FORM 10-Q

(MARK ONE)

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

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

COMMISSION FILE NUMBER: 000-21433

FORRESTER RESEARCH, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		04-2797789
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
400 TECHNOLOGY SQUARE
CAMBRIDGE, MASSACHUSETTS
(Address of principal executive		02139
offices)		(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 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Small 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 November 4, 2009, 22,461,558 shares of the registrant’s common stock were outstanding.

 

 

FORRESTER RESEARCH, INC.

INDEX TO FORM 10-Q

		PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements			3
Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008			3
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2009 and 2008 (Unaudited)			4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 (Unaudited)			5
Notes to Consolidated Financial Statements			6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			26
ITEM 4. Controls and Procedures			27
PART II. OTHER INFORMATION
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			27
ITEM 6. Exhibits			28
EX-10.1 Lease of Premises at Cambridge Discovery Park, Cambridge, Massachusetts dated as of September 29, 2009
EX-10.2 Agreement Regarding Project Rights dated as of September 29, 2009
EX-31.1 Certification of the Principal Executive Officer
EX-31.2 Certification of the Principal Financial Officer
EX-32.1 Certification of the Chief Executive Officer pursuant to Section 906
EX-32.2 Certification of the Chief Financial Officer pursuant to Section 906

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands)

		SEPTEMBER 30,				DECEMBER 31,
		2009				2008
		(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents		$	108,177			$	129,478
Short-term investments			162,055				83,951
Accounts receivable, net			36,404				64,226
Deferred commissions			6,365				9,749
Deferred income tax assets, net			9,037				7,947
Prepaid expenses and other current assets			10,112				15,553
Total current assets			332,150				310,904
Long-term assets:
Long-term investments			9,950				46,500
Property and equipment, net			6,957				6,759
Goodwill, net			66,999				67,424
Deferred income tax assets, net			7,460				8,523
Non-marketable investments			5,064				7,000
Intangible assets, net			6,464				7,138
Other assets			548				703
Total long-term assets			103,442				144,047
Total assets		$	435,592			$	454,951
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,952			$	3,532
Accrued expenses			23,892				27,527
Deferred revenue			93,541				113,844
Total current liabilities			119,385				144,903
Non-current liabilities			6,552				6,551
Stockholders’ equity:
Preferred stock, $.01 par value			—				—
Authorized — 500 shares
Issued and outstanding-none
Common stock, $.01 par value
Authorized — 125,000 shares
Issued — 29,289 and 29,146 shares as of September 30, 2009 and December 31, 2008, respectively
Outstanding — 22,466 and 23,045 shares as of September 30, 2009 and December 31, 2008, respectively			293				291
Additional paid-in capital			322,707				315,149
Retained earnings			123,776				110,693
Treasury stock, at cost — 6,823 and 6,101 shares as of September 30, 2009 and December 31, 2008, respectively			(136,084	)			(120,851	)
Accumulated other comprehensive loss			(1,037	)			(1,785	)
Total stockholders’ equity			309,655				303,497
Total liabilities and stockholders’ equity		$	435,592			$	454,951

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)

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2009				2008				2009				2008
		(UNAUDITED)
Revenues:
Research services		$	38,893			$	40,326			$	116,968			$	114,136
Advisory services and other			14,988				19,180				54,898				63,818
Total revenues			53,881				59,506				171,866				177,954
Operating expenses:
Cost of services and fulfillment			19,234				21,806				63,306				65,848
Selling and marketing			18,084				20,282				56,536				60,119
General and administrative			7,099				7,529				20,468				22,945
Reorganization costs			—				—				3,141				—
Depreciation			1,075				1,012				3,311				2,998
Amortization of intangible assets			439				282				1,751				476
Total operating expenses			45,931				50,911				148,513				152,386
Income from operations			7,950				8,595				23,353				25,568
Other income:
Other income, net			460				1,447				2,182				5,221
(Impairments) gains from marketable and non-marketable investments, net			(732	)			26				(1,683	)			2,136
Net income before income tax provision			7,678				10,068				23,852				32,925
Income tax provision			3,378				3,680				10,769				12,864
Net income		$	4,300			$	6,388			$	13,083			$	20,061
Basic net income per common share		$	0.19			$	0.28			$	0.58			$	0.87
Diluted net income per common share		$	0.19			$	0.27			$	0.57			$	0.85
Basic weighted average common shares outstanding			22,561				23,163				22,736				23,056
Diluted weighted average common shares outstanding			22,809				23,793				22,953				23,655

