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## Bonus Expense 

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Bonus expense, which we include in each of our operating expense categories, increased $16.3 million in 2010 after declining $28.9 million in 2009. We reduced our bonus expense in 2009 as part of our efforts to better align our cost structure with revenue in the challenging business environment. In 2010, we reinstated a portion of the bonus expense that was previously reduced. Bonus expense for newly acquired operations also contributed to the increase, but to a lesser extent. 

Overall, bonus expense as a percentage of revenue increased about 2.3 percentage points in 2010 and represents about 6.7% of revenue. In 2009, bonus expense declined to 4.4% of revenue, compared with 9.9% in 2008. The significant reduction in bonus expense also reflects a slowdown in our financial performance in 2009 compared with 2008. Prior to 2009, bonus expense represented approximately 10% to 12% of revenue. 

The amount of bonus expense is not a fixed cost. Instead, the size of the bonus pool varies each year based on a number of items, including changes in full-year operating income relative to the pre- vious year and other factors. We review and update our estimates and the bonus pool size quarterly. We record bonus expense through- out the year and pay out annual bonuses to employees in the first quarter of the following year. 

## Consolidated Operating Income 

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Consolidated operating income fell $3.6 million in 2010. While rev- enue increased $76.4 million, our cost base rose more, leading to lower operating income. The decline in operating income reflects higher incentive compensation, including higher bonus expense and sales commissions, modest compensation increases during the second half of 2010, and reinstating some of the employee benefits and other expenses we reduced in 2009. In 2010, costs rose across all of our operating expense categories, with the exception of a $9.5 million operating expense recorded in 2009 that did not recur in 2010. 

With operating expense increasing more than revenue, our operat- ing margin was 4.2 percentage points lower in 2010. The margin decline mainly reflects higher compensation, bonuses, sales com- missions, and employee benefits as a percentage of revenue. The loss of revenue from GARS also had a negative effect on margins. Acquisitions represented approximately 2 percentage points of the margin decline for the year. 

Consolidated operating income decreased $14.2 million in 2009, as the $23.5 million decline in revenue was partially offset by a $9.3 million reduction in operating expense. We took a number of steps to reduce our cost structure in 2009—mainly by reducing employee benefit costs and bonus expense. We reduced our single largest discretionary cost, bonus expense, by $28.9 million, with changes to the bonus plan in 2009. We also suspended matching contribu- tions to our 401(k) program in the United States, which accounted for about $6.6 million of expense in 2008. 

While we reduced operating expense in several areas with these cost-savings initiatives, we also recorded a total of $9.5 million of unanticipated expense for two separate matters, including $6.1 million of operating expense related to adjusting the tax treatment of incentive stock options granted in previous years and $3.4 million of operating expense for penalties related to the timing of deposits for taxes withheld on stock-option exercises. 

