Document/ExhibitDescriptionPagesSize 1: 10-K Forrester Research, Inc. HTML 894K
2: EX-21 EX-21 - Subsidiaries of the Registrant HTML 6K
3: EX-23.1 EX-23.1 Consent of Bdo Siedman, LLP HTML 7K
4: EX-31.1 EX-31.1 - SEC 302 Certification of Principal HTML 12K
Executive Officer
5: EX-31.2 EX-31.2 - SEC 302 Certification of Principal HTML 12K
Financial Officer
6: EX-32.1 EX-32.1 - SEC 906 Certification of Principal HTML 8K
Executive Officer
7: EX-32.2 EX-32.2 - SEC 906 Certification of Principal HTML 8K
Financial Officer
Securities registered pursuant to Section 12(b) of the
Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, $.01 Par Value
Nasdaq Global Select Market
Securities
to be registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 requirement for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. Yes o No þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,”“accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the
Exchange Act. (Check one):
Large
accelerated
filer o
Accelerated
filer þ
Non-accelerated
filer o
Smaller
reporting
company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the registrant’s common stock
held by non-affiliates of the registrant as of June 30,2008 (based on the closing price as quoted by the Nasdaq
National Market as of such date) was approximately $467,000,000.
As of March 9, 2009, 23,044,711 shares of the
registrant’s common stock were outstanding.
Portions of the registrant’s Proxy Statement related to its
2009 Annual Stockholder’s Meeting to be filed
subsequently — Part III of this
Form 10-K.
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Words such as
“expects,”“anticipates,”“intends,”“plans,”“estimates,”
or similar expressions are intended to identify these
forward-looking statements. Reference is made in particular to
our statements about possible acquisitions, our plans for
international expansion and the adequacy of our cash, marketable
investments and cash flows to satisfy our working capital and
capital expenditures, These statements are based on our current
plans and expectations and involve risks and uncertainties.
Important factors that could cause actual future activities and
results of operations to be materially different from those set
forth in the forward-looking statements are discussed below
under “Risk Factors.” We undertake no obligation to
update publicly any forward-looking statements, whether as a
result of new information, future events, or otherwise.
PART I
General
Forrester Research, Inc. is an independent research company that
provides pragmatic and forward-thinking advice to global leaders
in business and technology. Our products and services are
targeted to 19 specific roles, including principally senior
management, business strategists, and marketing and information
technology professionals at $1 billion-plus companies who
collaborate with us to accelerate achievement of their business
goals.
Research serves as the foundation for all our offerings and
consists primarily of annual memberships to our syndicated
research offering
RoleViewtm
that provides access to our core research on a wide range of
business and technology issues critical to the success of the
individuals in the roles we serve. In addition to RoleView, we
also provide a portfolio of products and services that allow our
clients to interact directly with analysts and their peers and
explore in greater detail the issues and topics covered by
RoleView on a role and client-specific basis.
We were incorporated in Massachusetts on July 7, 1983 and
reincorporated in Delaware on February 16, 1996.
Our Internet address is www.forrester.com. We make available
free of charge, on or through the investor information section
of our website, annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
and current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC.
Industry
Background
Technology plays a central role in companies’ and their
employees’ efforts to remain both competitive and
cost-efficient in an increasingly complex global business
environment. Developing comprehensive and coordinated business
strategies is difficult because as the economy and technology
change, consumers and businesses adopt new methods of buying and
selling, and markets grow increasingly dynamic.
Consequently, companies and the professionals who are in the
roles we focus on rely on external sources of expertise that
provide independent business advice spanning a variety of areas
including but not limited to technology, business strategy, and
consumer behavior. We believe there is a need for objective
research that is thematic, prescriptive, and executable, and
that provides a comprehensive perspective on the knowledge and
skills required to succeed in today’s rapidly changing
business environment.
Forrester’s
Strategy
In 2007, Forrester accelerated execution of a role-based
strategy to focus attention on serving leaders in key roles
across its client base. Forrester’s syndicated RoleView
research and other products and services provide clients with
more relevant research and data, easier access to the insights
individual leaders need to address the business challenges they
face and make better informed and justified decisions.
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We seek to maintain and enhance our position as a leading
independent technology and market research firm and to
capitalize on demand for our research by:
Identifying and Defining New Business Models, Technologies,
and Markets. We seek to differentiate ourselves
from other research firms by delivering pragmatic and
forward-thinking research and analysis on the impact of
technology on business models, business practices, and
technology infrastructure. We believe that our research
methodology and our creative culture allow us to identify and
analyze rapid shifts in business and consumer use of technology
before these changes appear on the horizons of most users,
vendors, and other research firms. Our early identification of
these shifts enables us to help our clients capitalize on
emerging business models and technologies.
Leveraging our RoleView Research. Our business
model, technology platform, and research methodologies allow us
to sell existing products and to rapidly introduce new products
and services without incurring significant incremental costs. We
intend to continue to use our business model, technology
platform, and research methodologies to both increase sales of
our existing RoleView research and introduce innovative new
products. Our other offerings complement, enhance and supplement
our RoleView research offering, and many are designed to address
the specific needs and problems of our clients and the
professionals in the roles on which we focus. We also may
acquire, through acquisition or license from third parties, new
products and services that complement and support our strategy
and existing offerings. In July 2008, we acquired
JupiterResearch, LLC and its parent company JUPR Holdings, Inc.
to enhance our offerings to marketing and strategy professionals.
Using Targeted, Global Client Group Sales
Channels. Our business is organized into three
principal global client groups that support our role-based
strategy and are closely aligned with our client base: the
Information Technology Client Group, the Marketing &
Strategy Client Group, and the Technology Industry Client Group.
We sell our products and services directly through each client
group’s global sales force in various locations in North
America, Europe, Asia and Australia. We also sell our products
and services through independent sales representatives in select
international locations.
Growing Our Client Base Worldwide and Increasing Sales to
Existing Clients. We believe that our products
and services can be successfully marketed and sold to new client
companies worldwide and to new roles and additional units and
divisions within our existing client companies. We believe that
within our client base of over 2,600 client companies as of
December 31, 2008 there is opportunity both to sell
additional products and services to current users as well as to
deliver our RoleView research and product portfolio to a greater
number of professionals in our targeted roles. In addition, we
intend to expand our international presence as the growing
impact of technology on business innovation creates demand for
external sources of objective research.