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

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

		NINE MONTHS ENDED
		SEPTEMBER 30,
		2009				2008
		(UNAUDITED)
Cash flows from operating activities:
Net income		$	13,083			$	20,061
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation			3,311				2,998
Amortization of intangible assets			1,751				476
Gains on sales of marketable investments			—				(2,057	)
Impairments (gains) from non-marketable investments, net			1,683				(79	)
Deferred income taxes			225				2,961
Non-cash stock-based compensation			4,921				3,973
Increase in provision for doubtful accounts			320				494
Unrealized loss on foreign currency and other, net			125				—
Tax benefit from exercises of employee stock options			—				(2,244	)
Amortization of premiums on marketable investments			838				626
Changes in assets and liabilities, net of acquisition-
Accounts receivable			28,401				34,518
Deferred commissions			3,385				2,134
Prepaid expenses and other current assets			5,611				2,290
Accounts payable			(2,050	)			(1,056	)
Accrued expenses			(3,797	)			(4,721	)
Deferred revenue			(21,338	)			(16,951	)
Net cash provided by operating activities			36,469				43,423
Cash flows from investing activities:
Acquisition of JupiterResearch			—				(23,398	)
Acquisition of Forrester Middle East FZ-LLC			(752	)			—
Purchases of property and equipment			(3,464	)			(2,730	)
Proceeds from non-marketable investments			—				250
Decrease in other assets			438				344
Purchases of marketable investments			(530,345	)			(966,671	)
Proceeds from sales and maturities of marketable investments			487,339				1,028,902
Net cash (used in) provided by investing activities			(46,784	)			36,697
Cash flows from financing activities:
Proceeds from issuance of common stock under stock option plans and employee stock purchase plan			2,721				17,246
Tax benefits related to stock options			—				2,244
Acquisition of treasury stock			(15,233	)			(26,086	)
Net cash used in financing activities			(12,512	)			(6,596	)
Effect of exchange rate changes on cash and cash equivalents			1,526				(1,818	)
Net (decrease) increase in cash and cash equivalents			(21,301	)			71,706
Cash and cash equivalents, beginning of period			129,478				53,163
Cash and cash equivalents, end of period		$	108,177			$	124,869
Supplemental disclosure of cash flow information:
Cash paid for income taxes		$	8,306			$	7,819

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

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. 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, 2008. 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 nine months ended September 30, 2009 may not be indicative of the results for the year ending December 31, 2009, or any other period.

NOTE 2 — REORGANIZATION

On February 9, 2009, Forrester announced a reduction of its workforce by approximately 50 positions in response to conditions and demands of the market and a slower economy. Additionally, Forrester identified certain leased office space that was no longer required to support the ongoing business. As a result, Forrester recorded a reorganization charge of approximately $3.1 million in the three months ended March 31, 2009. Approximately 44% of the terminated employees were members of the sales force, while 38% and 18% held research and administrative roles, respectively.

The activity related to the February 9, 2009 reorganization during the nine months ended September 30, 2009 is as follows (in thousands):

										Accrued as of
		Total				Cash				September 30,
		Charge				Payments				2009
Workforce reduction		$	2,872			$	2,767			$	105
Facility consolidation			269				43				226
Total		$	3,141			$	2,810			$	331

The accrued costs related to the February 9, 2009 reorganization are expected to be paid in the following periods (in thousands):

														Accrued as of
		2009				2010				2011				September 30, 2009
Workforce reduction		$	105			$	—			$	—			$	105
Facility consolidation			46				156				24				226
Total		$	151			$	156			$	24			$	331

NOTE 3 — ACQUISITIONS

JupiterResearch

On July 31, 2008, Forrester acquired all of the outstanding capital stock of JUPR Holdings, Inc. (“Holdings”), the parent company of JupiterResearch, LLC (“JupiterResearch”). JupiterResearch provided business professionals with syndicated research, analysis, and advice backed by proprietary data. The acquisition supported the Company’s role-based strategy, added greater depth and breadth to the marketing and strategy syndicated product

offering, increased the number of client companies and was expected to reduce operating expenses of the combined entity through economies of scale. The total consideration was $22.0 million which consisted of initial cash consideration of $23.0 million less a working capital adjustment of $1.0 million which was received in the fourth quarter of 2008. The aggregate purchase price of $22.6 million consisted of $22.0 million in cash for the acquisition of all outstanding shares of Holdings common stock, $398,000 of direct acquisition costs and $154,000 for severance related to 14 employees of JupiterResearch terminated as a result of the acquisition, of which $8,000 was paid during the year ended December 31, 2008 and the remainder was paid during the three months ended March 31, 2009. The results of JupiterResearch’s operations have been included in Forrester’s consolidated financial statements since July 31, 2008 and the Company has not furnished pro forma financial information relating to the acquisition because such information is not material.

Forrester Middle East FZ-LLC

On January 22, 2009, Forrester acquired all of the outstanding share capital of Forrester Middle East FZ-LLC (FME), a Dubai, UAE based reseller of Forrester’s products that also offered consulting services to local customers, to expand the Company’s direct geographical presence in the area. The total consideration was approximately $1.1 million of which approximately $561,000 was paid on the acquisition date, $266,000 was paid in the three months ended June 30, 2009 and $266,000 will be due in the fourth quarter of 2009, subject to a downward adjustment based on certain contractual provisions. The preliminary purchase price allocation resulted in an allocation of approximately $1.1 million to intangible assets, principally customer relationships to be amortized over 7 years according to the expected cash flows to be received from the underlying asset, and $22,000 to the net liabilities acquired. The results of FME’s operations have been included in Forrester’s consolidated financial statements since January 22, 2009 and the Company has not furnished pro forma financial information relating to the acquisition because such information is not material.

NOTE 4 — INTANGIBLE ASSETS

A summary of Forrester’s amortizable intangible assets as of September 30, 2009 is as follows:

		GROSS CARRYING				ACCUMULATED				NET
		AMOUNT				AMORTIZATION				CARRYING AMOUNT
		(IN THOUSANDS)
Amortizable intangible assets:
Customer relationships		$	28,517			$	22,073			$	6,444
Research content			3,560				3,560				—
Registered trademarks			803				803				—
Non-compete agreement			80				60				20
Total		$	32,960			$	26,496			$	6,464

Amortization expense related to identifiable intangible assets was approximately $439,000 and $282,000 during the three months ended September 30, 2009 and 2008, respectively, and approximately $1.8 million and $476,000 during the nine months ended September 30, 2009 and 2008, respectively. Estimated amortization expense related to identifiable intangible assets that will continue to be amortized is as follows:

