be recorded within gains (losses) on investments, net in the Consolidated Statements of Income. Regardless of our intent to sell a security, we perform additional analysis on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security. Credit losses are identified where we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security and are recorded within gains (losses) on investments, net in the Consolidated Statements of Income.

Results of Operations

The following table sets forth our statement of income as a percentage of total revenues for the periods indicated:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Revenues:
Research services			64	%			63	%			66	%			65	%
Advisory services and other			36				37				34				35
Total revenues			100				100				100				100
Operating expenses:
Cost of services and fulfillment			38				38				39				38
Selling and marketing			36				32				37				33
General and administrative			11				12				12				12
Depreciation			1				1				1				1
Amortization of intangible assets			1				1				1				2
Income from operations			13				16				10				14
Other income, net			—				2				—				2
Gains on investments, net			—				—				—				—
Income before income taxes			13				18				10				16
Income tax provision			6				7				4				6
Net income			7	%			11	%			6	%			10	%

Three Months Ended June 30, 2011 and June 30, 2010

Revenues

		Three Months Ended								Absolute				Percentage
		June 30,								Increase				Increase
		2011				2010				(Decrease)				(Decrease)
		(dollars in millions)
Revenues		$	73.5			$	64.7			$	8.8				14	%
Revenues from research services		$	47.3			$	40.8			$	6.5				16	%
Revenues from advisory services and other		$	26.1			$	23.9			$	2.2				9	%
Revenues attributable to customers outside of the U.S.		$	21.6			$	17.7			$	3.9				22	%
Percentage of revenue attributable to customers outside of the U.S.			29	%			27	%			2				7	%
Number of clients (at end of period)			2,647				2,523				124				5	%
Number of events			4				4				—				—

The increase in total revenues is principally the result of increased demand for our products and services from both the enrichment of our existing clients, as shown by our enrichment rate of 103% for the twelve-month period ended June 30, 2011, as well as from an increase in the number of clients. We have also increased the number of selling and marketing personnel from 407 at June 30, 2010 to 491 at June 30, 2011. In addition, the effects of foreign exchange resulted in an approximate 2% increase in total revenues during the quarter as compared with the second quarter of 2010. Revenue growth for the current quarter was driven by a 22% increase in revenue in the marketing and strategy client group, a 15% increase in revenue in the technology industry client group and a 5% increase revenue in the information technology client group. The acquisition of Springboard had an insignificant effect on revenue growth during the quarter.

Cost of Services and Fulfillment

		Three Months Ended								Absolute				Percentage
		June 30,								Increase				Increase
		2011				2010				(Decrease)				(Decrease)
Cost of services and fulfillment (dollars in millions)		$	28.0			$	24.3			$	3.7				15	%
Cost of services and fulfillment as a percentage of total revenues			38	%			38	%			—				—
Number of research and fulfillment employees (at end of period)			541				441				100				23	%

The increase in cost of services and fulfillment in dollars during the three months ended June 30, 2011 compared to the prior period is

primarily the result of increased compensation and benefits largely due to an increase in research and fulfillment employees, increased facility costs, and increased travel and entertainment expense. These increases were partially offset by lower stock-based compensation costs of approximately $0.6 million during the current quarter principally due to a change in estimate for the amount of performance-based restricted stock units that are expected to vest. We recognized $1.5 million of lease costs in the second quarter of 2011, of which approximately $0.7 million was recorded as cost of services and fulfillment, related to our new corporate headquarters as we have access to the facility for construction purposes prior to the expected date that we will occupy the facility for operations in the third quarter of 2011.

Selling and Marketing

		Three Months Ended								Absolute				Percentage
		June 30,								Increase				Increase
		2011				2010				(Decrease)				(Decrease)
Selling and marketing expenses (dollars in millions)		$	26.0			$	20.7			$	5.3				26	%
Selling and marketing expenses as a percentage of total revenues			36	%			32	%			4				13	%
Selling and marketing employees (at end of period)			491				407				84				21	%

The increase in selling and marketing expenses in dollars and as a percentage of total revenues during the three months ended June 30, 2011 is primarily due to an increase in compensation and benefits costs resulting from an increase in the number of selling and marketing employees and an increase in sales commissions. The increase is also attributable to increased facility costs and increased travel and entertainment expense. Subject to the business environment for our products and services, we have an ongoing initiative to expand our sales force by 15% to 20% annually. Increased sales of our research services resulting from the higher number of sales employees are generally recognized over a twelve-month period, which typically results in an increase in selling and marketing expense as a percentage of revenue during periods of sales force expansion. As noted above under “cost of services and fulfillment”, we recognized $1.5 million of lease costs in the second quarter of 2011 related to our new corporate headquarters, of which $0.6 million was recorded as selling and marketing expense.

General and Administrative

		Three Months Ended								Absolute				Percentage
		June 30,								Increase				Increase
		2011				2010				(Decrease)				(Decrease)
General and administrative expenses (dollars in millions)		$	8.3			$	7.7			$	0.6				8	%
General and administrative expenses as a percentage of total revenues			11	%			12	%			(1	)			(8	%)
General and administrative employees (at end of period)			179				160				19				12	%

The increase in general and administrative expense in dollars during the three months ended June 30, 2011 is primarily due to an increase in compensation and benefits costs resulting from an increase in the number of general and administrative employees to support our growth plan, an increase in professional services primarily from approximately $0.3 million of costs for the acquisition of Springboard, and an increase in facility costs. These increases were partially offset by lower stock-based compensation costs of approximately $0.4 million during the current quarter due primarily to a change in estimate for the amount of performance-based restricted stock units that are expected to vest. As noted above under “cost of services and fulfillment”, we recognized $1.5 million of lease costs in the second quarter of 2011 related to our new corporate headquarters, of which $0.2 million was recorded as general and administrative expense.

Depreciation

		Three Months Ended								Absolute				Percentage
		June 30,								Increase				Increase
		2011				2010				(Decrease)				(Decrease)
Depreciation expense (dollars in millions)		$	0.9			$	0.9			$	—				—
Depreciation expense as a percentage of total revenues			1	%			1	%			—				—

Depreciation expense was consistent during the three months ended June 30, 2011 compared to the prior year. We expect depreciation expense to increase significantly in the second half of 2011 due to the build-out and equipping of our new corporate headquarters, scheduled to be operative in the third quarter of 2011, and to customer facing technologies that will be implemented in the second half of 2011.

Amortization of Intangible Assets

		Three Months Ended								Absolute				Percentage
		June 30,								Increase				Increase
		2011				2010				(Decrease)				(Decrease)
Amortization expense (dollars in millions)		$	0.5			$	0.9			$	(0.4	)			(42	%)
Amortization expense as a percentage of total revenues			1	%			1	%			—				—

The decrease in amortization expense during the three months ended June 30, 2011 is primarily due to certain intangible assets from the acquisition of Strategic Oxygen in December 2009 becoming fully amortized in the first quarter of 2011. The acquisition of Springboard on May 12, 2011 increased amortization expense by approximately $0.2 million during the current quarter.

Other Income (Expense), Net

		Three Months Ended								Absolute				Percentage
		June 30,								Increase				Increase
		2011				2010				(Decrease)				(Decrease)
Other income (expense), net (dollars in millions)		$	—			$	1.1			$	(1.1	)			(100	%)
Other income (expense), net as a percentage of total revenues			—				2	%			(2	)			(100	%)