Developing and Retaining Outstanding Research
Professionals. The knowledge and experience of
our analysts are critical elements of our ability to provide
high-quality products and services. We employ outstanding
research professionals from varied backgrounds and a wide range
of industries. We believe that our culture, which emphasizes
quality, cooperation, and creativity, helps us to develop and
retain high-caliber research professionals. We provide a
competitive compensation structure, as well as recognition and
rewards for excellent individual and team performance.
Forrester’s
Solution
Our broad range of expertise on business and the impact of
technology enables us to offer our clients the best available
and most relevant research on changing business models, best
practices, technology investments, implementation advice, and
customer trends. Our solution provides our clients with:
A Unified Set of Services to Help our Clients and to Make
their Leaders Successful in their Roles. We offer
clients a comprehensive set of products and services to obtain
access to the research, data, analysts, and peer insights they
need to be successful in their professional roles, including,
for example, to:
•
Assess potential new markets, competitors, products, and
services, and
go-to-market
strategies.
•
Anticipate technology-driven business model shifts.
3
•
Understand trends in consumer behavior and how to capitalize on
those trends for marketing and sales purposes.
•
Educate, inform, and align strategic decision-makers in their
organizations.
•
Navigate technology purchase and implementation challenges and
optimize technology investments.
•
Capitalize on emerging technologies.
Expertise on Emerging Technologies. We started
our business in 1983 and have a long history of, and extensive
experience in, identifying trends and providing research and
executable advice on the impact of technology on business. Our
research analysts have many years of industry experience, are
frequent speakers at business and technology conferences, and
are often quoted in the media. They enjoy direct access to the
leaders and decision-makers within large enterprises and
technology vendors. We provide our research analysts with
training to ensure that they have the skills to challenge
conventional viewpoints and provide prescriptive, executable
insight and research to our clients.
Products
and Services
We offer our clients a selection of engagement opportunities
that are organized for and directed toward the multiple
professional roles we cover.
Roleviewtm
Research
Our primary syndicated research product, RoleView, provides
clients with access to our core syndicated research designed to
inform their strategic decision-making. RoleView consists of a
library of cross-linked documents that interconnects our
reports, data, product rankings, best practices, evaluation
tools, and research archives. RoleView access is provided
through role-based websites that facilitate client access to
research and tools that are most relevant to their professional
roles, including community tools that allow interaction between
and among clients and our analysts. Through this access
structure, RoleView addresses the interplay of an individual
client’s responsibilities and goals, business demands, and
organizational and technology capabilities.
Our RoleView research includes The Forrester
Wavetm.
The Forrester Wave provides a detailed analysis of vendors’
technologies and services based on transparent, fully accessible
criteria, and measurement of characteristics weighted by us. The
Forrester Wave includes an Excel spreadsheet that allows clients
to compare products and get in-depth data and analysis about
each one and tools to develop a custom shortlist based on the
client’s unique requirements. The Forrester Wave is our
primary mechanism for evaluating enterprise technologies.
Clients subscribing to RoleView may choose between two
membership levels:
•
RoleView Member Licenses. RoleView Member
Licenses include access to the written research, as well as
Inquiry with analysts, one Event seat, and access to Forrester
Teleconferences.
•
Inquiry. Inquiry enables clients to contact
our analysts for quick feedback on projects they may have
underway, to discuss ideas and models in the research, or for
answers to questions about unfolding industry events. Typically,
Inquiry sessions are
30-minute
phone calls, scheduled upon client request, or
e-mail
responses coordinated through our research specialists.
•
Event Seat. Events bring together executives
and other participants for one- or
multi-day
conferences to network with their peers and to hear business
leaders discuss the issues and solutions most pertinent to their
roles and responsibilities.
•
Forrester Teleconferences. Forrester
Teleconferences are hour-long audio conferences on selected
topics of interest to particular professional roles that
typically are held several times a week. They consist of an
analyst-led presentation followed by questions from
participants. Members may access the analyst Web presentation
and participate in the subsequent forum for questions and
discussion among all attendees. Teleconferences are also made
available for member download.
•
RoleView Reader Licenses. RoleView Reader
Licenses provide access to our written research.
4
Both Member and Reader clients receive access to our research
specialists, who provide additional information about our
research, methodologies, coverage areas, and sources. The
research specialists are available to help clients navigate our
website, find relevant information, and put clients in contact
with the appropriate analyst for inquiries.
Forrester
Leadership Boards
Our Forrester Leadership Boards are exclusive offerings for
executives and other key employees at large companies worldwide.
Clients may choose to participate in one or more Forrester
Leadership Boards. Memberships are available in the Chief
Information Officer (CIO) Group and the Chief Marketing Officer
(CMO) Group and in a number of additional IT, marketing, and
executive programs and councils addressing issues of interest to
the professional roles we cover. In addition to a Member license
to access RoleView, members of our Forrester Leadership Boards
receive access to the following:
•
advisors to assist members with individual research-related
questions, and topics of specific relevance to the challenges
these clients face,
•
membership-directed research which includes comprehensive
coverage of industry trends and best practices,
•
exclusive industry-specific benchmark data, and
•
peer-to-peer
networking through premier event meetings and group
audio-conferences, individual member to member conversations,
and virtual community activities.
Data
Products & Services
Our Data products and services focus on consumers’ and
business users’ attitudes about and behavior toward
technology, including ownership, future purchases, and adoption
trends. These products incorporate extensive survey research
designed and analyzed by our staff. Clients can leverage our
data products and services or choose to have us conduct data
analysis on their behalf. Our data products and services include:
•
Consumer
Technographics®
Data & Services. Consumer
Technographics delivers both primary data and quantitative
research, based on surveys of over 275,000 households in North
America, Europe and Asia Pacific which is analyzed and
categorized into relevant market segments to help organizations
and their leaders understand how consumers buy, think about, and
use technology, and thereby capitalize on changing consumer
behavior. We combine respondent data sets from our Consumer
Technographics surveys into four offerings: North American
Consumer Technology Adoption Study, European Consumer Technology
Adoption Study, Hispanic American Technology Adoption Study, and
Asia Pacific Consumer Technology Adoption Study. Additionally,
clients have access to a Technographics data specialist to help
them use the data effectively to meet their specific business
needs.