		AMOUNTS
		(IN THOUSANDS)
Remaining three months ending December 31, 2009		$	328
Year ending December 31, 2010			1,096
Year ending December 31, 2011			981
Year ending December 31, 2012			851
Year ending December 31, 2013			739
Year ending December 31, 2014			644
Thereafter			1,825
Total		$	6,464

NOTE 5 – MARKETABLE INVESTMENTS

The following table summarizes the Company’s marketable investments excluding the Right from UBS discussed below (in thousands):

						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
		Cost				Gains				Losses				Value
September 30, 2009
State and municipal obligations, short-term		$	47,479			$	616			$	—			$	48,095
UBS ARS			32,025				—				(1,812	)			30,213
Federal agency and corporate obligations, short-term (1)			98,931				499				—				99,430
Total short-term investments		$	178,435			$	1,115			$	(1,812	)		$	177,738
Non-UBS ARS			11,000				—				(1,050	)			9,950
Total short and long-term investments		$	189,435			$	1,115				($2,862	)		$	187,688
December 31, 2008
State and municipal obligations, short-term		$	70,455			$	701			$	—			$	71,156
Federal agency and corporate obligations, short-term (2)			83,550				64				(86	)			83,528
Total short-term investments		$	154,005			$	765			$	(86	)		$	154,684
UBS ARS			35,500				—				(6,887	)			28,613
Non-UBS ARS			11,000				—				—				11,000
Total short and long-term investments		$	200,505			$	765				($6,973	)		$	194,297

The following table summarizes the maturity periods of the short- and long-term investments in the Company’s portfolio as of September 30, 2009, excluding the Right (as defined below) from UBS.

		FY 2009				FY 2010				FY 2011				FY 2012				Total
		(in thousands)
Non-ARS state and municipal obligations		$	8,859			$	30,577			$	8,659			$	—			$	48,095
UBS ARS			30,213				—				—				—				30,213
Non-UBS ARS			9,950				—				—				—				9,950
Federal agency and corporate obligations			40,376				24,328				25,116				9,610				99,430
Total short and long-term		$	89,398			$	54,905			$	33,775			$	9,610			$	187,688

In February 2008, certain auction rate securities (“ARS”) that Forrester holds experienced failed auctions that limited the liquidity of these securities. Based on current market conditions, it is likely that auction failures will continue. The actual contractual maturities of these investments were they not to reset would occur at various dates between 2009 and 2041 with $150,000 maturing in one to five years, $600,000 maturing in five to ten years and $42.3 million maturing after ten years.

In 2007, Forrester owned an approximately 1.2% ownership interest in comScore, Inc. (“comScore”), a provider of infrastructure services which utilizes proprietary technology to accumulate comprehensive information on consumer buying behavior. In June 2007, comScore (NASDAQ: SCOR) completed an initial public offering in which Forrester’s ownership interest was converted to approximately 126,000 shares. In December 2007, Forrester sold approximately 20,000 shares. In February 2008, Forrester sold an additional 20,000 shares and the remaining 86,000 shares were sold in May 2008 resulting in gains of approximately $387,000 and $1.7 million, respectively.

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 value of these financial assets was determined based on three levels of inputs, of which the first two are considered observable and the last unobservable as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than Level 1 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 — Unobservable inputs that are supported by little or no market activity and that 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 September 30, 2009 (in thousands):

		Level 1				Level 2				Level 3				Total
Money market funds (1)		$	29,346			$	—			$	—			$	29,346
Federal agency and corporate obligations (2)			—				99,430				—				99,430
State and municipal obligations			—				48,095				40,163				88,258
UBS Put Right			—				—				1,812				1,812
Total		$	29,346			$	147,525			$	41,975			$	218,846

Level 3 assets consist of municipal bonds with an auction reset feature (ARS) whose underlying assets are principally student loans which are substantially backed by the federal government. Since the auctions for these securities have continued to fail since February 2008, these investments are not currently trading and therefore do not have a readily determinable market value. Accordingly, the estimated fair value of the ARS no longer approximates par value. A large portion of these ARS are held by UBS AG (UBS), one of the Company’s investment advisors. 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 (approximately $32.0 million par value at September 30, 2009) (“UBS ARS”) at anytime during a two-year period from June 30, 2010 through July 2, 2012. Although the Company expects to sell its UBS ARS under the Right, if the Right is not exercised before July 2, 2012, it will expire and UBS will have no further rights or obligation to buy the Company’s UBS ARS. The Company has valued the UBS ARS and Right using a discounted cash flow model based on Level 3 assumptions. The assumptions used in valuing the UBS ARS and the put option include estimates of, based on data available as of September 30, 2009, interest rates, timing and amount of cash flows, credit and liquidity premiums, expected holding periods of the UBS ARS, loan rates per the UBS ARS Rights offering and bearer risk associated with UBS’s financial ability to repurchase the UBS ARS beginning June 30, 2010. The combined fair value of the Right and the UBS ARS is equal to the par value of the UBS ARS. The Company intends to exercise the Right from UBS on June 30, 2010 and as a result has classified these ARS as short-term investments as of September 30, 2009.

