<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended September 30, 1998.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number: 000-21433
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FORRESTER RESEARCH, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2797789
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1033 Massachusetts Avenue
Cambridge, Massachusetts 02138
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 497-7090
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 [X] No [ ]
As of November 4, 1998, 8,578,556 shares of the registrant's common stock
were outstanding.
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FORRESTER RESEARCH, INC.
INDEX TO FORM 10-Q
Page
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets at September 30, 1998 and
December 31, 1997 3
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION 14
ITEM 1. Legal Proceedings 14
ITEM 2. Changes in Securities 14
ITEM 3. Defaults Upon Senior Securities 14
ITEM 4. Submission of Matters to a Vote of Security-Holders 14
ITEM 5. Other Information 14
ITEM 6. Exhibits and Reports on Form 8-K 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FORRESTER RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,186 $ 7,742
Marketable securities 55,450 47,172
Accounts receivable, net 16,508 11,193
Deferred commissions 2,026 1,368
Prepaid income taxes -- 520
Prepaid expenses and other current assets 2,464 1,052
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Total current assets 81,634 69,047
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Property and equipment, net 7,877 4,489
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Total assets $89,511 $73,536
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,432 $ 1,273
Customer deposits 291 279
Accrued expenses 4,090 3,661
Accrued income taxes 924 623
Deferred revenue 33,707 27,074
Deferred income taxes 329 121
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Total current liabilities 40,773 33,031
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STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value
Authorized--500,000 shares
Issued and outstanding--none -- --
Common stock, $.01 par value
Authorized--25,000,000 shares
Issued and outstanding--8,561,717 shares and 8,391,829
shares at September 30, 1998 and December 31, 1997, respectively 86 84
Additional paid-in capital 37,480 34,353
Retained earnings 10,842 6,008
Unrealized gain on marketable securities 330 60
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Total stockholders' equity 48,738 40,505
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Total liabilities and stockholders' equity $89,511 $73,536
======= =======
</TABLE>
See accompanying notes.
3
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<TABLE>
<CAPTION>
FORRESTER RESEARCH, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUES:
Core research $12,354 $ 8,033 $34,026 $21,332
Advisory services and other 2,716 2,084 9,219 6,082
------- ------- ------- -------
Total revenues 15,070 10,117 43,245 27,414
------- ------- ------- -------
OPERATING EXPENSES:
Cost of services and fulfillment 5,212 3,383 15,822 9,381
Selling and marketing 5,194 3,516 15,039 9,942
General and administrative 1,647 1,214 4,846 3,049
Depreciation and amortization 760 348 1,939 853
------- ------- ------- -------
Total operating expenses 12,813 8,461 37,646 23,225
------- ------- ------- -------
Income from operations 2,257 1,656 5,599 4,189
OTHER INCOME 765 586 2,196 1,813
------- ------- ------- -------
Income before income tax provision 3,022 2,242 7,795 6,002
INCOME TAX PROVISION 1,148 910 2,961 2,437
------- ------- ------- -------
Net income $ 1,874 $ 1,332 $ 4,834 $ 3,565
======= ======= ======= =======
BASIC NET INCOME PER COMMON SHARE $ 0.22 $ 0.16 $ 0.57 $ 0.43
======= ======= ======= =======
DILUTED NET INCOME PER COMMON SHARE $ 0.20 $ 0.15 $ 0.52 $ 0.40
======= ======= ======= =======
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,555 8,359 8,495 8,323
======= ======= ======= =======
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,491 8,901 9,358 8,804
======= ======= ======= =======
</TABLE>
See accompanying notes.
4
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<TABLE>
<CAPTION>
FORRESTER RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,834 $ 3,565
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 1,939 853
Deferred income taxes 208 (130)
Accretion of discount on marketable securities -- (429)
Unrealized loss on available-for-sale securities 270 (8)
Changes in assets and liabilities
Accounts receivable (5,315) (4,062)
Deferred commissions (658) 173
Prepaid expenses and other current assets (892) (905)
Accounts payable 159 (100)
Customer deposits 13 310
Accrued expenses 428 29
Accrued income taxes 301 (227)
Deferred revenue 6,633 6,427
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Net cash provided by operating activities 7,920 5,496
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (5,328) (2,642)
Purchase of marketable securities (244,175) (216,529)
Proceeds from sales and maturities of marketable securities 235,898 180,591
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Net cash used in investing activities (13,605) (38,580)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Tax effect of stock options 856 --
Net proceeds of stock options exercised and employee
stock purchase plan 2,273 598
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Net cash provided by financing activities 3,129 598
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NET DECREASE IN CASH AND CASH EQUIVALENTS (2,556) (32,486)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,742 34,382
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,186 $ 1,896
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 770 $ 2,865
========= =========
</TABLE>
See accompanying notes.
