<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
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 March 31, 1999.
or
[ ] 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 (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 May 7, 1999, 8,867,425 shares of the registrant's common stock
were outstanding.
<PAGE> 2
FORRESTER RESEARCH, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. Financial Statements
Consolidated Balance Sheets at March 31, 1999 and
December 31, 1998 3
Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 1998 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 12
PART II. OTHER INFORMATION
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
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORRESTER RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,119 $ 10,414
Marketable securities 66,664 56,070
Accounts receivable, net 17,864 21,158
Deferred commissions 2,655 2,124
Prepaid income taxes 1,424 334
Prepaid expenses and other current assets 3,639 2,605
-------- --------
Total current assets 100,365 92,705
-------- --------
Property and equipment, net 7,425 7,813
-------- --------
Total assets $107,790 $100,518
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 902 $ 1,434
Customer deposits 227 264
Accrued expenses 5,091 5,051
Accrued income taxes 545 933
Deferred revenue 41,002 38,894
Deferred income taxes 675 409
-------- --------
Total current liabilities 48,442 46,985
-------- --------
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--8,832,325 and 8,654,175
shares at March 31, 1999 and December 31, 1998, respectively 88 86
Additional paid-in capital 43,679 39,575
Retained earnings 15,460 13,555
Accumulated other comprehensive income 121 317
-------- --------
Total stockholders' equity 59,348 53,533
-------- --------
Total liabilities and stockholders' equity $107,790 $100,518
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
FORRESTER RESEARCH, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
<S> <C> <C>
REVENUES:
Core research $12,978 $10,469
Advisory services and other 4,951 2,662
------- -------
Total revenues 17,929 13,131
------- -------
OPERATING EXPENSES:
Cost of services and fulfillment 6,612 4,829
Selling and marketing 6,192 4,766
General and administrative 2,041 1,557
Depreciation and amortization 873 531
------- -------
Total operating expenses 15,718 11,683
------- -------
Income from operations 2,211 1,448
OTHER INCOME 860 715
------- -------
Income before income tax provision 3,071 2,163
INCOME TAX PROVISION 1,167 821
------- -------
Net income $ 1,904 $ 1,342
======= =======
BASIC NET INCOME PER COMMON SHARE $ 0.22 $ 0.16
======= =======
DILUTED NET INCOME PER COMMON SHARE $ 0.20 $ 0.15
======= =======
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,746 8,435
======= =======
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,733 9,074
======= =======
</TABLE>
See accompanying notes.
4
<PAGE> 5
FORRESTER RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,904 $ 1,342
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization 873 531
Deferred income taxes 267 64
Cumulative translation adjustment (112) --
Accretion of discount on marketable securities 22 (12)
Unrealized gain (loss) on available-for-sale securities (88) --
Changes in assets and liabilities
Accounts receivable 3,294 (1,385)
Deferred commissions (531) (253)
Prepaid expenses and other current assets (1,034) (353)
Prepaid income taxes (1,089) (26)
Accounts payable (531) 471
Customer deposits (38) (155)
Accrued expenses 40 (597)
Accrued income taxes (388) --
Deferred revenue 2,108 3,927
-------- ---------
Net cash provided by operating activities 4,697 3,554
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (471) (2,565)
Purchase of marketable securities (98,427) (108,221)
Proceeds from sales and maturities of marketable securities 87,810 101,528
-------- ---------
Net cash used in investing activities (11,088) (9,258)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under stock option
plan and employee stock purchase plan, including tax benefit
on exercise of stock options 4,106 1,165
-------- ---------
Net cash provided by financing activities 4,106 1,165
-------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (10) --
-------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,295) (4,539)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,414 7,742
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,119 $ 3,203
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 755 $ 583
======== =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
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, 1998. 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, 1998 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 ended March 31, 1999 may
not be indicative of the results that may be expected for the year ended
December 31, 1999, or any other period.
NOTE 2 - 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 stock
equivalents consist of common stock issuable on the exercise of outstanding
options. Reconciliation of basic to diluted weighted average shares outstanding
is as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
1999 1998
Basic weighted average common shares outstanding 8,746 8,435
Weighted average common equivalent shares 987 639
----- -----
Diluted weighted average shares outstanding 9,733 9,074
----- -----
As of March 31, 1999 and 1998, 1,129,314 and 1,004,700 stock options,
respectively, were not included in the calculation of diluted weighted average
shares outstanding as the effect would have been anti-dilutive.