The Company’s other investment advisor provided a valuation at par based on the limited market activity, which Forrester considered to be a Level 3 input in addition to the underlying credit rating of the Company’s other ARS, which was generally related to municipalities. In addition to the valuation at par Forrester completed a valuation of the securities using a discounted cash flow approach including estimates of interest rates, timing and amount of cash flows, credit and liquidity premiums and expected holding periods of the ARS. Forrester relied most heavily on this

approach, which resulted in an unrealized loss recorded in other comprehensive income of approximately $1.1 million principally due to the steady decline in market activity. Forrester believes that the loss is temporary due to the underlying credit rating of the ARS and the Company has the intent and ability to hold the ARS until a full recovery has occurred. As the funds associated with the ARS may not be accessible for in excess of twelve months because of continued failed auctions or the inability to find a buyer outside of the auction process, the Company’s other ARS have been classified as long-term investments.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets as of September 30, 2009 (in thousands):

		UBS Put
		Option				ARS
Balance at December 31, 2008		$	6,887				39,613
Sales/Maturities			—				(3,475	)
Total gains or (losses):
Included in other comprehensive income			—				(1,050	)
Included in earnings			(5,075	)			5,075
Balance at September 30, 2009		$	1,812			$	40,163

NOTE 6— NON-MARKETABLE INVESTMENTS

In June 2000, Forrester committed to invest $20.0 million in two technology-related private equity investment funds with capital contributions required to be funded over an expected period of five years. During the three and nine months ended September 30, 2008 Forrester contributed $13,000 and $38,000 to these investment funds, respectively. During the three and nine months ended September 30, 2009 no additional contributions were made. Total cumulative contributions are approximately $19.6 million to date. One of these investments is being accounted for using the cost method and, accordingly, is valued at cost unless an other than temporary impairment in its value occurs or the investment is liquidated. The other investment is being accounted for using the equity method as the investment is a limited partnership and Forrester has an ownership interest in the limited partnership in excess of 5% and, accordingly, Forrester records its share of the investee’s operating results each period. During the three and nine months ended September 30, 2008, gross distributions of approximately $38,000 and $288,000, respectively, were recorded and resulted in gains of $26,000 and $160,000, respectively, in the consolidated statements of income. There were no distributions during the three and nine months ended September 30, 2009. During the three and nine months ended September 30, 2009, Forrester recorded impairments of approximately $268,000 and $1.2 million, respectively, which were included in the consolidated statements of income. During the three months ended September 30, 2008 there were no impairments recorded. During the nine months ended September 30, 2008, the Company recorded impairments of $74,000. During each of the three and nine months ended in both September 30, 2008 and 2009, fund management charges of approximately $84,000 and $252,000, respectively, were included in other income, net in the consolidated statements of income. Fund management charges are recorded as a reduction of the investment’s carrying value.

Forrester has adopted a cash bonus plan to pay bonuses, after the return of invested capital, measured by the proceeds of a portion of its share of net profits from these investments, if any, to certain key employees, subject to the terms and conditions of the plan. The payment of such bonuses would result in compensation expense with respect to the amounts so paid. To date, no bonuses have been paid under this plan. The principal purpose of this cash bonus plan was to retain key employees by allowing them to participate in a portion of the potential return from Forrester’s technology-related investments if they remained employed by the Company. The plan was established at a time when technology and internet companies were growing significantly, and providing incentives to retain key employees during that time was important.

In December 2003, Forrester committed to invest an additional $2.0 million over an expected capital contribution period of 2 years in an annex fund of one of the two private equity investment funds. The annex fund investment is outside of the scope of the previously mentioned bonus plan. As of September 30, 2009, Forrester had contributed

$2.0 million to this fund. This investment is being accounted for using the equity method as the investment is a limited partnership and Forrester has an ownership interest in the limited partnership in excess of 5% and, accordingly, Forrester records its share of the investee’s operating results each period. During the three and nine months ended September 30, 2009, Forrester recorded impairments of approximately $464,000 and $468,000, respectively, which were included in the consolidated statements of income. During the three months ended September 30, 2008 there were no impairments recorded. During the nine months ended September 30, 2008, the Company recorded impairments of $4,000.

The timing of the recognition of future gains or losses from these investment funds is beyond Forrester’s control. As a result, it is not possible to predict when Forrester will recognize any gains or losses, if Forrester will award cash bonuses based on the net profit from such investments, or when Forrester will incur compensation expense in connection with the payment of such bonuses. If the investment funds realize large gains or losses on their investments, Forrester could experience significant variations in its quarterly results unrelated to its business operations. These variations could be due to significant gains or losses or to significant compensation expenses. While gains may offset compensation expenses in a particular quarter, there can be no assurance that related gains and compensation expenses will occur in the same quarters.

NOTE 7 — NET INCOME PER COMMON SHARE

Basic net income per common share was computed by dividing net income by the basic weighted average number of common shares outstanding during the period. Diluted net income per common share was computed by dividing net income by the diluted weighted average number of common 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. A reconciliation of basic to diluted weighted average shares outstanding is as follows:

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2009				2008				2009				2008
		(IN THOUSANDS)
Basic weighted average common shares outstanding			22,561				23,163				22,736				23,056
Weighted average common equivalent shares			248				630				217				599
Diluted weighted average common shares outstanding			22,809				23,793				22,953				23,655
Common equivalent shares excluded from the diluted weighted average share calculation as the effect would have been anti-dilutive			2,247				934				1,995				1,456

NOTE 8 — STOCKHOLDERS’ EQUITY

Comprehensive Income

The components of accumulated other comprehensive loss are as follows (in thousands):

		September 30,				December 31,
		2009				2008
Unrealized gain on marketable investments, net of taxes		$	38			$	365
Cumulative translation adjustment			(1,075	)			(2,150	)
Total accumulated other comprehensive loss		$	(1,037	)		$	(1,785	)

The components of total comprehensive income for the three and nine months ended September 30, 2009 and 2008 are as follows (in thousands):

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2009				2008				2009				2008
Net income		$	4,300			$	6,388			$	13,083			$	20,061
Unrealized gain (loss) on marketable investments, net of taxes			48				(325	)			(330	)			(3,475	)
Cumulative translation adjustment			1,211				(1,711	)			1,078				(1,005	)
Total comprehensive income		$	5,559			$	4,352			$	13,831			$	15,581

