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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 June 30, 1999.
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 August 11, 1999 8,964,823 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 June 30, 1999 and December 31,
1998 3
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 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 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 15
ITEM 2. Changes in Securities 15
ITEM 3. Defaults Upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security-Holders 15
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K 15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORRESTER RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
JUNE 30, DECEMBER 31,
1999 1998
CURRENT ASSETS:
Cash and cash equivalents $ 8,121 $ 10,414
Marketable securities 71,118 56,070
Accounts receivable, net 17,542 21,158
Deferred commissions 3,275 2,124
Prepaid income taxes 1,288 334
Prepaid expenses and other current assets 2,995 2,605
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Total current assets 104,339 92,705
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Property and equipment, net 7,398 7,813
Other assets 1,470 --
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Total assets $ 113,207 $ 100,518
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,581 $ 1,434
Customer deposits 546 264
Accrued expenses 5,909 5,051
Accrued income taxes 313 933
Deferred revenue 41,455 38,894
Deferred income taxes 871 409
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Total current liabilities 50,675 46,985
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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--shares 8,922,666 and 8,654,175
shares at June 30, 1999 and December 31, 1998, respectively 89 86
Additional paid-in capital 44,898 39,575
Retained earnings 17,695 13,555
Accumulated other comprehensive income (150) 317
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Total stockholders' equity 62,532 53,533
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Total liabilities and stockholders' equity $ 113,207 $ 100,518
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See accompanying notes.
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FORRESTER RESEARCH, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
REVENUES:
Core research $14,773 $11,202 $27,751 $21,671
Advisory services and other 4,898 3,841 9,849 6,503
------- ------- ------- -------
Total revenues 19,671 15,043 37,600 28,174
------- ------- ------- -------
OPERATING EXPENSES:
Cost of services and fulfillment 6,424 5,782 13,036 10,610
Selling and marketing 7,276 5,078 13,468 9,845
General and administrative 2,213 1,642 4,254 3,199
Depreciation and amortization 1,048 648 1,921 1,179
------- ------- ------- -------
Total operating expenses 16,961 13,150 32,679 24,833
------- ------- ------- -------
Income from operations 2,710 1,893 4,921 3,341
OTHER INCOME 895 715 1,755 1,431
------- ------- ------- -------
Income before income tax provision 3,605 2,608 6,676 4,772
INCOME TAX PROVISION 1,370 991 2,537 1,812
------- ------- ------- -------
Net income $ 2,235 $ 1,617 $ 4,139 $ 2,960
======= ======= ======= =======
BASIC NET INCOME PER COMMON SHARE $ 0.25 $ 0.19 $ 0.47 $ 0.35
======= ======= ======= =======
DILUTED NET INCOME PER COMMON SHARE $ 0.24 $ 0.17 $ 0.43 $ 0.32
======= ======= ======= =======
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,881 8,496 8,814 8,466
======= ======= ======= =======
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,482 9,510 9,607 9,292
======= ======= ======= =======
See accompanying notes.
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FORRESTER RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
SIX MONTHS ENDED
JUNE 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,139 $ 2,960
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 1,921 1,179
Deferred income taxes 462 121
Cumulative translation adjustment (184) -
Accretion of discount on marketable securities (28) (16)
Changes in assets and liabilities-
Accounts receivable 3,615 (2,435)
Deferred commissions (1,151) (400)
Prepaid expenses and other (390) (1,201)
Prepaid income taxes (954) --
Other assets (470) --
Accounts payable 148 288
Customer deposits 282 (60)
Accrued expenses 858 (256)
Accrued income taxes (620) --
Deferred revenue 2,560 3,777
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Net cash provided by operating activities 10,188 3,957
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of non-marketable investment (Note 7) (1,000) --
Purchases of property and equipment (1,504) (4,031)
Purchase of marketable securities (180,672) (186,860)
Proceeds from sales and maturities of marketable securities 165,375 179,570
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Net cash used in investing activities (17,801) (11,321)
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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 5,326 2,431
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Net cash provided by financing activities 5,326 2,431
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EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (6) --
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NET DECREASE IN CASH AND CASH EQUIVALENTS (2,293) (4,933)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,414 7,742
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,121 $ 2,809
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 1,062 $ 280
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See accompanying notes.