NOTE 3 - COMPREHENSIVE INCOME
SFAS No. 130, Reporting Comprehensive Income, requires disclosure of
comprehensive income and the components of comprehensive income. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. The components of accumulated other comprehensive income on the
accompanying balance sheets as of March 31, 1999 and 1998 are as follows:
6
<PAGE> 7
THREE MONTHS ENDED
MARCH 31,
1999 1998
Unrealized gain on marketable securities, net of taxes $ (87) $ 25
Cumulative translation adjustment (109) --
----- -----
Total accumulated other comprehensive income $(196) $ 25
===== =====
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
adopted SOP No. 98-1 beginning January 1, 1999. SOP No. 98-1 had no effect upon
adoption. During the three-month periods ended March 31, 1999 and 1998, $29,860
and $680,300 of direct software costs, respectively, have been capitalized.
In April 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of Start-up
Activities, which requires that all nongovernmental entities charge to
operations the costs of start-up activities, including organizational costs, as
those costs are incurred. The Company has historically recorded all such costs
as charges to operations in the period incurred.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 is effective for all periods beginning after
June 15, 1999, and establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. Adoption of SFAS No. 133 is not expected to have a material
impact on the Company's consolidated financial position or results from
operations.
NOTE 5 - SEGMENT AND ENTERPRISE-WIDE REPORTING
The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, in the fiscal year ended December 31, 1998. SFAS No.
131 establishes selected standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are defined
as components of an enterprise about which separate, discrete financial
information is evaluated regularly by the chief operating decision maker, or
decision-making group, in deciding how to allocate resources and assess
performance. The Company's chief decision-making group, as defined under SFAS
No. 131, is the Executive Team, consisting of the executive officers. To date,
the Company has viewed its operations and managed its business principally as
one segment, research services. As a result, the financial information disclosed
herein materially represents all of the financial information related to the
Company's principal operating segment. Substantially all of the Company's assets
are located in the United States.
Net revenues by geographic destination and as a percentage of total revenues are
as follows:
7
<PAGE> 8
THREE MONTHS ENDED
MARCH 31,
1999 1998
United States $14,193 $10,537
Europe 2,242 1,388
Other 1,494 1,206
------- -------
$17,929 $13,131
======= =======
United States 79% 80%
Europe 13 11
Other 8 9
------- -------
100% 100%
------- -------
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 core research, 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 electronic
commerce and the Internet, computing, software, networking, and
telecommunications, and projects how technology trends will impact businesses,
consumers, and society. Forrester's clients, which include senior management,
business strategists, and marketing and information technology ("IT")
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.
Forrester offers its clients annual memberships to core research that
is organized into three Coverage Areas: Internet Commerce, Corporate Technology,
and Technographics(R) Data & Analysis ("Coverage Areas"). Such memberships are
renewable contracts, typically annual and payable in advance. Accordingly, a
substantial portion of the Company's billings are recorded initially as deferred
revenue. Revenues for core research are recognized pro rata on a monthly basis
over the contract period. The Company's other revenues are derived from advisory
services rendered pursuant to Forrester's Partners Program and Strategy Review
Program and from Forrester Forums ("Forums"). The Company's advisory service
clients purchase such services together with core research memberships. Billings
attributable to advisory services are recorded initially as deferred revenue and
recognized as revenue when performed. Similarly, Forum billings are recorded
initially as deferred revenue and are recognized as revenue upon completion of
each event.
8
<PAGE> 9
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
represents the costs associated with production and delivery of the Company's
products and services, and includes 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, and
technology 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 already has been
recognized. Agreement value increased 49% to $75.3 million at March 31, 1999
from $50.6 million at March 31, 1998. No single client company accounted for
more than 3% of agreement value at March 31, 1999. The Company's experience is
that a substantial portion of client companies renew expiring contracts for an
equal or higher level of total core research and advisory service fees each
year. Approximately 75% of Forrester's client companies with memberships
expiring during the 12-month period ended March 31, 1999 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:
THREE MONTHS ENDED
MARCH 31,
1999 1998
Core research 72% 80%
Advisory services and other 28 20
--- ---
Total revenues 100 100
Cost of services and fulfillment 37 37
Selling and marketing 35 36
General and administrative 11 12
Depreciation and amortization 5 4
--- ---
Income from operations 12 11
Other income 5 5
--- ---
Income tax provision 17 16
Provision for income taxes 6 6
--- ---
Net income 11% 10%
=== ===
9
<PAGE> 10
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
REVENUES. Total revenues increased 37% to $17.9 million in the three
months ended March 31, 1999 from $13.1 million in the three months ended March
31, 1998. Revenues from core research increased 24% to $13.0 million in the
three months ended March 31, 1999 from $10.5 million in the three months ended
March 31, 1998. The increase in revenues from core research was attributable
primarily to an increase in the number of client companies to 1,340 at March 31,
1999 from 1,065 at March 31, 1998, an increase in the sales organization to 113
employees at March 31, 1999 from 95 at March 31, 1998, and sales of additional
core research to existing clients. No single client company accounted for more
than 3% of revenues for the three months ended March 31, 1999.