Stock Plans

The following table summarizes stock option activity under all stock plans for the nine months ended September 30, 2009 (in thousands, except per share and average life data):

										Weighted
						Weighted				Average
						Average				Remaining
						Exercise				Contractual				Aggregate
		Number				Price Per				Life				Intrinsic
		of Shares				Share				(In Years)				Value
Outstanding as of December 31, 2008			2,934			$	25.16				6.63			$	13,230
Granted			447				24.79
Exercised			(100	)			18.09
Cancelled			(116	)			27.88
Outstanding as of September 30, 2009			3,165			$	25.23				6.50			$	10,079
Exercisable as of September 30, 2009			2,045			$	24.44				5.34			$	8,950

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. Forrester recorded approximately $1.4 million and $1.3 million of stock-based compensation in the accompanying consolidated statements of income for the three months ended September 30, 2009 and 2008, respectively, and $4.9 million and $4.0 million for the nine months ended September 30, 2009 and 2008, respectively, included in the following expense categories (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Cost of services and fulfillment		$	733			$	678			$	2,481			$	2,094
Selling and marketing			274				247				884				723
General and administrative			423				344				1,556				1,156
		$	1,430			$	1,269			$	4,921			$	3,973

On July 1, 2009, Forrester granted to its employees restricted stock units for a total of 93,296 shares of stock. The vesting of the restricted stock units is subject to performance criteria and will vest at 100% or 40% on April 1, 2012, or the restricted stock units could be forfeited, depending on whether specified revenue growth and pro forma operating margin targets related to full year 2011 performance are achieved. As of September 30, 2009, expense was recognized assuming 100% vesting for the three month period then ended.

On April 1, 2008, Forrester issued to its employees options to purchase 370,000 shares of common stock. These options were subject to performance criteria and would vest only if certain pro forma operating profit targets related to full year 2008 performance were achieved. The vesting of these options was over 24, 36 or 48 months, or the options could be forfeited, depending on the actual pro forma operating profit achieved for 2008. At the time of grant, operating performance was expected to result in the options vesting over 48 months. The actual pro forma operating profit for 2008 resulted in accelerated vesting of the options over 24 months and the expense related to

these options was recognized on a graded basis. Based on historical exercise patterns for options with similar vesting and the expected vesting period at the time of grant, Forrester used an expected option term of 2 years for the year one vest, 3 years for the year two vest, 4 years for the year three vest and 5 years for the year four vest to value these options.

On April 2, 2007, Forrester issued to its employees options to purchase 293,600 shares of common stock. These options were subject to performance criteria and would vest only if certain pro forma operating margin targets related to full year 2007 performance were achieved. The vesting of these options was over 24 or 36 months, or the options could be forfeited, depending on the actual pro forma operating margin achieved for 2007. At the time of grant, operating performance was expected to result in the options vesting over 36 months. The actual pro forma operating margin for 2007 resulted in the options vesting over 36 months and the expense related to these options was recognized on a graded basis. Based on historical exercise patterns for options with similar vesting and the expected vesting period at the time of grant, Forrester used an expected option term of 2 years for the year one vest, 3 years for the year two vest and 4 years for the year three vest to value these options.

On April 3, 2006, Forrester issued to its employees options to purchase 587,500 shares of common stock. These options were subject to performance criteria and would vest only if certain pro forma operating margin targets related to full year 2006 performance were achieved. The vesting of these options was over 24 or 36 months, or the options could be forfeited, depending on the actual pro forma operating margin achieved for 2006. At the time of grant, operating performance was expected to result in the options vesting over 36 months. The actual pro forma operating margin for 2006 resulted in accelerated vesting of the options over 24 months and the expense related to these options was recognized on a graded basis. Based on historical exercise patterns for options with similar vesting and the expected vesting period at the time of grant, Forrester used an expected option term of 2 years for the year one vest, 3 years for the year two vest and 4 years for the year three vest to value these options.

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

		3 Months Ended								3 Months Ended
		September 30, 2009								September 30, 2008
						Employee								Employee
						Stock								Stock
		Stock				Purchase				Stock				Purchase
		Plans				Plan				Plans				Plan
Average risk-free interest rate			2.01	%			0.28	%			3.09	%			2.00	%
Expected dividend yield		None				None				None				None
Expected life		3.5 Years				0.5 Years				3.5 Years				0.5 Years
Expected volatility			44	%			44	%			35	%			35	%
Weighted average fair value at grant date		$	8.57			$	6.92			$	9.54			$	7.56

		9 Months Ended								9 Months Ended
		September 30, 2009								September 30, 2008
						Employee								Employee
						Stock								Stock
		Stock				Purchase				Stock				Purchase
		Plans				Plan				Plans				Plan
Average risk-free interest rate			1.85	%			0.29	%			2.60	%			2.50	%
Expected dividend yield		None				None				None				None
Expected life		3.5 Years				0.5 Years				3.5 Years				0.5 Years
Expected volatility			44	%			44	%			35	%			35	%
Weighted average fair value at grant date		$	8.37			$	6.83			$	7.99			$	7.32

The dividend yield of zero is based on the fact that Forrester has never paid cash dividends and has no present intention to pay cash dividends. Expected volatility is based, in part, on the historical volatility of Forrester’s common stock as well as management’s expectations of future volatility over the expected term of the awards granted. The risk-free interest rate used is based on the U.S. Treasury Constant Maturity rate with an equivalent remaining term. Where the expected term of Forrester’s stock-based awards does not correspond with the terms for which the interest rates are quoted, Forrester uses the rate with the maturity closest to the award’s expected term. The expected term calculation is based upon Forrester’s historical experience of exercise patterns.