•
Business Data & Services. Our
Business Data Services is an ongoing quantitative research
program that provides comprehensive, in-depth assessments of
what motivates businesses to choose certain technologies and
vendors over others. We annually survey more than 14,000
business and IT executives at North American, European, and
other global markets large enterprises and small and midsize
businesses. Our surveys reveal these firms’ technology
adoption trends, budgets, business organization, decision
processes, purchase plans, and brand preferences. Business Data
and Services clients also have access to a data specialist and
input into survey design.
Forrester
Consulting
Our research-based advisory and project consulting services
leverage RoleView and our data products and services to deliver
focused insights and recommendations to assist clients in
developing and executing technology and business strategy,
informing critical decisions and reducing business risk, and
making large technology investments. For example, we help IT
professionals with vendor selection, compare best practices,
analyze whether outsourcing is advisable, and validate
technology infrastructure; marketing and strategy professionals
with consumer product strategy, direct marketing technology
investments, eBusiness strategy, and interactive marketing
5
strategy, including Web 2.0; and technology industry
professionals with market and competitive assessments,
go-to-market
strategy, custom market research, and product development.
Our consulting services include Website Reviews that provide
targeted, action-oriented assessments of clients’ websites,
extranets, or intranets. Feedback is based on comprehensive
examination of the clients’ website and web strategies as
well as reviews and comparisons with competitors’ websites,
other channels and industry benchmarks.
Forrester
Events
We host multiple Events in various locations in North America
and Europe throughout the year. Events build upon our research
and data products and services to bring together executives and
other participants serving or interested in the particular
professional role(s) in which an event focuses to network with
their peers, meet with Forrester analysts, and to hear business
leaders discuss business and technology issues of interest or
significance to the professional roles in attendance and the
impact of technology on the professionals and their businesses.
Sales and
Marketing
Our business is organized into three principal global client
groups that support our role-based strategy and closely align
with our client base: the IT Client Group, the
Marketing & Strategy Client Group, and the Technology
Industry Client Group. We sell our products and services through
each client group’s direct sales force in various locations
in North America, Europe, and Asia. We also sell our products
and services through independent sales representatives in select
international locations. We employed 353 salespersons as of
December 31, 2008, an increase of 15% from 308 as of
December 31, 2007. We also sell certain of our research
products directly online through our website.
For information on our operating segments and our international
operations, see Note 14 of the Notes to Consolidated
Financial Statements included herein.
Our marketing activities are designed to increase awareness of
the Forrester brand and further our reputation as a leader in
role-based business and technology research. We actively promote
brand awareness via our website, Forrester Events, extensive
worldwide press relations, and direct mail campaigns. We also
employ an integrated direct marketing strategy that uses
Internet, mail, and telephone channels for identifying and
attracting high-quality sales leads. We encourage our analysts
to increase our visibility by having their research ideas
selectively distributed through various Internet, print, and
television outlets.
As of December 31, 2008, our research was delivered to more
than 2,600 client companies. No single client company accounted
for more than 2% of our 2008 revenues.
We report our revenue from client contracts in two categories of
revenue: (1) research services and (2) advisory
services and other. Research offerings principally generate
research revenues, and Consulting offerings consist solely of
advisory services revenues. We classify revenue from our
Consumer Technographics Data & Services and Business
Data Services as research services revenue. Revenue from
memberships to the Forrester Leadership Boards is classified as
research services revenue, and revenue from Forrester Events is
classified as other revenue in our advisory services and other
revenue classification.
Contract pricing for annual memberships for research only is
principally a function of the number of licensed users at the
client. Pricing of contracts for research and advisory services
is a function of the number of licensed users, and the amount
and type of advisory services. The average contract for annual
memberships for research only in force at December 31, 2008
was approximately $47,900, an increase of 7% from $44,800 at
December 31, 2007. The average contract for an annual
membership for research services which also included advisory
services in force at December 31, 2008 was approximately
$88,200, a decrease of 2% from $89,800 at December 31, 2007.
We track the agreement value of contracts to purchase research
and advisory services as a significant business indicator. We
calculate agreement value as the total revenues recognizable
from all research and advisory service contracts in force at a
given time (but not including advisory-only contracts), without
regard to how much revenue
6
has already been recognized. Agreement value increased 13% to
$222.5 million at December 31, 2008 from
$197.2 million at December 31, 2007.
Research
Analysts and Methodology
We employ a structured methodology in our research that enables
us to identify and analyze technology trends, markets, and
audiences and ensures consistent research quality and
recommendations across all coverage areas. We seek to provide
relevant research that will contribute to the success of our
clients in their professional roles.
We ascertain the issues important to our clients and technology
users through thousands of interactions and surveys with vendors
and business, marketing, and IT professionals, and accordingly,
the majority of our research is focused on the issues our
clients face each day. We use the following primary research
inputs:
•
Confidential interviews with early adopters and mainstream users
of new technologies.
•
In-depth interviews with technology vendors and suppliers of
related services.
•
Ongoing briefings with vendors to review current positions and
future directions.
•
Continuous dialogue with our clients to identify technology
issues in the marketplace.
Our Consumer
Technographics®
and Business Data Services research combines our qualitative
research methodology with traditional survey research
methodologies such as correlation, frequency distribution,
cross-tabulation, and multivariate statistics to produce
research reports, quantitative survey data, and data briefs.
Third-party data vendors are frequently used for data collection
and tabulation.
The Forrester
Wavetm
combines in-depth product test results and user interviews with
market and strategic analysis to score attributes of emerging
technologies. We then apply this research and strategic analysis
to determine the weighting of each attribute and create
interactive spreadsheets, databases, and reports.
Collaboration among analysts is an integral part of our process,
leading to higher-quality research and a unified perspective.
All RoleView research begins either with a client or vendor
catalyst or with discussion sessions among analysts to generate
ideas for research. Analysts test ideas throughout the research
process at both informal and weekly research meetings. Our
reports are consistent in format, and we require our analysts to
write in a structure that combines graphics with
easy-to-read
text to deliver concise, decisive, relevant, and objective
research to our clients. At the final stage of the research
process, senior analysts meet to test the conclusions of each
research report.
Competition
We believe that the principal competitive factors in our
industry include the following:
•
Quality of research and analysis and related services.
•
The ability to offer products and services that meet the
changing needs of organizations and executives for research and
analysis.
•
Customer service.