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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, 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 June 30, 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 Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
Basic weighted average common shares outstanding 8,881 8,496 8,814 8,466
Weighted average common equivalent shares 601 1,014 793 826
----- ----- ----- -----
Diluted weighted average shares outstanding 9,482 9,510 9,607 9,292
----- ----- ----- -----
As of June 30, 1999 and 1998, 162,568 and 14,384 stock options, respectively,
were not included in diluted weighted average shares outstanding as the effect
would have been anti-dilutive.
Note 3 - 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 other comprehensive income for the three-
and six-month periods ended June 30, 1999 and 1998 are as follows:
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
Unrealized (loss) gain on marketable securities,
net of taxes $(189) $ 6 $(277) $ 31
Cumulative translation adjustment (81) -- (190) --
----- --- ----- ----
Total other comprehensive income $(271) $ 6 $(467) $ 31
----- --- ----- ----
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Note 4 - Capitalized Software Costs
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. The net book value of capitalized internal-use software costs at June
30, 1999 and December 31, 1998 was $2.0 million and $1.9 million, respectively.
Note 5 - New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for all periods
beginning after June 15, 2000, 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 6 - 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:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
United States $15,563 $11,739 $29,756 $22,276
Europe 2,398 1,947 4,640 3,335
Other 1,710 1,357 3,204 2,563
------- ------- ------- -------
$19,671 $15,043 $37,600 $28,174
======= ======= ======= =======
United States 79% 78% 79% 79%
Europe 12% 13% 12% 12%
Other 9% 9% 9% 9%
------- ------- ------- -------
100% 100% 100% 100%
======= ======= ======= =======
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Note 7 - Investment in Greenfield Online, Inc.
In May 1999, the Company invested $1.0 million in a holding company that is the
majority shareholder of Greenfield Online, Inc., an Internet-based marketing
research firm. As a result of this investment, the Company effectively owns
approximately a 3.4% interest in Greenfield Online, Inc. This investment is
being accounted for using the cost method, and accordingly is valued at cost
until it has been determined that a permanent impairment in its value has
occurred.
Note 8 - New Lease
In May 1999, the Company signed a seven-year lease to move its headquarters to a
new location within Cambridge, Mass. The new lease term begins in October 1999
and has two options to extend, each option for an additional five years. The
Company has incurred approximately $465,000 in lease acquisition costs to date
which will be amortized over the initial term of the lease.
The Company is currently evaluating its alternatives regarding its existing
headquarter's lease. As of June 30, 1999 the net book value of leasehold
improvements at the Company's headquarters was approximately $1.3 million. The
total commitment of lease payments over the remaining lease term as of June 30,
1999 was $3.4 million. The Company does not expect to incur a material loss
related to the termination of its lease.
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, 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.
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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 already has been
recognized. Agreement value increased 43% to $80.3 million at June 30, 1999 from
$56.0 million at June 30, 1998. No single client company accounted for more than
3% of agreement value at June 30, 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 76% of Forrester's client companies with memberships expiring
during the 12-month period ended June 30, 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
Core research 75% 74% 74% 77%
Advisory services and other 25 26 26 23
--- --- --- ---
Total revenues 100 100 100 100
Cost of services and fulfillment 33 38 35 38
Selling and marketing 37 34 36 35
General and administrative 11 11 11 11
Depreciation and amortization 5 4 5 4
--- --- --- ---
Income from operations 14 13 13 12
Interest income 4 5 5 5
--- --- --- ---
Income before income tax provision 18 18 18 17
Provision for income taxes 7 7 7 6
--- --- --- ---
Net income 11% 11% 11% 11%
=== === === ===
THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
REVENUES. Total revenues increased 31% to $19.7 million in the three months
ended June 30, 1999 from $15.0 million in the three months ended June 30, 1998.
Revenues from core research increased 32% to $14.8 million in the three months
ended June 30, 1999 from $11.2 million in the three months ended June 30, 1998.
Increases in total revenues and revenues from core research were primarily
attributable to an increase in the number of client companies to 1,466 at June
30, 1999 from 1,113 at June 30, 1998, an increase in the sales organization to
130 employees at June 30, 1999 from 97 employees at
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June 30, 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 June 30, 1999.
Advisory services and other revenues increased 28% to $4.9 million in the
three months ended June 30, 1999 from $3.8 million in the three months ended
June 30, 1998. This increase was primarily attributable to the demand for the
Partners and Strategy Review Programs and the increase in analyst staff
providing advisory services to 117 at June 30, 1999 from 87 at June 30, 1998.