Based on Forrester’s historical experience as well as management’s expectations for the next year, a forfeiture rate of 10% was used to determine current period expense. Forrester evaluated various employee groups and determined that the forfeiture experience and expectations were not materially different amongst employee groups and therefore concluded that one forfeiture rate was appropriate. Forrester will record additional expense if the actual forfeiture rate is lower than estimated and will record recovery of prior expense if the actual forfeiture rate is higher than estimated.

The total intrinsic value of stock options exercised during the three and nine months ended September 30, 2009 was $215,000 and $588,000, respectively. The total intrinsic value of stock options exercised during the three and nine months ended September 30, 2008 was $3.4 million and $10.1 million, respectively. The unamortized fair value of stock options as of September 30, 2009 was $5.5 million, with a weighted average remaining recognition period of 1.36 years.

NOTE 9 — STOCK REPURCHASE

Through April 2009, the Board of Directors authorized an aggregate $200 million to purchase common stock under the stock repurchase program, including an additional $50 million authorized in April 2009. The shares repurchased may be used, among other things, in connection with Forrester’s employee equity incentive and purchase plans. As of September 30, 2009, Forrester had repurchased approximately 6.8 million shares of common stock at an aggregate cost of approximately $136.1 million.

NOTE 10 – 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 ending December 31, 2009. Certain items such as adjustments to the Company’s tax expense related to the prior fiscal year, changes in tax rates, 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 11 — OPERATING SEGMENT AND ENTERPRISE WIDE REPORTING

Forrester manages its business within three principal client groups (“Client Groups”), with each client group responsible for writing relevant research for the roles within the client organizations on a worldwide basis. The three client groups are: Information Technology Client Group (“IT”), Technology Industry Client Group (“TI”), and the Marketing and Strategy Client Group (“M&S”). All of the Client Groups generate revenues through sales of similar research and advisory and other service offerings targeted at specific roles within their targeted clients. Each of the Client Groups consists of a sales force responsible for selling to clients located within the Client Group’s target client base and research personnel focused primarily on issues relevant to particular roles and to the day-to-day responsibilities of persons within the roles. The results of JupiterResearch (see Note 3) are included in the M&S Client Group since the date of acquisition. Amounts included in the “Other” segment primarily relate to the operations of the events sales and production departments. Revenue reported in the “Other” operating 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 certain selling and marketing expenses, client services, non-cash stock-based compensation expense, general and administrative expenses, depreciation expense,

amortization of intangibles and reorganization costs. 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.

		IT				TI				M&S				Other				Consolidated
Three months ended September 30, 2009
Revenue		$	22,133			$	16,074			$	15,674			$	—			$	53,881
Direct Margin			10,565				8,600				6,682				(895	)			24,952
Corporate expenses																			(16,563	)
Amortization of intangible assets																			(439	)
Income from operations																		$	7,950
Three months ended September 30, 2008
Revenue		$	24,851			$	17,809			$	15,407			$	1,439			$	59,506
Direct Margin			11,391				9,520				5,323				228				26,462
Corporate expenses																			(17,585	)
Amortization of intangible assets																			(282	)
Income from operations																		$	8,595

		IT				TI				M&S				Other				Consolidated
Nine months ended September 30, 2009
Revenue		$	68,892			$	49,795			$	46,714			$	6,465			$	171,866
Direct Margin			32,553				26,579				17,647				1,659				78,438
Corporate expenses																			(53,334	)
Amortization of intangible assets																			(1,751	)
Income from operations																		$	23,353
Nine months ended September 30, 2008
Revenue		$	74,314			$	52,015			$	42,067			$	9,558			$	177,954
Direct Margin			32,715				27,141				14,617				4,096				78,569
Corporate expenses																			(52,525	)
Amortization of intangible assets																			(476	)
Income from operations																		$	25,568

Revenues by geographic client location and as a percentage of total revenues are as follows:

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2009				2008				2009				2008
		(IN THOUSANDS)
United States		$	37,709			$	42,901			$	121,427			$	127,652
Europe (excluding United Kingdom)			7,120				7,301				22,757				23,472
United Kingdom			3,525				3,593				10,781				10,294
Canada			3,195				3,461				10,217				9,854
Other			2,332				2,250				6,684				6,682
		$	53,881			$	59,506			$	171,866			$	177,954

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2009				2008				2009				2008
United States			70	%			72	%			71	%			72	%
Europe (excluding United Kingdom)			13				12				13				13
United Kingdom			7				6				6				6
Canada			6				6				6				5
Other			4				4				4				4
			100	%			100	%			100	%			100	%

NOTE 12 — SUBSEQUENT EVENTS EVALUATION

Management has reviewed and evaluated material subsequent events from the balance sheet date of September 30, 2009 through the financial statements issue date of November 6, 2009. All appropriate subsequent event disclosures, if any, have been made in notes to our unaudited interim consolidated financial statements.

NOTE 13 — STOCK OPTION INVESTIGATION; RESTATEMENT OF HISTORICAL FINANCIAL STATEMENTS

During the three and nine months ended September 30, 2008, the Company incurred expenses of $487,000 and $1.1 million related to the stock option investigation and restatement of the Company’s historical financial statements, respectively. During the three and nine months ended September 30, 2009, there were no expenses incurred related to the stock option investigation and restatement of the Company’s historical financial statements.