•
Independent analysis and opinions
•
Timely delivery of information.
•
The ability to leverage new technologies.
•
Price.
We believe that we compete favorably with respect to each of
these factors. We believe that our role-based strategy and focus
on emerging technologies are significant competitive advantages.
Additionally, we believe that our role-based strategy, research
methodology,
easy-to-read
formats, and portfolio of complementary product offerings
distinguish us from our competitors.
7
We compete principally in the market for research and advisory
services about and relating to technology and its impact on
business. Our principal direct competitors include other
providers of similar services, such as Gartner Group, as well as
providers of peer networking services and Internet and digital
media measurement services. In addition, our indirect
competitors include the internal planning and marketing staffs
of our current and prospective clients, as well as other
information providers such as electronic and print publishing
companies, survey-based general market research firms, and
general business consulting firms. Our indirect competitors
could choose to compete directly against us in the future. In
addition, there are relatively few barriers to entry into our
market, and new competitors could readily seek to compete
against us in one or more market segments addressed by our
research. Increased competition could adversely affect our
operating results through pricing pressure and loss of market
share. There can be no assurance that we will be able to
continue to compete successfully against existing or new
competitors.
Employees
As of December 31, 2008, we employed a total of
1048 persons, including 409 research staff and 353 sales
personnel.
Our culture emphasizes certain key values — including
client service, quality, and creativity — that we
believe are critical to our future growth. We promote these
values through training and frequent recognition for
achievement. We encourage teamwork and promote and recognize
individuals who foster these values. New employees participate
in a
three-day
training process that focuses on our role-based strategy, our
products and services, corporate culture, values and goals.
Item 1A.
Risk
Factors
We are subject to risks and uncertainties that could cause our
actual future activities and results of operations to be
materially different from those set forth in forward-looking
statements made by us. These risks and uncertainties include:
Our Business may be Adversely Affected by the Current
Economic Downturn. Our business is in part
dependent on technology spending and is impacted by economic
conditions. The current global credit crisis and economic
downturn may materially and adversely affect demand for our
products and services. If current conditions in the United
States and global economy were to lead to a decrease in
technology spending, or, in demand for our research and advisory
services, this could have an adverse effect on our results of
operations and financial condition.
Fluctuations in Our Operating Results. Our
revenues and earnings may fluctuate from quarter to quarter
based on a variety of factors, many of which are beyond our
control, and which may affect our stock price. These factors
include, but are not limited to:
•
Trends in technology spending in the marketplace and general
economic conditions.
•
The timing and size of new and renewal memberships for our
research services from clients.
•
The utilization of our advisory services by our clients.
•
The timing of revenue-generating Events sponsored by us.
•
The introduction and marketing of new products and services by
us and our competitors.
•
The hiring and training of new analysts and sales personnel.
•
Changes in demand for our research and advisory services.
As a result, our operating results in future quarters may be
below the expectations of securities analysts and investors,
which could have an adverse effect on the market price for our
common stock. Factors such as announcements of new products,
services, offices, acquisitions or strategic alliances by us or
the technologies services industry may have a significant impact
on the market price of our common stock. The market price for
our common stock may also be affected by movements in prices of
stocks in general.
8
Our international operations expose us to a variety of
operational risks which could negatively impact our results of
operations. We have clients in over 60 countries
and a significant part of our revenue comes from international
sales. Our operating results are subject to the risks inherent
in international business activities, including general
political and economic conditions in each country, changes in
market demand as a result of tariffs and other trade barriers,
challenges in staffing and managing foreign operations, changes
in regulatory requirements, compliance with numerous foreign
laws and regulations, differences between U.S. and foreign
tax rates and laws, and the difficulty of enforcing client
agreements, collecting accounts receivable and protecting
intellectual property rights in international jurisdictions.
Furthermore, we rely on local independent sales representatives
in some international locations. If any of these arrangements
are terminated by our representative or us, we may not be able
to replace the arrangement on beneficial terms or on a timely
basis, or clients of the local sales representative may not want
to continue to do business with us or our new representative .
A Decline in Renewals for Our Membership-Based Research
Services. Our success depends in large part upon
retaining (on both a client company and dollar basis) and
enriching existing memberships for our research products and
services. Our client and dollar retention rates and enrichment
rate declined in 2007 as compared with 2006 and in 2008 as
compared with 2007. Any future declines in client retention,
dollar retention, and enrichment could have an adverse effect on
our results of operations.
Ability To Develop and Offer New Products And
Services. Our future success will depend in part
on our ability to offer new products and services. These new
products and services must successfully gain market acceptance
by addressing specific industry and business organization
sectors and by anticipating and identifying changes in client
requirements and changes in the technology industry. The process
of internally researching, developing, launching and gaining
client acceptance of a new product or service, or assimilating
and marketing an acquired product or service, is risky and
costly. We may not be able to introduce new, or assimilate
acquired, products or services successfully. Our failure to do
so would adversely affect our ability to maintain a competitive
position in our market and continue to grow our business.
Loss of Key Management. Our future success
will depend in large part upon the continued services of a
number of our key management employees. The loss of any one of
them, in particular George F. Colony, our founder, Chairman of
the Board and Chief Executive Officer, could adversely affect
our business.
The Ability To Attract and Retain Qualified Professional
Staff. Our future success will depend in large
measure upon the continued contributions of our senior
management team, research analysts, and experienced sales and
marketing personnel. Thus, our future operating results will be
largely dependent upon our ability to retain the services of
these individuals and to attract additional professionals from a
limited pool of qualified candidates. We experience competition
in hiring and retaining professionals from developers of
Internet and emerging-technology products, other research firms,
management consulting firms, print and electronic publishing
companies and financial services companies, many of which have
substantially greater ability, either through cash or equity, to
attract and compensate professionals. If we lose professionals
or are unable to attract new talent, we will not be able to
maintain our position in the market or grow our business.
Failure To Anticipate and Respond To Market
Trends. Our success depends in part upon our
ability to anticipate rapidly changing technologies and market
trends and to adapt our research to meet the changing
information needs of our clients. The technology and commerce
sectors that we analyze undergo frequent and often dramatic
changes. The environment of rapid and continuous change presents
significant challenges to our ability to provide our clients
with current and timely analysis, strategies and advice on
issues of importance to them. Meeting these challenges requires
the commitment of substantial resources. Any failure to continue
to provide insightful and timely analysis of developments,
technologies, and trends in a manner that meets market needs
could have an adverse effect on our market position and results
of operations.
