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Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
Income Taxes
(6) Income Taxes

Income from continuing operations before income tax provision for the years ended December 31, 2011, 2010 and 2009 consists of the following (in thousands):

 

                         
    2011     2010     2009  

Domestic

   $ 35,371     $ 33,964     $ 33,094  

Foreign

     3,274       336       641  
   

 

 

    

 

 

    

 

 

  

Total

   $ 38,645     $ 34,300     $ 33,735  
   

 

 

    

 

 

    

 

 

  

The components of the income tax provision for the years ended December 31, 2011, 2010 and 2009 are as follows (in thousands):

 

                         
    2011     2010     2009  

Current:

                        

Federal

   $ (1,083 )    $ 8,722     $ 8,853  

State

     738       1,571       3,488  

Foreign

     843       1,144       585  
   

 

 

    

 

 

    

 

 

  

Total current

     498       11,437       12,926  
   

 

 

    

 

 

    

 

 

  

Deferred:

                        

Federal

     13,485       2,301       1,774  

State

     1,186       1,025       (346 ) 

Foreign

     466       (970 )      515  
   

 

 

    

 

 

    

 

 

  

Total deferred

     15,137       2,356       1,943  
   

 

 

    

 

 

    

 

 

  

Income tax provision

   $ 15,635     $ 13,793     $ 14,869  
   

 

 

    

 

 

    

 

 

  

 

A reconciliation of the federal statutory rate to Forrester’s effective tax rate for the years ended December 31, 2011, 2010 and 2009 is as follows:

 

                         
    2011     2010     2009  

Income tax provision at federal statutory rate

     35.0 %      35.0 %      35.0 % 

Increase (decrease) in tax resulting from:

                        

State tax provision, net of federal benefit

     3.1       5.0       6.1  

Non-deductible expenses

     1.6       2.2       0.7  

Tax-exempt interest income

     (0.4 )      (1.3 )      (3.0 ) 

Stock option compensation deduction

     0.6       0.2       1.1  

Change in valuation allowance

     1.1       (3.4 )      (0.6 ) 

Exchange rate (gain) loss

     (0.5 )      (1.1 )      1.8  

Foreign tax rate differential

     (1.0 )      —       —  

Other, net

     1.0       3.6       3.0  
   

 

 

    

 

 

    

 

 

  

Effective tax rate

     40.5 %      40.2 %      44.1 % 
   

 

 

    

 

 

    

 

 

  

The components of deferred income taxes as of December 31, 2011 and 2010 are as follows (in thousands):

 

                 
    2011     2010  

Non-deductible reserves and accruals

   $ 3,125     $ 5,087  

Stock compensation

     5,146       5,106  

Depreciation and amortization

     —       376  

Net operating loss and other carryforwards

     7,526       8,962  
   

 

 

    

 

 

  

Gross deferred tax asset

     15,797       19,531  

Less — valuation allowance

     (3,077 )      (2,676 ) 
   

 

 

    

 

 

  

Sub-total

     12,720       16,855  

Depreciation and amortization

     (7,996 )      —  

Goodwill amortization

     (5,518 )      (5,528 ) 

Other liabilities

     (3,347 )      —  

Deferred commissions

     (4,775 )      (4,987 ) 
   

 

 

    

 

 

  

Net deferred tax asset (liability)

   $ (8,916 )    $ 6,340  
   

 

 

    

 

 

  

Current net deferred tax assets and long-term net deferred tax assets were $0 and $0.1 million as of December 31, 2011 and $4.1 million and $7.8 million as of December 31, 2010, respectively, and are included in prepaid and other current assets and other assets, respectively, in the Consolidated Balance Sheets. Current net deferred tax liabilities and long-term net deferred tax liabilities were $0.4 million and $8.6 million as of December 31, 2011 and $0 and $5.5 million as of December 31, 2010, respectively, and are included in accrued expenses and other current liabilities and non-current liabilities, respectively, in the Consolidated Balance Sheets.

The Company considers all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a net deferred income tax asset. Judgment is required in considering the relative impact of negative and positive evidence. In arriving at these judgments, the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified. Although realization is not assured, based upon the Company’s historical taxable income and projections of the Company’s future taxable income over the periods during which the deferred tax assets are deductible and the carryforwards expire, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances, as discussed below.

As of December 31, 2011 and 2010, the Company maintained a valuation allowance of approximately $3.1 million and $2.7 million, respectively, primarily relating to foreign net operating loss carryforwards from an acquisition and U.S. capital losses.