5
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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 generally accepted accounting principles 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 of Forrester Research, Inc. (the "Company") as
reported in the Company's Annual Report on Form 10-K for the year ended December
31, 1997. 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 at the dates and for
the periods presented have been included. The consolidated balance sheet
presented as of December 31, 1997 has been derived from the consolidated
financial statements that have been audited by the Company's independent public
accountants. The results of operations for the quarter and nine months ended
September 30, 1998 may not be indicative of the results that may be expected for
the year ended December 31, 1998, or any other period.
Note 2 - Earnings Per Share
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. This
statement established standards for computing and presenting earnings per share
and applies to entities with publicly traded common stock or potential common
stock. This statement is effective for fiscal years ending after December 15,
1997. In February 1998, the SEC issued Staff Accounting Bulletin (SAB) No. 98.
This bulletin revises the SEC's guidance for calculating earnings per share with
respect to equity security issuances before an initial public offering (IPO) and
is effective for fiscal years ending after December 15, 1997. Accordingly, the
prior years' weighted average common shares outstanding and net income per
common share have been retroactively restated to reflect the adoption of
SFAS No. 128 and SAB No. 98.
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 stock
equivalents consist of common stock issuable on the exercise of outstanding
options. Reconciliation of basic to diluted weighted average shares outstanding
are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic weighted average common shares outstanding 8,555 8,359 8,495 8,323
Weighted average common equivalent shares 936 542 863 481
----- ----- ----- -----
Diluted weighted average shares outstanding 9,491 8,901 9,358 8,804
----- ----- ----- -----
</TABLE>
As of September 30, 1998 and 1997, 357,500 and 71,773 stock options,
respectively, were not included in diluted weighted average shares outstanding
as the effect would have been anti-dilutive.
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Note 3 - Comprehensive Income
Comprehensive income for the three-month periods ended September 30, 1998 and
1997 was approximately $2,113,000 and $1,395,000, respectively. The difference
between comprehensive income and net income relates to unrealized gains on
marketable securities.
Note 4 - New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP No. 98-1 requires
certain computer software costs associated with internal-use software to be
expensed as incurred until certain capitalization criteria are met. The Company
will adopt SOP No. 98-1 prospectively beginning January 1, 1999. Adoption of
this Statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
In April 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of Start-Up
Activities. SOP No. 98-5 requires all costs associated with pre-opening,
pre-operating, and organization activities to be expensed as incurred. The
Company will adopt SOP No. 98-5 beginning January 1, 1999. Adoption of this
Statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
7
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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 are based on the Company's 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 results to differ materially from those indicated by
forward-looking statements include, among others, the need to attract and retain
professional staff, management of growth, variability of quarterly operating
results, possible volatility of stock price, dependence on renewals of
membership-based research services, dependence on key personnel, risks
associated with anticipating market trends, year 2000 readiness, new products
and services, and competition. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events, or otherwise.
Forrester Research, Inc. ("Forrester" or the "Company") is a leading
independent research firm offering products and services that help its clients
assess the effect of technology on their businesses. The Company provides
analysis and insight into a broad range of technology areas such as computing,
software, networking, the Internet, and telecommunications, and projects how
technology trends will impact businesses, consumers, and society. Forrester's
clients, which include senior management, business strategists, and information
technology ("IT") and marketing professionals within large enterprises, use
Forrester's prescriptive research to understand and benefit from current
developments in technology and as support for their development and
implementation decisions.
Memberships to Forrester's Strategy Research Services and Quantitative
Research Service ("Research Services") are renewable contracts, typically annual
and payable in advance. Accordingly, a substantial portion of the Company's
billings are initially recorded as deferred revenue. Strategy Research Services
revenues are recognized pro rata on a monthly basis over the contract period.
Quantitative Research Services revenues are recognized upon delivery of the
research. The Company's other revenues are derived from advisory services
rendered pursuant to Forrester's Partners Program and Strategy Review Program
and in conjunction with Quantitative Research and from Forrester Forums
("Forums"). The Company's advisory service clients purchase such services
together with core research memberships to Research Services, and the contracts
are also generally payable in advance. Billings attributable to advisory
services are initially recorded as deferred revenue and recognized as revenue
when performed. Similarly, Forum billings are initially recorded as deferred
revenue and are recognized as revenue upon completion of each event.