Competition. We compete in the market for
research products and services with other independent providers
of similar services. We may also face increased competition from
Internet-based research firms. Some of our competitors have
substantially greater financial, information-gathering, and
marketing resources than we do. In addition, our indirect
competitors include the internal planning and marketing staffs
of our current and prospective clients, as well as other
information providers such as electronic and print publishing
companies, survey-based general market research firms and
general business consulting firms. Our indirect competitors may
choose to
9
compete directly against us in the future. In addition, there
are relatively few barriers to entry into our market, and new
competitors could readily seek to compete against us in one or
more market segments addressed by our products and services.
Increased competition could adversely affect our operating
results through pricing pressure and loss of market share.
Material weaknesses in our internal control over financial
reporting could lead to errors in our financial statements and a
lack of investor confidence in us and a resulting decline in our
stock price. We had material weaknesses in our
internal control over financial reporting at December 31,2006 relating to the proper accounting for non-cash stock-based
compensation expenses and the income tax accounting for goodwill
that resulted in restatements of our historical financial
statements. Internal controls that do not meet applicable
accounting and auditing standards could result in errors in our
financial statements and lead investors to question the
reliability and accuracy of our reported financial information.
Any such lack of confidence in the financial information that we
produce could cause investors to sell our stock and result in a
decline in our stock price.
We may realize losses on our investments or be unable to
liquidate these investments at desired times and in desired
amounts. The investment of our substantial cash
balance and our investment in
available-for-sale
securities are subject to risks which may cause losses and
affect the liquidity of these investments. At December 31,2008, we had $129.5 million in cash and cash equivalents
and $130.5 million in investments. We have historically
invested these amounts in U.S. government agencies,
municipal notes which may have an auction reset feature,
corporate notes and bonds, commercial paper, and money market
funds meeting certain criteria. Certain of these investments are
subject to general credit, liquidity, market and interest rate
risks, which may be exacerbated by financial markets and cause
credit and liquidity issues. During the year ended
December 31, 2008, we determined that any declines in the
fair value of our
available-for-sale
investments were temporary. There may be further declines in the
value of these investments, which we may determine to be
other-than-temporary.
These market risks associated with our investment portfolio may
have an adverse effect on our results of operations, liquidity
and financial condition.
At December 31, 2008, approximately 30% of our marketable
investments were in municipal notes investments, classified as
long-term investments, with an auction reset feature
(“auction rate securities” or “ARS”). In
February 2008, auctions had begun to fail for these securities,
which means that the parties wishing to sell securities could
not. Based on current market conditions, it is likely that
auction failures will continue and as a result, our ability to
liquidate our investment and fully recover the carrying value of
our investment in the near term may be limited or not exist.
Item 1B.
Unresolved
Staff Comments
We have not received written comments from the Securities and
Exchange Commission that remain unresolved.
Item 2.
Properties
Our headquarters are located in approximately
145,000 square feet of office space in Cambridge,
Massachusetts, substantially all of which is currently occupied
by the Company. This facility accommodates research, marketing,
sales, technology, and operations personnel. The lease term of
this facility expires in September 2011. We have the option to
extend this lease for an additional five-year term.
We also rent office space in Foster City and San Francisco,
California, New York City, Dallas, McLean Virginia, Amsterdam,
Frankfurt, London and Paris. We also lease office space on a
relatively short-term basis in various other locations in North
America, Europe and Asia.
We believe that our existing facilities are adequate for our
current needs and that additional facilities are available for
lease to meet future needs.
Item 3.
Legal
Proceedings
We are not currently a party to any material legal proceedings.
10
On September 3, 2008, we received a “Wells
Notice” from the Securities and Exchange Commission
(“SEC”) in connection with the previously disclosed
ongoing SEC investigation into our historical stock option
granting practices. The Wells Notice notified us that the staff
of the SEC intended to recommend that the SEC file a civil
action against us for possible violations of the securities
laws. Under the process established by the SEC, we responded in
writing to the Wells Notice before any formal recommendation was
made by the staff to the SEC. By letter dated March 5,2009, the staff of the SEC stated that it had completed its
investigation into our historical stock option granting
practices and that it does not intend to recommend any
enforcement action by the SEC against us.
Item 4.
Submission
of Matters to a Vote of Security Holders
None.
PART II
Item 5(a).
Market
For Registrant’s Common Equity And Related Stockholder
Matters
Our common stock is listed on the Nasdaq Global Select Market
under the symbol “FORR.” We did not declare or pay any
dividends during the fiscal years ended December 31, 2007
and 2008. We anticipate that future earnings, if any, will be
retained for the development of our business, and we do not
anticipate paying any cash dividends on our common stock in the
foreseeable future.
As of March 9, 2009 there were approximately 49
stockholders of record of our common stock. On March 9,2009 the closing price of our common stock was $16.49 per share.
The following table represents the ranges of high and low sale
prices of our common stock for the years ended December 31,2007 and December 31, 2008:
2007
2008
High
Low
High
Low
First Quarter
$
29.57
$
25.00
$
28.39
$
23.60
Second Quarter
$
31.36
$
25.35
$
32.23
$
25.03
Third Quarter
$
28.07
$
21.51
$
35.66
$
28.57
Fourth Quarter
$
28.39
$
20.28
$
28.63
$
19.55
11
The following graph contains the cumulative stockholder return
on our common stock during the period from December 31,2003 through December 31, 2008 with the cumulative return
during the same period for the Nasdaq Stock Market
(U.S. Companies) and the Russell 2000, and assumes that the
dividends, if any, were reinvested.
Cumulative Total Return
12/31/2003
12/31/2004
12/31/2005
12/31/2006
12/31/2007
12/31/2008
Forrester Research
100.00
101.07
105.63
152.73
157.86
157.86
Nasdaq Stock Market (US Companies)
100.00
108.84
111.16
122.11
132.42
63.80
Russell 2000
100.00
117.00
120.88
141.43
137.55
89.68
Item 5(c). Changes in Securities and Use of
Proceeds
Through 2008, our Board of Directors has authorized an aggregate
$150.0 million to purchase common stock under the stock
repurchase program. During the quarter ended December 31,2008, we purchased the following shares of our common stock
under the stock repurchase program:
Maximum Dollar
Value that May
Yet be Purchased
Total Number of
Average Price
Under the Stock
Period
Shares Purchased(1)
Paid per Share
Repurchase Program
(In thousands)
October 1 — October 31
—
—
$
33,485
November 1 — November 30
114,558
$
24.74
$
30,651
December 1 — December 31
71,751
$
20.92
$
29,150
186,309
$
23.27
$
29,150
(1)
All purchases of our common stock were made under the previously
announced stock repurchase program.