As of December 31, 2011, the Company had federal net operating loss carryforwards of approximately $12.8 million obtained from acquired businesses. These carryforwards are limited pursuant to section 382 of the Internal Revenue Code due to changes in ownership as a result of the acquisitions. If unused, these carryforwards would expire on various dates from 2019 through 2028.

The Company also has foreign net operating loss carryforwards of approximately $31.6 million, which can be carried forward indefinitely. Approximately $5.8 million of the foreign net operating loss carryforwards relate to a prior acquisition, the utilization of which is subject to limitation under the tax law of the United Kingdom. The Company has a German net operating loss against which it had provided a full valuation allowance in prior years. During 2010 the Company reconsidered its position and determined that the ability of the Company to benefit from the net operating loss did not meet the more likely than not standard. Accordingly, the deferred tax asset and corresponding valuation allowance for the German net operating loss have been removed from the components of deferred taxes with no effect to the Company’s overall tax provision.

As of December 31, 2011, the Company had U.S. federal and state capital loss carryforwards of $3.0 million, of which $1.0 million expires in 2012, $1.1 million expires in 2014, and $0.9 million expires in 2016.

The following table provides a summary of the changes in the deferred tax valuation allowance for the years ended December 31, 2011, 2010 and 2009 (in thousands):

 

                         
    2011     2010     2009  

Deferred tax valuation allowance at January 1

   $ 2,676     $ 11,672     $ 10,922  

Additions

     508       440       1,532  

Deductions

     (85 )      (9,405 )      (1,261 ) 

Translation adjustments

     (22 )      (31 )      479  
   

 

 

    

 

 

    

 

 

  

Deferred tax valuation allowance at December 31

   $ 3,077     $ 2,676     $ 11,672  
   

 

 

    

 

 

    

 

 

  

During the years ended December 31, 2011, 2010 and 2009, the Company recognized approximately $0.5 million, $1.8 million and $(0.3) million, respectively, of net tax benefits (deficiencies) from tax deductions in excess of (or less than) book deductions resulting from employee stock option exercises. The net tax benefits (deficiencies) were recorded as an increase (decrease) to additional paid-in-capital. Excess tax benefits from share-based payments are recognized in the year that the deduction reduces the amount of cash payable for taxes.

Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $1.4 million as of December 31, 2011. The Company has not provided any additional federal or state income taxes or foreign withholding taxes on the undistributed earnings as such earnings have been indefinitely reinvested in the business. Due to the various methods by which such earnings could be repatriated in the future, the amount of taxes attributable to the undistributed earnings is not practicably determinable.

The Company utilizes a two step process for the measurement of uncertain tax positions that have been taken or are expected to be taken on a tax return. The first step is a determination of whether the tax position should be recognized in the financial statements. The second step determines the measurement of the tax position. A reconciliation of the beginning and ending amount of unrecognized tax benefits is summarized as follows for the years ended December 31, 2011, 2010 and 2009 (in thousands):

 

                         
    2011     2010     2009  

Unrecognized tax benefits at January 1

   $ 1,222     $ 919     $ 1,222  

Additions for tax positions of prior years

     107       410       —  

Reductions for tax positions of prior years

     —       —       (19 ) 

Additions for tax positions of current year

     17       77       —  

Settlements

     —       —       —  

Lapse of statute of limitations

     (77 )      (184 )      (284 ) 
   

 

 

    

 

 

    

 

 

  

Unrecognized tax benefits at December 31

   $ 1,269     $ 1,222     $ 919  
   

 

 

    

 

 

    

 

 

  

As of December 31, 2011, the total amount of unrecognized tax benefits totaled approximately $1.3 million, all of which if recognized, would decrease our effective tax rate in a future period. Based on the potential outcome of the Company’s global tax examinations and the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the unrecognized tax benefits related to intercompany activity will decrease within the next 12 months. The associated net tax benefits, which would favorably impact the effective tax rate, are estimated to be in the range of $0 to $0.4 million.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and such amounts were not material in the years ended December 31, 2011, 2010 and 2009. At December 31, 2011 and 2010, the Company had approximately $0.2 million of accrued interest and penalties related to uncertain tax positions.

The Company files income tax returns in the U.S. and in foreign jurisdictions. Generally, the Company is no longer subject to U.S., state, local and foreign income tax examinations by tax authorities in its major jurisdictions for years before 2005, except to the extent of net operating loss and tax credit carryforwards from those years. Major taxing jurisdictions include the U.S., the Netherlands and the United Kingdom.