The Company's operating expenses consist of cost of services and
fulfillment, selling and marketing expenses, general and administrative
expenses, and depreciation and amortization. Cost of services and fulfillment
represent the costs associated with production and delivery of the Company's
products and services, and include the costs of salaries, bonuses, and related
benefits for research personnel, and all associated editorial, travel, and
support services. Selling and marketing expenses include salaries, employee
benefits, travel expenses, promotional costs, sales commissions, and other costs
incurred in marketing and selling the Company's products and services. General
and administrative expenses include the costs of the finance, operations,
technology, and strategy groups, and other administrative functions of the
Company.
The Company believes that the "agreement value" of contracts to purchase
core research and advisory services provides a significant measure of the
Company's business volume. Forrester calculates agreement value as the total
revenues recognizable from all core research and advisory service contracts in
force at a given time without regard to how much revenue has already been
recognized. Agreement value increased 30% to $60.6 million at September 30, 1998
from $46.6 million at December 31, 1997. No single client company accounted for
more than 3% of agreement value at September 30, 1998. The Company's experience
is that a substantial portion of client companies renew expiring contracts for
8
<PAGE> 9
an equal or higher level of total core research and advisory service fees each
year. Approximately 76% of Forrester's client companies with memberships
expiring during the 12 month period ended September 30, 1998 renewed one or more
memberships for the Company's products and services. This renewal rate is not
necessarily indicative of the rate of future retention of the Company's revenue
base.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
total revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Core research 82% 79% 79% 78%
Advisory services and other 18 21 21 22
--- --- --- ---
Total revenues 100 100 100 100
Cost of services and fulfillment 35 34 37 34
Selling and marketing 34 35 35 37
General and administrative 11 12 11 11
Depreciation and amortization 5 3 4 3
--- --- --- ---
Income from operations 15 16 13 15
Interest income 5 6 5 7
--- --- --- ---
Income before income tax provision 20 22 18 22
Provision for income taxes 8 9 7 9
--- --- --- ---
Net income 12% 13% 11% 13%
=== === === ===
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
REVENUES. Total revenues increased 49% to $15.1 million in the three months
ended September 30, 1998 from $10.1 million in the three months ended September
30, 1997. Revenues from core research increased 54% to $12.4 million in the
three months ended September 30, 1998 from $8.0 million in the three months
ended September 30, 1997. Increases in total revenues and revenues from core
research were primarily attributable to an increase in the number of client
companies to 1,142 at September 30, 1998 from 982 at September 30, 1997, the
introduction of three new Strategy Research Services and a Quantitative Research
Service since September 30, 1997, and sales of additional Strategy Research
Services to existing clients. No single client company accounted for more than
3% of revenues for the three months ended September 30, 1998.
Advisory services and other revenues increased 30% to $2.7 million in the
three months ended September 30, 1998 from $2.1 million in the three months
ended September 30, 1997. This increase was primarily attributable to demand for
the Partners and Strategy Review Programs.
Revenues attributable to customers outside the United States increased 46%
to $3.0 million in the three months ended September 30, 1998 from $2.1 million
in the three months ended September 30, 1997, and decreased as a percentage of
total revenues to 20% for the three months ended September 30, 1998 from 21% for
the three months ended September 30, 1997. The increase in international
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revenues was due primarily to the addition of direct international sales
personnel. The Company invoices its international clients in U.S. dollars.
COST OF SERVICES AND FULFILLMENT. Cost of services and fulfillment
increased as a percentage of total revenues to 35% in the three months ended
September 30, 1998 from 34% in the three months ended September 30, 1997. These
expenses increased 54% to $5.2 million in the three months ended September 30,
1998 from $3.4 million in the three months ended September 30, 1997. The expense
increase and increase as a percentage of total revenues in this period were
principally due to increased analyst staffing for Research Services and related
compensation expense, and the cost of survey services related to the
Quantitative Research Service.