Advisory services and other revenues increased 86% to $5.0 million in
the three months ended March 31, 1999 from $2.7 million in the three months
ended March 31, 1998. This increase was attributable primarily to the three
Forum events held in the first quarter of 1999, compared with only one Forum
held in the first quarter of 1998, as well as increased demand for the Partners
and Strategy Review Programs.
Revenues attributable to customers outside the United States increased
44% to $3.7 million in the three months ended March 31, 1999 from $2.6 million
in the three months ended March 31, 1998, and increased as a percentage of total
revenues to 21% for the three months ended March 31, 1999 from 20% for the same
period in 1998. The increase in international revenues is attributable primarily
to the Company's opening of its European headquarters in Amsterdam, the
Netherlands, and the increase in sales personnel there. The Company invoices its
international clients in U.S. dollars.
COST OF SERVICES AND FULFILLMENT. Cost of services and fulfillment was
37% of total revenues in the three months ended March 31, 1999 and 1998. These
expenses increased 37% to $6.6 million in the three months ended March 31, 1999
from $4.8 million in the three months ended March 31, 1998. The expense increase
in the current period reflects increased analyst staffing and related
compensation expense and two additional Forum events over the same period in
1998.
SELLING AND MARKETING. Selling and marketing expenses decreased as a
percentage of total revenues to 35% in the three months ended March 31, 1999
from 36% in the three months ended March 31, 1998. This decrease resulted from
the larger revenue base in the quarter ended March 31, 1999. These expenses
increased 30% to $6.2 million in the three months ended March 31, 1999 from $4.8
million in the three months ended March 31, 1998. The increase in expense was
principally due to the addition of direct salespeople and related commission
expense.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
decreased as a percentage of total revenues to 11% in the three months ended
March 31, 1999 from 12% in the three months ended March 31, 1998. These expenses
increased 31% to $2.0 million in the three months ended March 31, 1999 from $1.6
million in the three months ended March 31, 1998. The expense increase was
principally due to staffing increases in the Company's operations, finance, and
technology groups.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 64% to $873,000 in the three months ended March 31, 1999 from $531,000
for the same period in 1998. The increase in this expense was due principally to
1998 investments in the Company's IT infrastructure and costs associated with
the opening of the Amsterdam office.
OTHER INCOME. Other income, consisting primarily of interest income,
increased 20% to $860,000 in the three months ended March 31, 1999 from $715,000
in the three months ended March 31, 1998. The increase was due to the Company's
higher cash and marketable securities balances resulting from positive cash
flows from operations.
PROVISION FOR INCOME TAXES. During the three months ended March 31,
1999, the Company recorded a tax provision of $1.2 million, reflecting an
effective tax rate of 38%. During the first quarter of 1998, the Company
recorded a tax provision of $821,000 which also reflects an effective tax rate
of 38%.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations during these periods through
funds generated from operations. Memberships for core research, which
constituted approximately 72% of the Company's revenues for the three months
ended March 31, 1999, are annually renewable and are generally payable in
advance. The Company generated $4.7 million and $3.6 million in cash from
operating activities during the three-month periods ended March 31, 1999 and
1998, respectively.
During the three-month period ended March 31, 1999, the Company used
$11.1 million of cash in investing activities, consisting of $471,000 for
purchases of property and equipment, and $10.6 million for net purchases of
marketable securities. The Company regularly invests excess funds in short- and
intermediate-term interest-bearing obligations of investment grade.
As of March 31, 1999, the Company had cash and cash equivalents of $8.1
million and $66.7 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 plans to continue to introduce new products and services and
to invest in its infrastructure over the next 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
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 web site,
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 vendor and service providers to establish
their readiness for the year 2000 problem and assess any risks to the
Company. Material third-party vendor and service providers 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, internal information technology systems, and a number of third-party
vendors and service providers are also utilized by the European Research Center.
The Company continues to monitor and review non-IT facilities and third-party
vendors that are used exclusively by the European Research Center.