NOTE 14 — RECENT ACCOUNTING PRONOUNCEMENTS

Adopted Accounting Pronouncements

Effective July 1, 2009, the Company adopted The “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles (ASC 105). This standard establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and nonauthoritative. The FASB Accounting Standards Codification (the “Codification”) became the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification became nonauthoritative. The Company began using the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the third quarter of fiscal 2009. As the Codification was not intended to change or alter existing GAAP, it did not have any impact on the Company’s consolidated financial statements.

Effective April 1, 2009, the Company adopted three accounting standard updates which were intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities. They also provide additional guidelines for estimating fair value in accordance with fair value accounting. The first update, as codified in ASC 820-10-65, provides additional guidelines for estimating fair value in accordance with fair value accounting. The second accounting update, as codified in ASC 320-10-65, changes accounting requirements for other-than-temporary-impairment (OTTI) for debt securities by replacing the current requirement that a holder have the positive intent and ability to hold an impaired security to recovery in order to conclude an impairment was temporary with a requirement that an entity conclude it does not intend to sell an impaired security and it will not be required to sell the security before the recovery of its amortized cost basis. The third accounting update, as codified in ASC 825-10-65, increases the frequency of fair value disclosures. These updates were effective for fiscal years and interim periods ended after June 15, 2009. The adoption of these accounting updates did not have any impact on the Company’s consolidated financial statements.

Effective April 1, 2009, the Company adopted a new accounting standard for subsequent events, as codified in ASC 855-10. The update modifies the names of the two types of subsequent events either as recognized subsequent events (previously referred to in practice as Type I subsequent events) or non-recognized subsequent events (previously referred to in practice as Type II subsequent events). In addition, the standard modifies the definition of subsequent events to refer to events or transactions that occur after the balance sheet date, but before the financial statements are issued (for public entities) or available to be issued (for nonpublic entities). It also requires the disclosure of the date through which subsequent events have been evaluated. The update did not result in significant changes in the practice of subsequent event disclosures, and therefore the adoption did not have any impact on the Company’s consolidated financial statements.

Effective January 1, 2009, the Company adopted an accounting standard update regarding the determination of the useful life of intangible assets. As codified in ASC 350-30-35, this update amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under intangibles accounting. It also requires a consistent approach between the useful life of a recognized intangible asset under prior business combination accounting and the period of expected cash flows used to measure the fair value of an asset under the new business combinations accounting (as currently codified under ASC 850). The update also requires enhanced disclosures when an intangible asset’s expected future cash flows are affected by an entity’s intent and/or ability to renew or extend the arrangement. The adoption did not have any impact on the Company’s consolidated financial statements.

In February 2008, the FASB issued an accounting standard update that delayed the effective date of fair value measurements accounting for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the first quarter of fiscal 2009. These include goodwill and other non-amortizable intangible assets. The Company adopted this accounting standard update effective January 1, 2009. The adoption of this update to non-financial assets and liabilities, as codified in ASC 820-10, did not have any impact on the Company’s consolidated financial statements.

Effective January 1, 2009, the Company adopted a new accounting standard update regarding business combinations. As codified under ASC 805, this update requires an entity to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred; that restructuring costs generally be expensed in periods subsequent to the acquisition date; and that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of provision for taxes. The adoption did not have a material impact on the Company’s consolidated financial statements.

New Accounting Pronouncements

In September 2009, the FASB issued Update No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13). It updates the existing multiple-element revenue arrangements guidance currently included under ASC 605-25, which originated primarily from the guidance in EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21). The revised guidance primarily provides two significant changes: 1) 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, and 2) eliminates the residual method to allocate the arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. ASU 2009-13 will be effective for the first annual reporting period beginning on or after June 15, 2010, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. The Company is currently assessing the future impact of this new accounting update to its consolidated financial statements.

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 and the success of and demand for our research and advisory products and services. 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 respond to business and economic conditions, particularly in light of the global economic downturn, technology spending, market trends, competition, the ability to attract and retain professional staff, possible variations in our quarterly operating results, any cost

savings related to reductions in force and associated actions, risks associated with our ability to offer new products and services and our dependence on renewals of our membership-based research services and on key personnel. These risks are described more completely in our Annual Report on Form 10-K for the year ended December 31, 2008. 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 product offerings and from our advisory services and 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 are initially recorded as deferred revenue and are recognized as revenue when the customer receives the agreed upon deliverable. Event billings are also initially recorded as deferred revenue and are recognized as revenue upon completion of each event. Consequently, changes in the number and value of client contracts, both net decreases as well as net increases, impact our revenues and other results over a period of several months.

Our primary operating expenses consist of cost of services and fulfillment, selling and marketing expenses, general and administrative expenses, depreciation, and amortization of intangible assets. Cost of services and fulfillment represents the costs associated with the production and delivery of our products and services, and it includes the costs of salaries, bonuses, and related benefits for research personnel, non-cash stock-based compensation expense and all associated editorial, travel, and support services. Selling and marketing expenses include salaries, sales commissions, employee benefits, travel expenses, non-cash stock-based compensation expense, 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 strategy groups and our other administrative functions, including salaries, bonuses, employee benefits and non-cash stock-based compensation expense. Overhead costs are allocated over these categories according to the number of employees in each group. Amortization of intangible assets represents the cost of amortizing acquired intangible assets such as customer relationships.

Reorganization costs relate to severance and related benefits costs incurred in connection with the termination of positions and to lease loss costs.

The Company’s results of operations for the three and nine months ended September 30, 2009 include the operations of JupiterResearch, acquired July 31, 2008. The results of FME’s operations have been included in the Company’s results of operations since the date of acquisition, January 22, 2009.