Revenues attributable to customers outside the United States increased 24%
to $4.1 million in the three months ended June 30, 1999 from $3.3 million in the
three months ended June 30, 1998, and decreased as a percentage of total
revenues to 21% for the three months ended June 30, 1999 from 22% for the three
months ended June 30, 1998. The increase in international revenues was
attributable primarily to the company's opening of its European headquarters in
Amsterdam, the Netherlands, and the related increase in sales personnel. The
Company invoices its international clients in U.S. dollars.
COST OF SERVICES AND FULFILLMENT. Cost of services and fulfillment
decreased as a percentage of total revenues to 33% in the three months ended
June 30, 1999 from 38% in the three months ended June 30, 1998. These expenses
increased 11% to $6.4 million in the three months ended June 30, 1999 from $5.8
million in the three months ended June 30, 1998. The decrease in expense as a
percentage of revenues is primarily due to hosting only one event in the three
month period ended June 30, 1999 versus three events in the three month period
ended June 30, 1998. The expense increase in the current period reflects
increased analyst staffing and related compensation expense.
SELLING AND MARKETING. Selling and marketing expenses increased as a
percentage of total revenues to 37% in the three months ended June 30, 1999 from
34% in the three months ended June 30, 1998. These expenses increased 43% to
$7.3 million in the three months ended June 30, 1999 from $5.1 million in the
three months ended June 30, 1998. The increase in expenses and expense as a
percentage of revenues was principally due to one-time production costs
associated with new product marketing collateral and the addition of direct
salespersons and related commission expense.
GENERAL AND ADMINISTRATIVE. General and administrative expenses remained
constant as a percentage of total revenues at 11% in the three months ended June
30, 1999 and 1998. These expenses increased 35% to $2.2 million in the three
months ended June 30, 1999 from $1.6 million in the three months ended June 30,
1998. The increase in expenses was principally due to staffing increases in the
Company's operations, finance, technology, and strategy groups.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 62% to $1.0 million in the three months ended June 30, 1999, from
$648,000 in the three months ended June 30, 1998. 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 $895,000 in the three months ended June 30, 1999 from $715,000 in
the three months ended June 30, 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 June 30, 1999,
the Company recorded a tax provision of $1.4 million, reflecting an effective
tax rate of 38%. During the three months ended June 30, 1998, the Company
recorded a tax provision of $1.0 million, reflecting an effective tax rate of
38%.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
REVENUES. Total revenues increased 33% to $37.6 million in the six months
ended June 30, 1999 from $28.2 million in the six months ended June 30, 1998.
Revenues from core research increased 28% to $27.8 million in the six months
ended June 30, 1999 from $21.7 million in the six months ended June 30, 1998.
Increases in total revenues and revenues from core research were primarily
attributable to an increase in the number of client companies to 1,466 at June
30, 1999 from 1,113 at June 30, 1998, an increase in the sales organization to
130 employees at June 30, 1999 from 97 employees at June 30, 1998, and sales of
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additional core research to existing clients. No single client company accounted
for more than 3% of revenues for the six months ended June 30, 1999.
Advisory services and other revenues increased 51% to $9.8 million in the
six months ended June 30, 1999 from $6.5 million in the six months ended June
30, 1998. This increase was primarily attributable to increased demand for both
the Partners and Strategy Review Programs and Forrester Forum events, and the
increase in analyst staff providing advisory services to 117 at June 30, 1999
from 87 at June 30, 1998.
Revenues attributable to customers outside the United States increased 33%
to $7.8 million in the six months ended June 30, 1999 from $5.9 million in the
six months ended June 30, 1998. Revenues attributable to customers outside the
United States remained constant as a percentage of total revenues at 21% for the
six months ended June 30, 1999 and 1998. The increase in international revenues
was attributable primarily to the company's opening of its European headquarters
in Amsterdam, the Netherlands, and the increase in sales personnel there.
COST OF SERVICES AND FULFILLMENT. Cost of services and fulfillment
decreased as a percentage of total revenues to 35% in the six months ended June
30, 1999 from 38% in the six months ended June 30, 1998. These expenses
increased 23% to $13.0 million in the six months ended June 30, 1999 from $10.6
million in the six months ended June 30, 1998. The decrease in expense as a
percentage of revenues is primarily due to expense from Forrester Forums
remaining relatively constant against a larger revenue base. The expense
increase in the current period reflects increased analyst staffing and related
compensation expense.
