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Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Taxes [Abstract]  
Income Taxes
(6) Income Taxes

Income before income taxes for the years ended December 31, 2012, 2011 and 2010 consists of the following (in thousands):

 

                         
    2012     2011     2010  

Domestic

   $ 23,480     $ 35,371     $ 33,964  

Foreign

     8,030       3,274       336  
   

 

 

    

 

 

    

 

 

  

Total

   $ 31,510     $ 38,645     $ 34,300  
   

 

 

    

 

 

    

 

 

  

The components of the income tax provision for the years ended December 31, 2012, 2011 and 2010 are as follows (in thousands):

 

                         
    2012     2011     2010  

Current:

                        

Federal

   $ 11,945     $ (1,083 )    $ 8,722  

State

     3,038       738       1,571  

Foreign

     1,338       843       1,144  
   

 

 

    

 

 

    

 

 

  

Total current

     16,321       498       11,437  
   

 

 

    

 

 

    

 

 

  

Deferred:

                        

Federal

     (4,449 )      13,485       2,301  

State

     (736 )      1,186       1,025  

Foreign

     (5,200 )      466       (970 ) 
   

 

 

    

 

 

    

 

 

  

Total deferred

     (10,385 )      15,137       2,356  
   

 

 

    

 

 

    

 

 

  

Income tax provision

   $ 5,936     $ 15,635     $ 13,793  
   

 

 

    

 

 

    

 

 

  

A reconciliation of the federal statutory rate to Forrester’s effective tax rate for the years ended December 31, 2012, 2011 and 2010 is as follows:

 

                         
    2012     2011     2010  

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

     4.9       3.1       5.0  

Non-deductible expenses

     0.4       1.6       2.2  

Tax-exempt interest income

     (0.5 )      (0.4 )      (1.3 ) 

Stock option compensation deduction

     0.7       0.6       0.2  

Change in valuation allowance

     (0.8 )      1.1       (3.4 ) 

Exchange rate gain

     (0.3 )      (0.5 )      (1.1 ) 

Foreign tax rate differential

     (2.8 )      (1.0 )      —  

Benefit upon audit settlement

     (19.6 )      —       —  

Other, net

     1.8       1.0       3.6  
   

 

 

    

 

 

    

 

 

  

Effective tax rate

     18.8 %      40.5 %      40.2 % 
   

 

 

    

 

 

    

 

 

  

 

The components of deferred income taxes as of December 31, 2012 and 2011 are as follows (in thousands):

 

                 
    2012     2011  

Non-deductible reserves and accruals

   $ 4,105     $ 3,125  

Stock compensation

     4,948       5,146  

Net operating loss and other carryforwards

     9,816       7,526  
   

 

 

    

 

 

  

Gross deferred tax asset

     18,869       15,797  

Less—valuation allowance

     (2,086 )      (3,077 ) 
   

 

 

    

 

 

  

Sub-total

     16,783       12,720  

Depreciation and amortization

     (5,018 )      (7,996 ) 

Goodwill amortization

     (4,381 )      (5,518 ) 

Other liabilities

     (2,872 )      (3,347 ) 

Deferred commissions

     (3,743 )      (4,775 ) 
   

 

 

    

 

 

  

Net deferred tax asset (liability)

   $ 769     $ (8,916 ) 
   

 

 

    

 

 

  

Current net deferred tax assets and long-term net deferred tax assets were $0.1 and $1.4 million as of December 31, 2012 and $0 and $0.1 million as of December 31, 2011, 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 $0.3 million as of December 31, 2012 and $0.4 and $8.6 million as of December 31, 2011, 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, 2012 and 2011, the Company maintained a valuation allowance of approximately $2.1 million and $3.1 million, respectively, primarily relating to foreign net operating loss carryforwards from an acquisition and U.S. capital losses.

As of December 31, 2012, the Company had federal net operating loss carryforwards of approximately $10.0 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 $19.8 million, which can be carried forward indefinitely. Approximately $5.7 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. In the third quarter of 2012 the Company settled a tax audit at its German subsidiary resulting in the recognition of $5.5 million in deferred tax assets relating to net operating losses and intangible assets at this subsidiary. During 2010 the Company had determined that the ability of the Company to benefit from the net operating losses at its German subsidiary did not meet the more likely than not standard. Accordingly, the previously recorded deferred tax asset and corresponding valuation allowance for the German net operating loss were removed from the components of deferred taxes with no effect to the Company’s overall tax provision for 2010.

As of December 31, 2012, the Company had U.S. federal and state capital loss carryforwards of $1.9 million, of which $1.1 million expires in 2014, and $0.8 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, 2012, 2011 and 2010 (in thousands):

 

                         
    2012     2011     2010  

Deferred tax valuation allowance at January 1

   $ 3,077     $ 2,676     $ 11,672  

Additions

     11       508       440  

Deductions

     (1,066 )      (85 )      (9,405 ) 

Translation adjustments

     64       (22 )      (31 ) 
   

 

 

    

 

 

    

 

 

  

Deferred tax valuation allowance at December 31

   $ 2,086     $ 3,077     $ 2,676  
   

 

 

    

 

 

    

 

 

  

During the years ended December 31, 2012, 2011 and 2010, the Company recognized approximately ($0.3) million, $0.5 million and $1.8 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 $5.2 million as of December 31, 2012. 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, 2012, 2011 and 2010 (in thousands):

 

                         
    2012     2011     2010  

Unrecognized tax benefits at January 1

   $ 1,269     $ 1,222     $ 919  

Additions for tax positions of prior years

     112       107       410  

Reductions for tax positions of prior years

     (37 )      —       —  

Additions for tax positions of current year

     1,271       17       77  

Settlements

     (582 )      —       —  

Lapse of statute of limitations

     (360 )      (77 )      (184 ) 

Translation adjustments

     (2 )      —       —  
   

 

 

    

 

 

    

 

 

  

Unrecognized tax benefits at December 31

   $ 1,671     $ 1,269     $ 1,222  
   

 

 

    

 

 

    

 

 

  

 

As of December 31, 2012, the total amount of unrecognized tax benefits totaled approximately $1.7 million, all of which if recognized, would decrease our effective tax rate in a future period. It is not expected that a significant amount of unrecognized tax benefits would be recognized within the next 12 months.

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, 2012, 2011 and 2010. At December 31, 2012 and 2011, the Company had approximately $0.1 million and $0.2 million of accrued interest and penalties related to uncertain tax positions, respectively.

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, the United Kingdom, Germany and Switzerland.