12
Item 6.
Selected
Consolidated Financial Data
The selected financial data presented below is derived from our
consolidated financial statements and should be read in
connection with those statements.
The following items impact the comparability of our consolidated
data:
•
In September 2006, the Company sold its Ultimate Consumer Panel
(“UCP”) product line and has reported the results of
operations of this business as a discontinued operation (see
Note 3 — Discontinued Operations in the Notes to
the Consolidated Financial Statements). As a result, the
statement of income and per share data for 2004 — 2006
were restated from the time of the sale to present the results
of the UCP product line as a discontinued operation in order to
be consistent with the current year presentation.
•
The results of JupiterResearch, LLC, and its parent company,
JUPR Holdings, Inc. (“JupiterResearch”) are included
in our consolidated results beginning July 31, 2008, the
date of acquisition.
Item 7.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Overview
We derive revenues from memberships to our research products and
from our advisory services and events. We offer contracts for
our research products that are typically renewable annually and
payable in advance. Research revenues are recognized as revenue
ratably over the term of the contract. Accordingly, a
substantial portion of our billings are initially recorded as
deferred revenue. Clients purchase advisory services
independently
and/or to
supplement their memberships to our research. Billings
attributable to advisory services are initially recorded as
deferred revenue and are recognized as revenue when the services
are performed. Event billings are also initially recorded as
deferred revenue and are recognized as revenue upon completion
of each event. Consequently, changes in the number and value of
client contracts, both net decreases as well as net increases,
impact our revenues and other results over the terms of the
contracts.
Our primary operating expenses consist of cost of services and
fulfillment, selling and marketing expenses, general and
administrative expenses, depreciation, and amortization of
intangible assets. Cost of services and fulfillment represents
the costs associated with the production and delivery of our
products and services, including salaries, bonuses, employee
benefits and non-cash stock-based compensation expense for
research personnel and all associated editorial, travel, and
support services. Selling and marketing expenses include
salaries, bonuses, employee benefits, non-cash stock-based
compensation expense, travel expenses, promotional costs, sales
commissions, and other costs incurred in marketing and selling
our products and services. General and administrative expenses
include the costs of the technology, operations, finance, and
strategy groups and our other administrative functions,
including salaries, bonuses, employee benefits, and non-cash
stock-based compensation expense. Overhead costs are allocated
over these categories according to the number of employees in
each group. Amortization of intangible assets represents the
cost of amortizing acquired intangible assets such as customer
relationships.
Deferred revenue, agreement value, client retention, dollar
retention and enrichment are metrics we believe are important to
understanding our business. We believe that the amount of
deferred revenue, along with the agreement value of contracts to
purchase research and advisory services, provide a significant
measure of our business activity. Deferred revenue reflects
billings in advance of revenue recognition as of the measurement
date. We calculate agreement value as the total revenues
recognizable from all research and advisory service contracts in
force at a given time (but not including advisory-only
contracts), without regard to how much revenue has already been
recognized. No single client accounted for more than 2% of
agreement value at December 31, 2008. We calculate client
retention as the percentage of client companies with memberships
expiring during the most recent twelve-month period who renewed
one or more of those memberships during that same period. We
calculate dollar
14
retention as a percentage of the dollar value of all client
membership contracts renewed during the most recent twelve-month
period to the total dollar value of all client membership
contracts that expired during the period. We calculate
enrichment as a percentage of the dollar value of client
membership contracts renewed during the period to the dollar
value of the corresponding expiring contracts. Client retention,
dollar retention, and enrichment are not necessarily indicative
of the rate of future retention of our revenue base. A summary
of our key metrics is as follows:
Year Ended
Absolute
Percentage
December 31,
Increase
Increase
2007
2008
(Decrease)
(Decrease)
Deferred Revenue (in millions at year-end)
$
111.4
$
113.8
$
2.4
2
%
Agreement Value (in millions at year-end)
$
197.2
$
222.5
$
25.3
13
%
Client Retention
75.0
%
73.0
%
(2.0
)
(3
)%
Dollar Retention
85.0
%
84.0
%
(1.0
)
(1
)%
Enrichment
105.0
%
102.0
%
(3.0
)
(3
)%
Number of clients (at year-end)
2,468
2,643
175
7
%
Average contract for annual memberships for research only in
force at year-end (in thousands)
$
44.8
$
47.9
$
3.1
7
%
Average contract for annual memberships for research with
advisory services in force at year-end (in thousands)
$
89.8
$
88.2
$
1.6
(2
)%
Year Ended
Absolute
Percentage
December 31,
Increase
Increase
2006
2007
(Decrease)
(Decrease)
Deferred Revenue (in millions at year-end)
$
99.9
$
111.4
$
11.5
12
%
Agreement Value (in millions at year-end)
$
172.8
$
197.2
$
24.4
14
%
Client Retention
77.0
%
75.0
%
(2.0
)
(2
)%
Dollar Retention
86.0
%
85.0
%
(1.0
)
(1
)%
Enrichment
112.0
%
105.0
%
(7.0
)
(6
)%
Number of clients (at year-end)
2,312
2,468
156
7
%
Average contract for annual memberships for research only in
force at year-end (in thousands)
$
43.5
$
44.8
$
1.3
3
%
Average contract for annual memberships for research with
advisory services in force at year-end (in thousands)
$
87.9
$
89.8
$
1.9
2
%
The increase in deferred revenue from 2007 to 2008 is primarily
due to the acquisition of JupiterResearch. The increase in
agreement value from 2007 to 2008 is primarily due to an
increase in the average contract size and to the acquisition of
JupiterResearch. The acquisition of JupiterResearch accounted
for $13.3 million of agreement value at December 31,2008. The increase in average contract size for research only
contracts and the decrease in average contract size for annual
memberships for research which also included advisory services
is a result of our objective to derive a higher percentage of
our revenues from research services, which generally have higher
operating margins because of the syndicated nature of these
services. Client retention, dollar retention and enrichment all
declined slightly year over year primarily due to the effects of
a global economic downturn.
