Marketable Investments

9 Months Ended

Sep. 30, 2011

Note 4 — Marketable Investments

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


			Gross		Gross
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
September 30, 2011
Available-for-sale securities
State and municipal obligations	$	10,828	$	11	$	(6	)		10,833
Federal agency and corporate obligations		128,458		169		(427	)		128,200

Total short-term available-for-sale securities		139,286		180		(433	)		139,033
ARS, long-term		11,000		—		(1,461	)		9,539

Total available-for-sale securities	$	150,286	$	180	$	(1,894	)	$	148,572


			Gross		Gross
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
December 31, 2010
Available-for-sale securities
State and municipal obligations	$	12,011	$	23	$	(25	)	$	12,009
Federal agency and corporate obligations		107,669		483		(171	)		107,981

Total short-term available-for-sale securities		119,680		506		(196	)		119,990
ARS, long-term		11,000		—		(1,883	)		9,117

Total available-for-sale securities	$	130,680	$	506	$	(2,079	)	$	129,107

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

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


	FY 2011		FY 2012		FY2013		Thereafter		Total
Federal agency and corporate obligations	$	21,285	$	57,713	$	48,194	$	1,008	$	128,200
State and municipal obligations		5,133		5,700		—		—		10,833
ARS				—		—		9,539		9,539

Total	$	26,418	$	63,413	$	48,194	$	10,547	$	148,572

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


	As of September 30, 2011
	Less Than 12 Months				12 Months or Greater
	Market		Unrealized		Market		Unrealized
	Value		Losses		Value		Losses
State and municipal bonds	$	1,113	$	6	$	—	$	—
Federal agency and corporate obligations		67,015		427		—		—
ARS		—		—		9,539		1,461

Total	$	68,128	$	433	$	9,539	$	1,461


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

Total	$	49,186	$	196	$	9,117	$	1,883

Fair Value

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

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

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

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

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


	As of September 30, 2011
	Level 1		Level 2		Level 3		Total
Money market funds (1)	$	4,364	$	—	$	—	$	4,364
Federal agency and corporate obligations (2)		—		138,027		—		138,027
State and municipal obligations		—		10,834		9,538		20,372

Total	$	4,364	$	148,861	$	9,538	$	162,763


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

Total	$	25,222	$	119,990	$	9,117	$	154,329


(1)		Included in cash and cash equivalents.

(2)		$9.8 million included in cash and cash equivalents as original maturities at the time of purchase were 90 days or less.

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

Level 3 assets at September 30, 2011 consist entirely of municipal bonds with an auction reset feature (ARS). Prior to 2008, the fair value of the ARS investments approximated par value due to the frequent resets through the auction process. While the Company continues to earn interest on its ARS investments at the contractual rate, these investments trade infrequently and therefore do not have a readily determinable market value. Accordingly, the estimated fair value of the ARS no longer approximates par value. At September 30, 2011, the Company held ARS with one investment advisor. The Company values the ARS using a discounted cash flow model that includes estimates of interest rates, timing and amount of cash flows, credit and liquidity premiums and expected holding periods of the securities, which is considered a Level 3 valuation. The valuation resulted in an unrealized loss recorded in other comprehensive loss in the Consolidated Balance Sheets of $1.5 million at September 30, 2011 and $1.9 million at December 31, 2010. The Company believes that the loss is temporary due to the strong underlying credit rating of the securities and the fact that the Company does not intend to sell the securities and is not likely to be required to sell the securities. The assumptions used in valuing the ARS are volatile and subject to change as the underlying sources of these assumptions and market conditions change.

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

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


	ARS
Balance at December 31, 2010	$	9,117
Sales/Maturities		—
Total gains (losses):
Included in other comprehensive income		422
Included in earnings		—
Balance at September 30, 2011	$	9,539


	UBS
	Right			ARS
Balance at December 31, 2009	$	2,100		$	39,525
Sales/Maturities		—			(31,675	)
Total gains (losses):
Included in other comprehensive income		—			(16	)
Included in earnings		(2,100	)		2,100

Balance at September 30, 2010	$	—		$	9,934