SELLING AND MARKETING. Selling and marketing expenses decreased as a
percentage of total revenues to 34% in the three months ended September 30, 1998
from 35% in the three months ended September 30, 1997. These expenses increased
48% to $5.2 million in the three months ended September 30, 1998 from $3.5
million in the three months ended September 30, 1997. The increase in expenses
was principally due to the addition of direct salespersons and increased sales
commission expense associated with increased revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
as a percentage of total revenues to 11% in the three months ended September 30,
1998 from 12% in the three months ended September 30, 1997. These expenses
increased 36% to $1.6 million in the three months ended September 30, 1998 from
$1.2 million in the three months ended September 30, 1997. The expense increase
was principally due to staffing increases in the Company's operations, finance,
technology, and strategy groups, and investment in the Company's infrastructure,
including new financial systems.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 118% to $760,000 in the three months ended September 30, 1998 from
$348,000 in the three months ended September 30, 1997. The increase in this
expense was principally due to purchases of computer equipment, software, office
furnishings, and leasehold improvements to support business growth.
OTHER INCOME. Other income, consisting primarily of interest income,
increased to $765,000 in the three months ended September 30, 1998 from $586,000
in the three months ended September 30, 1997 due to an increase in the Company's
cash and marketable securities balances resulting from positive cash flows from
operations.
PROVISION FOR INCOME TAXES. During the three months ended September 30,
1998, the Company recorded a tax provision of $1.1 million reflecting an
effective tax rate of 38%. During the three months ended September 30, 1997, the
Company recorded a tax provision of $910,000 reflecting an effective tax rate of
40.5%. The decrease in effective tax rate resulted from a reduction in the
Company's effective state tax rate and investments in tax-exempt instruments.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
REVENUES. Total revenues increased 58% to $43.2 million in the nine months
ended September 30, 1998 from $27.4 million in the nine months ended September
30, 1997. Revenues from core research increased 60% to $34.0 million in the nine
months ended September 30, 1998 from $21.3 million in the nine months ended
September 30, 1997. Increases in total revenues and revenues from core research
were primarily attributable to an increase in the number of client companies to
1,142 at September 30, 1998 from 982 at September 30, 1997, the introduction of
three new Strategy Research Services and a Quantitative Research Service since
September 30, 1997, and sales of additional Strategy Research Services to
existing clients. No single client company accounted for more than 3% of
revenues for the nine months ended September 30, 1998.
Advisory services and other revenues increased 52% to $9.2 million in the
nine months ended September 30, 1998 from $6.1 million in the nine months ended
September 30, 1997.
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This increase was primarily attributable to the addition of two new Forum
events held in April and May 1998 and demand for the Partners and Strategy
Review Programs.
Revenues attributable to customers outside the United States increased 48%
to $8.9 million in the nine months ended September 30, 1998 from $6.0 million in
the nine months ended September 30, 1997. Revenues attributable to customers
outside the United States decreased as a percentage of total revenues to 21% for
the nine months ended September 30, 1998 from 22% for the nine months ended
September 30, 1997. The increase in revenues was due primarily to the addition
of direct international sales personnel. The decrease as a percentage of total
revenue resulted from additional domestic revenue derived from the two new Forum
events held domestically during the nine month period ended September 30, 1998.
The Company invoices its international clients in U.S. dollars.
COST OF SERVICES AND FULFILLMENT. Cost of services and fulfillment
increased as a percentage of total revenues to 37% in the nine months ended
September 30, 1998 from 34% in the nine months ended September 30, 1997. These
expenses increased 69% to $15.8 million in the nine months ended September 30,
1998 from $9.4 million in the nine months ended September 30, 1997. The expense
increase and increase as a percentage of total revenues in this period was
principally due to expenses associated with two new forum events, increased
analyst staffing for Strategy Research Services and related compensation
expense, and the cost of survey services related to the Quantitative Research
Service.
SELLING AND MARKETING. Selling and marketing expenses decreased as a
percentage of total revenues to 35% in the nine months ended September 30, 1998
from 37% in the nine months ended September 30, 1997. These expenses increased
51% to $15.0 million in the nine months ended September 30, 1998 from $9.9
million in the nine months ended September 30, 1997. The increase in expenses
was principally due to the addition of direct salespersons and increased sales
commission expense associated with increased revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses remained
constant as a percentage of total revenues at 11% in the nine months ended
September 30, 1998 and September 30, 1997. These expenses increased 59% to $4.8
million in the nine months ended September 30, 1998 from $3.0 million in the
nine months ended September 30, 1997. The increase in expenses was principally
due to staffing increases in the Company's operations, finance, technology, and
strategy groups, and investment in the Company's infrastructure, including new
financial systems.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 127% to $1.9 million in the nine months ended September 30, 1998 from
$853,000 in the nine months ended September 30, 1997. The increase in this
expense was principally due to purchases of computer equipment, software, office
furnishings, and leasehold improvements to support business growth.