The increase in deferred revenue and agreement value from 2006
to 2007 is primarily due to increases in the number of clients
and in the average contract size. The increase in average
contract size was due to an increased demand for our products.
The client retention decrease in 2007 compared to 2006 reflects
a greater proportion of new business contracts in 2006 than
previously experienced, which historically, and in 2007, have
renewed at lower rates. The decrease in client retention as well
as in enrichment in 2007 compared to 2006 also reflects lower
than historical renewal and enrichment rates in Europe and Asia
Pacific due in part to organizational re-alignment.
15
Critical
Accounting Policies and Estimates
Management’s discussion and analysis of financial condition
and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United
States of America (“GAAP”). The preparation of these
financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent
assets and liabilities. On an ongoing basis, we evaluate our
policies and estimates, including but not limited to, those
related to our revenue recognition, non-cash stock-based
compensation, allowance for doubtful accounts, non-marketable
investments, goodwill and intangible assets, income taxes and
valuation and impairment of marketable investments. Management
bases its estimates on historical experience and various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.
We consider the following accounting policies to be those that
require the most subjective judgment or those most important to
the portrayal of our financial condition and results of
operations. If actual results differ significantly from
management’s estimates and projections, there could be a
material effect on our financial statements. This is not a
comprehensive list of all of our accounting policies. In many
cases, the accounting treatment of a particular transaction is
specifically dictated by GAAP, with no need for
management’s judgment in its application. There are also
areas in which management’s judgment in selecting any
available alternative would not produce a materially different
result. For a discussion of our other accounting policies, see
Note 1 in the Notes to Consolidated Financial Statements in
Item 8 of this Annual Report on
Form 10-K,
beginning on
page F-6.
•
Revenue Recognition. We generate revenues from
licensing our research, performing advisory services, hosting
events and conducting teleconferences. We execute contracts that
govern the terms and conditions of each arrangement. Revenues
from contracts that contain multiple deliverables are allocated
among the separate units based on their relative fair values;
however, the amount recognized is limited to the amount that is
not contingent on future performance conditions. Research
service revenues are recognized ratably over the term of the
agreement. Advisory service revenues are recognized during the
period in which the customer receives the agreed upon
deliverable. Forrester Teleconferences revenue and reimbursed
out-of-pocket
expenses are recorded as advisory service revenues. Events
revenues are recognized upon completion of the event. Annual
memberships which include access to our research, unlimited
phone or email analyst inquiry, unlimited participation in
Forrester Teleconferences, and the right to attend one event,
are accounted for as one unit of accounting and recognized
ratably as research services revenue over the membership period.
We offer our clients a money back guarantee, which gives them
the right to cancel their contracts prior to the end of the
contract term. For contracts that are terminating during the
contract term, refunds would be issued for unused products or
services. Furthermore, our revenue recognition determines the
timing of commission expenses that are deferred and recorded as
expense as the related revenue is recognized. We evaluate the
recoverability of deferred commissions at each balance sheet
date.
•
Non-Cash Stock-Based Compensation. Statement
of Financial Accounting Standards (“SFAS”)
No. 123 (revised 2004), “Share-Based Payment”
(“SFAS No. 123R”) requires the recognition
of the fair value of stock-based compensation in net income. To
determine the fair value of stock- based compensation,
SFAS No. 123R requires significant judgment and the
use of estimates, particularly surrounding assumptions such as
stock price volatility, expected option lives and forfeiture
rates. The assumptions used in calculating the fair value of
share-based awards represent management’s best estimates,
but these estimates involve inherent uncertainties and the
application of management judgment. As a result, if
circumstances change and we use different assumptions, our
stock-based compensation expense could be materially different
in the future.
The development of an expected life assumption involves
projecting employee exercise behaviors (expected period between
stock option vesting dates and stock option exercise dates). We
are also required to estimate future forfeitures for recognition
of stock-based compensation expense. We will record additional
expense if the actual forfeitures are lower than estimated and
will record a recovery of prior expense if the actual
forfeitures are higher than estimated. The actual expense
recognized over the vesting period will only be for
16
those shares that vest. If our actual forfeiture rate is
materially different from our estimate, the actual stock-based
compensation expense could be significantly different from what
we have recorded in the current period.
•
Allowance for Doubtful Accounts. We maintain
an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make
contractually obligated payments. When evaluating the adequacy
of the allowance for doubtful accounts, management makes
judgments regarding the collectibility of accounts receivable by
specifically analyzing historical bad debts, customer
concentrations, current economic trends, and changes in our
customer payment terms. If the financial condition of our
customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be
required, and if the financial condition of our customers were
to improve, the allowances may be reduced accordingly.
•
Non-Marketable Investments. We hold minority
interests in technology-related companies and equity investment
funds. These investments are in companies that are not publicly
traded, and, therefore, because no established market for these
securities exists, the estimate of the fair value of our
investments requires significant judgment. Investments that are
accounted for using the cost method are valued at cost unless an
other than temporary impairment in its value occurs or the
investment is liquidated. For investments that are accounted for
using the equity method we record our share of the
investee’s operating results each period. We have a policy
in place to review the fair value of our investments on a
regular basis to evaluate the carrying value of the investments
in these companies, which consists primarily of reviewing the
investee’s revenue and earnings trends relative to
predefined milestones and overall business prospects. We record
impairment charges when we believe that an investment has
experienced a decline in value that is other than temporary.
Future adverse changes in market conditions or poor operating
results of underlying investments could result in losses or an
inability to recover the carrying value of the investments that
may not be reflected in an investment’s current carrying
value, thereby possibly requiring an impairment charge in the
future.
•
Goodwill and Intangible Assets and Other Long-Lived
Assets. We have goodwill and identified
intangible assets with finite lives related to our acquisitions.
SFAS No. 142, “Goodwill and Other Intangible
Assets,”requires that goodwill and intangible assets
with indefinite lives be measured for impairment at least
annually or whenever events indicate that there may be an
impairment. In order to determine if an impairment exists, we
compare the reporting unit’s carrying value to the
reporting unit’s fair value. Determining the reporting
unit’s fair value requires us to make estimates on market
conditions and operational performance. Absent an event that
indicates a specific impairment may exist, we have selected
November 30th as the date of performing the annual
goodwill impairment test. Future events could cause us to
conclude that impairment indicators exist and that goodwill
associated with our acquired businesses is impaired. Any
resulting impairment loss could have a material adverse impact
on our financial condition and results of operations.