SELLING AND MARKETING. Selling and marketing expenses increased as a
percentage of total revenues to 36% in the six months ended June 30, 1999 from
35% in the six months ended June 30, 1998. These expenses increased 37% to
$13.4 million in the six months ended June 30, 1999 from $9.8 million in the
six months ended June 30, 1998. The increase in expenses and expense as a
percentage of revenues was principally due to one-time production costs
associated with new product marketing collateral and the addition of direct
salespersons and related commission expense.
GENERAL AND ADMINISTRATIVE. General and administrative expenses remained
constant as a percentage of total revenues at 11% in the six months ended June
30, 1999 and 1998. These expenses increased 34% to $4.3 million in the six
months ended June 30, 1999 from $3.2 million in the six months ended June 30,
1998. The increase in expenses was principally due to staffing increases in the
Company's operations, finance, technology, and strategy groups.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 63% to $1.9 million in the six months ended June 30, 1999 from $1.2
million in the six months ended June 30, 1998. 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 $1.8 million in the six months ended June 30, 1999 from $1.4
million in the six months ended June 30, 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 six months ended June 30, 1999, the
Company recorded a tax provision of $2.5 million, reflecting an effective tax
rate of 38%. During the six months ended June 30, 1998, the Company recorded a
tax provision of $1.8 million, reflecting an effective tax rate of 38%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations during the periods discussed
through funds generated from operations. Memberships for core research, which
constituted approximately 75% of the Company's revenues for the three months
ended June 30, 1999, are annually renewable and are generally payable in
advance. The Company generated $10.0 and $4.0 million in cash from operating
activities during the six-month periods ended June 30, 1999 and 1998,
respectively. The significant increase is primarily due to increased income and
positive cash flow resulting from the collection of receivables.
During the six-month period ended June 30, 1999, the Company used $17.5
million of cash in investing activities, consisting of $1.5 million for
purchases of property and equipment, $1.0 million for a minority investment in
Greenfield Online, Inc., and $15.0 million for net purchases of marketable
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securities. The Company regularly invests excess funds in short- and
intermediate-term interest-bearing obligations of investment grade.
As of June 30, 1999, the Company had cash and cash equivalents of $8.1
million and $71.1 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- 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. 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.
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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 has completed all
testing for year 2000 compliance and will continue to monitor all of its systems
during the second half of 1999.
THE COMPANY'S YEAR 2000 RISK. Based on the efforts described above, the
Company currently believes that its systems are year 2000 compliant as of
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 the end
of the third quarter 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 June 30, 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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
June 30, 1999, the fair market value of the 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):
Fair Value FY 2001
at June 30, and
1999 FY 1999 FY 2000 Thereafter
Cash equivalents $ 8,638 $ 8,638 $ -- $ --
Weighted average interest rate 3.97% 3.97% --% --%
Investments $69,860 $28,980 $25,168 $15,712
Weighted average interest rate 4.93% 4.86% 4.82% 5.23%
Total Portfolio $78,498 $37,618 $25,168 $15,712
Weighted average interest rate 4.82% 4.66% 4.82% 5.23%
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
had 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 the Euro will have on foreign
exchange exposure if this exposure becomes material. As of June 30, 1999, the
assets and liabilities related to non-dollar-denominated currencies was
approximately $1.3 million.
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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
The Annual Meeting of Stockholders ("Meeting") was held on May 11, 1999. At such
meeting, the stockholders elected the following person as a Class I Director of
the Board of Directors by the following votes:
Total Vote For Total Vote Withheld
Director From Director
-------------- -------------------
George F. Colony 8,395,575 42,765
Henk W. Broeders and George R. Hornig's terms of office as Class II Directors
continued after the Meeting. Robert M. Galford and Michael H. Welles' terms of
office as Class III Directors continued after the Meeting.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.11 Lease dated May 6, 1999 between Technology Square LLC and the
Company for the premises located at 565 Technology Square,
Cambridge, Massachusetts (the "Technology Square Lease").
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
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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: August 16, 1999
By: /s/ Susan M. Whirty
-------------------------------------
Susan M. Whirty
Chief Financial Officer, Vice President,
Operations
(principal financial and accounting
officer)
Date: August 16, 1999