OTHER INCOME. Other income, consisting primarily of interest income,
increased to $2.2 million in the nine months ended September 30, 1998 from $1.8
million in the nine months ended September 30, 1997, due to an increase in the
Company's cash balances resulting from positive cash flows from operations.
PROVISION FOR INCOME TAXES. During the nine months ended September 30,
1998, the Company recorded a tax provision of $3.0 million, reflecting an
effective tax rate of 38%. During the nine months ended September 30, 1997, the
Company recorded a tax provision of $2.4 million, reflecting an effective tax
rate of 40.5%. The decrease in effective tax rate resulted from a reduction in
the Company's effective state tax rate and investments in tax-exempt
instruments.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date through funds generated
from operations. Memberships for core research, which constituted approximately
82% of the Company's revenues for the three months ended September 30, 1998, are
annually renewable and are generally payable in advance. The Company generated
$7.9 million and $5.5 million in cash from operating activities during the
nine-month periods ended September 30, 1998 and 1997, respectively.
During the nine-month period ended September 30, 1998, the Company used
$13.6 million of cash in investing activities, consisting of $5.3 million for
purchases of property and equipment and $8.3 million for net purchases of
marketable securities. The significant increase in purchases of property and
equipment was primarily due to computer equipment purchases to support
additional headcount, investment in infrastructure, and leasehold improvements
to support business growth, including the Amsterdam, Netherlands office. The
Company regularly invests excess funds in short- and intermediate-term
interest-bearing obligations of investment grade.
As of September 30, 1998, the Company had cash and cash equivalents of $5.2
million and $55.4 million in marketable securities. The Company does not have a
line of credit and does not anticipate the need for one in the foreseeable
future. The Company has recently opened an office in Amsterdam, Netherlands. The
Company plans to introduce new Research Services and Forums, and to continue to
invest in its infrastructure and personnel over the next three to 12 months. The
Company believes that its current cash balance, marketable securities, and cash
flows from operations will satisfy working capital, financing activities, and
capital expenditure requirements for at least the next two years.
YEAR 2000 DISCLOSURE
Many existing computer programs use only two digits, rather than four, to
represent a year. Data-sensitive software or hardware written or developed in
this fashion may not be able to distinguish between 1900 and 2000, and programs
written in this manner may yield incorrect results when processing a Year 2000
date.
The Company's State of Readiness
The Company is implementing a broad-based remediation effort to address the
Year 2000 problem. This effort consists of the following three stages: (i)
survey and assess the Company's operations for Year 2000 compliance, (ii)
execute the necessary software and hardware remedial changes and (iii) test the
remediation efforts to ensure Year 2000 compliance. There can be no assurance
that the Company's survey will identify all Year 2000 problems in these areas or
that the necessary corrective actions will be completed in a timely manner.
The first stage of the effort, a survey and assessment of the Company's
operations for Year 2000 compliance, has been completed. The Company identified
three areas of operations where the Year 2000 problem could arise:
* EXTERNAL PRODUCT DELIVERY SYSTEMS. This includes the Company's three main
platforms for electronic product delivery: Forrester's website, FTP site,
and Lotus Notes system.
* INTERNAL INFORMATION TECHNOLOGY SYSTEMS. This includes the Company's MIS
functions, customer service applications, and production systems.
* THIRD PARTY VENDORS AND SERVICE PROVIDERS. This includes a review of the
Company's third-party service providers and vendors to establish their
readiness for the Year 2000 problem and assess any risks to the Company.
Material third-party service providers and vendors include: printers,
mailing houses, and CD ROM duplicators.
This survey included a review of the Year 2000 compliance of the Company's
European Research Center. The Company's external product delivery systems and
internal information technology systems are also utilized by the European
Research Center. A survey of the European Research Center's non-IT facilities,
technology, and third-party service providers is now underway.
The Company is currently implementing the second stage, executing the
software and hardware changes necessary to remediate potential Year 2000
problems identified in the survey. The Year 2000 compliance of the Company's
external product delivery systems and internal information technology
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systems ultimately depends upon the delivery of Year 2000 compliant systems from
the Company's vendors. The Company is working closely with these vendors to
ensure the timely delivery of Year 2000 compliant systems. The Company's Lotus
Notes system is fully Year 2000 compliant and the Company anticipates that the
release of updated versions of its website and FTP site will bring these
external delivery systems into Year 2000 compliance in the fourth quarter of
1998. The Company's MIS systems are fully compliant and vendor supplied upgrades
for the Company's customer service applications and production systems are due
in the fourth quarter of 1998. The Company's survey of non-IT facilities
technology indicated that these systems are currently Year 2000 compliant due to
the absence of date sensitive microcontrollers.