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 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-
11
<PAGE> 12
compliant systems. The Company's Lotus Notes system is fully year 2000-
compliant, and the Company has released updated versions of its web site and FTP
site, which bring these external delivery systems into year 2000 compliance. The
Company's MIS systems are fully compliant and vendor-supplied upgrades for the
Company's customer service applications and production systems have been
delivered and will be installed during the second quarter of 1999. The Company's
survey of non-IT facilities technology, which included a review of the elevator,
HVAC, security, and energy management systems, 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 its
vulnerability to year 2000 problems of third-party vendors and service
providers. The Company relies on third-party suppliers primarily to deliver
printing services, mailing services, Internet and web hosting services, and
CD-ROM duplication. 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 completed a successful test of its internal IT systems and
intends to continue to test these systems during 1999. 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 is designing a contingency
plan for year 2000 problems. This contingency plan will be in place by mid-1999
and will be designed to mitigate the effects of third parties' failures to
remediate their year 2000 issues and for unexpected failures in its own systems.
Pursuant to the contingency plan, the Company has made arrangements for some
alternate suppliers, such as Internet service providers, 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 March 31, 1999, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following discussion about the Company's market risk disclosures
involves forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. The Company is exposed to
market risk related to changes in interest rates and foreign currency exchange
rates. The Company does not use derivative financial instruments for speculative
or trading purposes.
INTEREST RATE SENSITIVITY. The Company maintains an investment
portfolio consisting mainly of corporate obligations, federal agency
obligations, state and municipal bonds, and U.S. Treasury notes with a weighted
average maturity of less than one year. These held-to-maturity securities are
subject to interest rate risk and will fall in value if market interest rates
increase. If market interest rates were to increase immediately and uniformly by
10% from levels at March 31, 1999, the fair market value of the
12
<PAGE> 13
portfolio would decline by an immaterial amount. The Company has the ability to
hold its fixed income investments until maturity. Therefore, the Company would
not expect its operating results or cash flows to be affected to any significant
degree by the effect of a sudden change in market interest rates on its
securities portfolio. The following table provides information about the
Company's investment portfolio. For investment securities, the table presents
principal cash flows and related weighted average interest rated by expected
maturity dates.
Principal amounts by expected maturity in U.S. Dollars (in thousands
except interest rates):
<TABLE>
<CAPTION>
FAIR VALUE AT FY 2001
MARCH 31, AND
1999 FY 1999 FY 2000 THEREAFTER
<S> <C> <C> <C> <C>
Cash equivalents $ 8,385 $ 8,385 $ -- $ --
Weighted average interest rate 3.86% 3.86% --% --%
Investments $66,508 $32,912 $26,286 $7,310
Weighted average interest rate 4.58% 4.48% 4.70% 4.59%
Total portfolio $74,893 $41,297 $26,286 $7,310
Weighted average interest rate 4.50% 4.36% 4.70% 4.59%
</TABLE>
FOREIGN CURRENCY EXCHANGE. On a global level, the Company faces
exposure to adverse movements in foreign currency exchange rates. This exposure
may change over time as business practices evolve and could have a material
adverse impact on the Company's financial results. Historically, the Company's
primary exposure has been related to non-dollar-denominated operating expenses
in Europe, Canada, and Asia, where the Company sells primarily in U.S. dollars.
The introduction of the Euro as a common currency for members of the European
Monetary Union has taken place in the Company's fiscal year 1999. The Company
has not determined what impact, if any, the Euro will have on foreign exchange
exposure. The Company is prepared to hedge against fluctuations in the Euro if
this exposure becomes material. As of March 31, 1999, the assets and liabilities
related to non-dollar-denominated currencies was approximately $1.4 million.
13
<PAGE> 14
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
None.
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: May 13, 1999
By: /s/ Susan M. Whirty
-----------------------------------------
Susan M. Whirty
Chief Financial Officer and Vice President,
Operations
(principal financial and accounting officer)
Date: May 13, 1999
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORRESTER
RESEARCH, INC.'S MARCH 31, 1999 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 8,118,600
<SECURITIES> 66,664,189
<RECEIVABLES> 18,213,845
<ALLOWANCES> 350,000
<INVENTORY> 0
<CURRENT-ASSETS> 100,364,587
<PP&E> 13,123,267
<DEPRECIATION> 5,697,705
<TOTAL-ASSETS> 107,790,149
<CURRENT-LIABILITIES> 48,442,626
<BONDS> 0
0
0
<COMMON> 88,322
<OTHER-SE> 59,259,201
<TOTAL-LIABILITY-AND-EQUITY> 107,790,149
<SALES> 0
<TOTAL-REVENUES> 17,928,631
<CGS> 0
<TOTAL-COSTS> 6,611,803
<OTHER-EXPENSES> 8,819,783
<LOSS-PROVISION> 286,230
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,071,153
<INCOME-TAX> 1,167,417
<INCOME-CONTINUING> 1,903,734
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,903,734
<EPS-PRIMARY> .22
<EPS-DILUTED> .20
</TABLE>
