corresp
June 27, 2006
via EDGAR
Nili Shah
Accounting Branch Chief
United States Securities and Exchange Commission
100 F Street, N.W.
Washington, D.C. 20549-7010
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Re:
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Forrester Research, Inc.
Form 10-K for the fiscal year ended December 31, 2005
Forms 10-Q for the quarters ended March 31, 2006 |
Dear Ms. Shah:
We are in receipt of your letter of June 14, 2006 in which you note that you have reviewed our
filings. Our responses to your comments follow below.
Form 10-K for the period ended December 31, 2005
Comment #1:
Revenue Recognition, page F-8
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With reference to your licensing research revenue, tell us what consideration you have given
to EITF 00-3 Application of AICPA Statement of Position 97-2 to Arrangements That Include
the Right to Use Software Stored on Another Entitys Hardware. Address the appropriateness of
your revenue recognition in light of this guidance. Clarify whether your customers take
possession of your software or if your software application resides on your or a third partys
hardware, with your customer accessing and using the software on as needed basis over the
Internet or via a dedicated line (hosting). |
Response:
Our existing product offerings do not include any software. We license the right to read our
research through subscriptions that allow clients to access Forresters research content for a
specified period of time through our company website. As we do not sell software or a software
application, the provisions contained in EITF 00-3 Application of AICPA Statement of Position
97-2 to Arrangements That Include the Right to Use Software Stored on Another Entitys Hardware are
not applicable.
Comment #2:
2. With reference to paragraph 7 of EITF 00-3, tell us supplementally and revise your disclosures
to clarify how you account for software development costs.
Response:
As discussed in our response to comment number 1, Forrester does not currently develop software to
be sold as part of our product offerings. The costs associated with maintaining and enhancing our
website are accounted for under the provisions contained in EITF 00-2 Accounting for Website
Development Costs. The costs of the website in the planning and operating stages as defined by
EITF 00-2 are expensed to operations as they are incurred. The majority of our website enhancement
costs are internal and cannot be reasonably separated from the on-going maintenance costs. As a
result, these internal costs are expensed as incurred. We do not incur set up costs related to
new customers nor do we charge set up fees to our clients. Accordingly, no disclosure revision is
necessary.
Comment #3:
3. We note your statement, In certain cases, where estimates of fair value cannot be made for
events or advisory services, the amounts are recognized ratably and included in research services
revenues. Please provide us with sufficiently detailed information so that we may fully
understand the appropriateness of your revenue recognition policy for these certain cases. With
reference to EITF 00-21, address the following:
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You indicated that the amounts are recognized ratably. Tell us supplementally
and revise your disclosures to clarify what the amounts refer to. Does this relate
to the entire contract value or the residual values associated with the events and/or
advisory services portion of the contract. |
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Tell us supplementally and revise your disclosure to clarify whether the events
and/or advisory services are delivered or undelivered units. |
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Address whether recognizing amounts ratably could result in recognizing revenue
prior to you hosting the event or performing the advisory services. If so clarify why
you believe this method of recognizing revenue is appropriate. |
Response:
Forresters products include access to written research, access to analysts and attendance at
events. These products can be purchased in one of three ways: separately as individual items, in
a customer specific package or through a standard annual membership. The portion of our revenue
recognition footnote, which is referred to in the comment above, is related to revenue recognition
for standard annual memberships. Revenue recognition related to the other two ways that services
can be purchased is
addressed in the beginning of the revenue recognition section of our accounting policies footnote.
When a customer purchases a standard annual membership (a member seat) they are purchasing certain
access to our research, certain advisory services (unlimited phone or e-mail analyst inquiry and
unlimited attendance to our Forrester Teleconferences) as well as access to one of Forresters
events at the customers option. The amounts we are referring to in our footnote are related to
the certain advisory services and the event seat included in the standard annual membership.
Furthermore, customers who purchase standard annual memberships are entitled to refunds for the
pro-rata portion of the entire amount paid for the annual membership if they decide to terminate
the agreement prior to the end of the stated annual term, regardless of whether or not any advisory
services had been delivered or the one event seat had been used.
As a result of the refund provision included in a standard annual membership arrangement, and due
to the lack of objective and reliable evidence of fair value for the unlimited advisory services
included in the standard annual membership arrangement, the fact that such advisory services are
generally rendered throughout the annual membership period, and the relatively de minimus nature
and amount related to the one event seat included in the standard annual membership, we concluded
the revenue for the entirety of the standard annual membership arrangement should be recognized
ratably since the overall arrangement was tantamount to a subscription.
In future
filings, we will amend the relevant portion of the revenue
recognition paragraph of our accounting policies
footnote, and the related disclosure in Managements Discussion
and Analysis, to say the following:
Forrester generates revenues from licensing research, performing advisory services and
hosting events. Forrester executes contracts that govern the terms and conditions of each
arrangement. Revenues from contracts that contain multiple deliverables are allocated among
the separate units based on their relative fair values; however, the amount recognized is
limited to the amount that is not contingent on future performance conditions. Research
services revenues are recognized ratably over the term of the agreement. Advisory services
are recognized during the period in which the services are performed. Events revenues are
recognized upon completion of the events. In certain cases, where access to advisory
services and access to an event seat are included as part of a standard annual membership
package, the membership is treated as one unit of accounting and is recognized ratably over
the membership period.
Comment #4
4. We note that advisory services are recognized during the period in which the services are
performed. Clarify supplementally and revise your disclosures to clarify what you
mean. We assume you are using an output-based approach such as a proportional performance model as
contemplated under SAB 101. If not, tell us how you measure performance for the purpose of
recognizing revenue and provide support for such measurement. Please note that it is generally our
belief that a cost-to-cost approach to revenue recognition is not appropriate outside of the scope
of SOP 81-1 since it rarely gives a good estimate of proportional performance.
Response:
For advisory services revenue, we use an output-based approach. Upon delivery of the service,
Forrester recognizes revenue. Deliverables come in several formats. A few examples to clarify
are as follows:
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For speeches, the revenue is recognized when the speech is delivered. |
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For inquiries (a question related to a piece of written research), the revenue is
recognized upon response via telephone or e-mail. |
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For strategy days (a full day brainstorming session with a client regarding an issue
that we have written research on), the revenue is recognized after the analyst has
completed the session. |
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For custom research projects (which generally take 7-10 days to complete), revenue is
recognized based on when the specific project deliverables (preliminary findings,
discussion sessions, PowerPoint presentations) are delivered to the client. |
In future filings we will clarify that revenue for advisory services is recognized when the
customer receives the agreed upon deliverable.
We trust this letter is responsive to your comments. If you have any further questions, please do
not hesitate to contact me.
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Sincerely,
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/s/ Warren Hadley
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Warren Hadley |
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Chief Financial Officer |
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cc: Tracey McKoy, Staff Accountant