During this second stage the Company is also assessing the Company's
vulnerability to the Year 2000 problems of third-party vendors and service
providers. The Company relies on third-party suppliers to deliver primarily
printing services, mailing services, and CD ROM duplication. The Company expects
to complete its review of these suppliers Year 2000 readiness by the end of
1998. The Company intends to continuously identify and prioritize critical
service providers and vendors and communicate with them about their plans and
progress in addressing the Year 2000 problem.
The final stage of the Company's Year 2000 efforts, the internal testing of
all systems, is also currently underway. In the fourth quarter of 1998 the
Company expects to complete testing of its internal information technology
systems. The Company anticipates that all testing for Year 2000 compliance will
be complete by mid-1999.
The Company's Year 2000 Risk
Based on the efforts described above, the Company currently believes that
its systems will be Year 2000 compliant by mid-1999. However, there can be no
assurance that all Year 2000 problems will be successfully identified, or that
the necessary corrective actions will be completed in a timely manner. In
addition, the survey has indicated that the Company's compliance will require
the delivery of upgrades by various vendors and any failure to deliver these
upgrades in a timely manner will adversely affect the Company's readiness for
the Year 2000 problem. The Company relies on the Internet for its external
distribution systems and any failure of the Internet due to Year 2000 issues
could adversely affect the Company.
The Company's Contingency Plans
The Company has not created a formal contingency plan for Year 2000
problems. The Company intends to take appropriate actions to mitigate the
effects of third parties' failures to remediate their Year 2000 issues and for
unexpected failures in its own systems. The Company has made arrangements for
some alternate suppliers and will continue to identify potential alternate
suppliers. If it becomes necessary for the Company to take these corrective
actions, it is uncertain whether this would result in significant interruptions
in service or delays in business operations or whether it would have a material
adverse effect on the Company's results of operations, financial position, or
cash flow.
Costs of Year 2000 Remediation
As of September 30, 1998, the Company has not incurred material costs
related to the Year 2000 problem. In the future, the Company may incur small
incremental costs in connection with the upgrades of its external delivery
systems and internal information technology systems. The Company has not
deferred other information technology projects due to Year 2000 expenses, and
does not expect to defer such projects in the future.
13
<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
Under the Company's By-laws, stockholders who wish to make a proposal at the
1999 Annual Meeting - other than one that will be included in the Company's
proxy materials must notify the Company no earlier that 90 days before the 1999
Annual Meeting and no later than 60 days prior to the 1999 Annual Meeting. Under
recent changes to the Federal proxy rules, if a stockholder who wishes to
present such a proposal fails to notify the Company by 60 days prior to the 1999
Annual Meeting, then the proxies that management solicits for the 1999 Annual
Meeting will include discretionary authority to vote on the stockholder's
proposal in the event it is properly brought before the meeting notwithstanding
the Company's By-laws.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Forrester Research, Inc.
By: /s/ George F. Colony
--------------------------------------
George F. Colony
Chairman of the Board, President, and
Chief Executive Officer
Date: November 13, 1998
By: /s/ Susan M. Whirty
--------------------------------------
Susan M. Whirty
Chief Financial Officer, Vice President,
Operations (principal financial and
accounting officer)
Date: November 13, 1998
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORRESTER
RESEARCH, INC.'S SEPTEMBER 30, 1998 CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN
FORM 10-K.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 5,186,535
<SECURITIES> 55,449,526
<RECEIVABLES> 16,882,593
<ALLOWANCES> 375,000
<INVENTORY> 0
<CURRENT-ASSETS> 81,633,600
<PP&E> 11,879,500
<DEPRECIATION> 4,002,288
<TOTAL-ASSETS> 89,510,812
<CURRENT-LIABILITIES> 40,772,732
<BONDS> 0
0
0
<COMMON> 85,617
<OTHER-SE> 48,652,463
<TOTAL-LIABILITY-AND-EQUITY> 89,510,812
<SALES> 0
<TOTAL-REVENUES> 15,070,353
<CGS> 0
<TOTAL-COSTS> 5,211,953
<OTHER-EXPENSES> 7,601,009
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,022,391
<INCOME-TAX> 1,148,509
<INCOME-CONTINUING> 1,873,882
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,873,882
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.20
</TABLE>