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. Deferred revenue reflects billings in advance of revenue recognition as of the measurement date. We calculate agreement value as 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. No single client accounted for more than 2% of agreement value at September 30, 2009 or 2008. We calculate client retention as the percentage of client companies with memberships expiring during the most recent twelve-month period who renewed one or more of those memberships during that same period. We calculate dollar retention as a 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. We calculate enrichment as a percentage of the dollar value of client membership contracts renewed during the 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:

		As of
		September 30,								Absolute				Percentage
		2009				2008				Decrease				Decrease
Deferred Revenue (dollars in millions)		$	93.5			$	98.1				(4.6	)			(5	)%
Agreement Value (dollars in millions)		$	183.5			$	216.2				(32.7	)			(15	)%
Client Retention			72	%			77	%			(5	)			(6	)%
Dollar Retention			82	%			87	%			(5	)			(6	)%
Enrichment			97	%			108	%			(11	)			(10	)%
Number of clients			2,505				2,718				(213	)			(8	)%

The decrease in deferred revenue, agreement value, client retention, dollar retention, enrichment and the number of clients is reflective of the more difficult economic environment.

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, non-cash stock-based compensation, allowance for doubtful accounts, non-marketable investments, goodwill and other intangible assets, taxes and valuation and impairment of marketable investments. Management bases its estimates on historical experience 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. Our critical accounting policies and estimates are described in our Annual Report on Form 10-K for the year ended December 31, 2008.

RESULTS OF OPERATIONS

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

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2009				2008				2009				2008
Research services			72	%			68	%			68	%			64	%
Advisory services and other			28				32				32				36
Total revenues			100				100				100				100
Cost of services and fulfillment			36				37				37				37
Selling and marketing			34				34				33				34
General and administrative			13				13				12				13
Reorganization costs			—				—				2				—
Depreciation			2				2				2				2
Amortization of intangible assets			1				—				1				—
Income from operations			14				14				13				14
Other income, net			1				3				1				3
(Impairments) gains from marketable and non-marketable investments, net			(1	)			—				(1	)			1
Net income before income tax provision			14				17				13				18
Income tax provision			6				6				6				7
Net income			8	%			11	%			7	%			11	%

THREE MONTHS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008

REVENUES.

		THREE MONTHS
		ENDED								Absolute				Percentage
		SEPTEMBER 30,								Increase				Increase
		2009				2008				(Decrease)				(Decrease)
Revenues (in millions)		$	53.9			$	59.5			$	(5.6	)			(9	)%
Revenues from research services (in millions)		$	38.9			$	40.3			$	(1.4	)			(3	)%
Advisory services and other revenues (in millions)		$	15.0			$	19.2			$	(4.2	)			(22	)%
Revenues attributable to customers outside of the United States (in millions)		$	16.2			$	16.6			$	(0.4	)			(2	)%
Revenues attributable to customers outside of the United States as a percentage of total revenues			30	%			28	%			2				7	%
Number of clients (at end of period)			2,505				2,718				(213	)			(8	)%
Number of research employees (at end of period)			372				410				(38	)			(9	)%
Number of events			1				2				(1	)			(50	)%

The decrease in total revenues is principally the result of the global economic slowdown which has resulted in lower client and dollar retention and to a lesser extent the adverse impact of foreign exchange. The decrease in advisory services and other revenues is primarily the result of a softer overall events performance, the global economic slowdown and our objective to drive a higher percentage of our total revenues from research services. In 2008, the Company modified its sales compensation plan for greater alignment with this objective. The decrease in research services is due to the global economic slowdown. The effects of foreign currency translation resulted in an approximately 2% decrease in total revenues in the three months ended September 30, 2009 as compared with the three months ended September 30, 2008. The increase in international revenues as a percentage of total revenues is primarily attributable to revenues declining at a slower rate internationally than in the United States.

No single client company accounted for more than 2% of revenues during the three months ended September 30, 2009 or 2008.

COST OF SERVICES AND FULFILLMENT.

		THREE MONTHS ENDED
		SEPTEMBER 30,								Absolute				Percentage
		2009				2008				Decrease				Decrease
Cost of services and fulfillment (in millions)		$	19.2			$	21.8			$	(2.6	)			(12	)%
Cost of services and fulfillment as a percentage of total revenues			36	%			37	%			(1	)			(3	)%
Number of research and fulfillment employees (at end of period)			449				501				(52	)			(10	)%

The decrease in cost of services and fulfillment in dollars and as a percentage of total revenues is primarily due to decreased compensation and benefits costs resulting from a decrease in the number of research and fulfillment employees as well as to reduced discretionary expense spending.

SELLING AND MARKETING.

		THREE MONTHS ENDED
		SEPTEMBER 30,								Absolute				Percentage
		2009				2008				Decrease				Decrease
Selling and marketing expenses (in millions)		$	18.1			$	20.3			$	(2.2	)			(11	)%
Selling and marketing expenses as a percentage of total revenues			34	%			34	%			—				—
Number of selling and marketing employees (at end of period)			368				415				(47	)			(11	)%

The decrease in selling and marketing expenses in dollars is primarily due to a decrease in compensation and benefits costs resulting from a decrease in the number of selling and marketing employees as well as to a decrease in sales commissions associated with lower overall performance by sales employees under our sales compensation plan in the three months ended September 30, 2009 as compared with the three months ended September 30, 2008.

GENERAL AND ADMINISTRATIVE.

		THREE MONTHS ENDED
		SEPTEMBER 30,								Absolute				Percentage
		2009				2008				Decrease				Decrease
General and administrative expenses (in millions)		$	7.1			$	7.5			$	(0.4	)			(5	)%
General and administrative expenses as a percentage of total revenues			13	%			13	%			—				—
Number of general and administrative employees (at end of period)			143				152				(9	)			(6	)%