Intangible assets with finite lives consist of acquired customer
relationships, research content and trademarks and are valued
according to the future cash flows they are estimated to
produce. These assigned values are amortized on an accelerated
basis which matches the periods in which the economic benefits
are expected to be realized. Tangible assets with finite lives
consist of property and equipment, which are depreciated and
amortized over their estimated useful lives. We continually
evaluate whether events or circumstances have occurred that
indicate that the estimated remaining useful life of our
identifiable intangible and long-lived tangible assets may
warrant revision or that the carrying value of these assets may
be impaired. To compute whether intangible assets have been
impaired, the estimated undiscounted future cash flows for the
estimated remaining useful life of the assets are compared to
the carrying value. To the extent that the future cash flows are
less than the carrying value, the assets are written down to the
estimated fair value of the asset.
•
Income Taxes. We have deferred tax assets
related to temporary differences between the financial statement
and tax bases of assets and liabilities as well as operating
loss carryforwards (primarily from the acquisitions of Giga
Information Group, Inc. in 2003 and JupiterResearch, LLC, and
its parent company, JUPR Holdings, Inc.
(“JupiterResearch”) in 2008). Such amounts are
adjusted as appropriate to reflect
17
changes in the tax rates expected to be in effect when the
temporary differences reverse. In assessing the realizability of
deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary
differences become deductible and before the carryforwards
expire. A valuation allowance is established for any deferred
income tax asset for which realization is less than likely.
Effective January 1, 2007, we adopted FASB Interpretation
No. (“FIN”) 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”). FIN 48
clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in
accordance with SFAS No. 109, “Accounting for
Income Taxes” (“SFAS No. 109”).
FIN 48 prescribes a recognition threshold and measurement
attribute for financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return,
and also provides guidance on derecognition, classification,
interest and penalties, accounting for interim periods,
disclosure and transition. The impact of the adoption of
FIN 48 is discussed in Note 7 to our consolidated
financial statements. The Company records interest and penalties
related to unrecognized tax benefits in income tax expense.
•
Valuation and Impairment of Marketable
Investments. Our investment portfolio may at any
time contain investments in U.S. Treasury and U.S
government agency securities, taxable
and/or tax
exempt municipal notes (some of which may have an auction reset
feature), corporate notes and bonds, commercial paper and money
market funds. In the current market environment, the assessment
of the fair value of the debt securities can be difficult and
subjective. The volume of trading activity of certain debt
instruments has declined, and the rapid changes occurring in
today’s financial markets can lead to changes in the fair
value of financial instruments in relatively short periods of
time. SFAS No. 157, “Fair Value
Measurements” (SFAS No. 157) establishes
three levels of inputs that may be used to measure fair value
(see Note 5 to the financial statements), each of which has
different levels of difficulty and subjectivity involved in
determining fair value.
Level 1 instruments generally represent quoted prices in
active markets. Therefore, determining fair value for
Level 1 instruments generally does not require significant
management judgment, and the estimation is not difficult.
Level 2 instruments include inputs other than Level 1
that are observable, either directly or indirectly, such as
quoted prices for similar assets or liabilities; quoted prices
for identical instruments in markets that are not active; or
other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the
assets or liabilities.
Level 3 instruments include unobservable inputs that are
supported by little or no market activity and that are
significant to the fair value of the assets or liabilities. The
determination of fair value for Level 3 instruments
requires the most management judgment and subjectivity.
We continually evaluate whether any
available-for-sale
securities have been impaired and, if so, whether such
impairment is temporary or other than temporary. We consider
various factors in determining whether to recognize an
impairment charge, including the length of time and extent to
which the fair value has been less than the Company’s cost
basis, the financial condition and near-term prospects of the
investee, and our intent and ability to hold the investment for
a period of time sufficient to allow for any anticipated
recovery in the market value.
As of December 31, 2008, we held $39.6 million of
municipal bonds (or 19% of our total investment portfolio) with
an auction reset feature (“auction rate securities” or
“ARS”) with two investment advisors, both of which
provided a valuation of Level 3 inputs for the ARS
investments. One investment advisor utilized a discounted cash
flow approach which resulted in a valuation of
$28.6 million and which was corroborated by a separate and
comparable discounted cash flow analysis prepared by us. The
assumptions used in preparing the discounted cash flow model
include estimates, based on data available at December 31,2008, of interest rates, timing and amount of cash flows, credit
and liquidity premiums, and expecting holding periods of the
ARS. The discounted cash flow technique was used to value the
ARS investments that
18
were principally backed by student loans, which has had
virtually no market activity since the auction failure began in
2008. The other investment advisor provided a valuation at par
value based on the limited market activity, which we consider to
be a Level 3 input, in addition to the underlying credit
rating of the ARS, which was generally related to
municipalities. We corroborated the valuation by reviewing
confirmations of the trades and the underlying credit ratings of
the securities. The assumptions used in valuing both the ARS and
the put option are volatile and subject to change as the
underlying sources of these assumptions and market conditions
change, which may lead us in the future to take an impairment
charge for these securities.
In November 2008, we accepted an offer (the “Right”)
from UBS AG (“UBS”), one of our investment advisors,
entitling us to sell at par value auction-rate securities
originally purchased from UBS (approximately $35.5 million,
par value) at anytime during a two-year period from
June 30, 2010 through July 2, 2012 (“UBS
ARS”). In accepting the Right, we also granted UBS the
authority to sell or auction the UBS ARS at par at any time up
until the expiration date of the offer and released UBS from any
claims relating to the marketing and sale of the UBS ARS.
Although the Company expects to sell its UBS ARS under the
Right, if the Right is not exercised before July 2, 2012,
it will expire and UBS will have no further rights or obligation
to buy the Company’s UBS ARS. If the Company does not
exercise the Right, the UBS ARS will continue to accrue interest
as determined by the auction process or the terms outlined in
the prospectus of the UBS ARS if the auction process fails.
UBS’s obligations under the Right are not secured by its
assets and do not require UBS to obtain any financing to support
its performance obligations under the Rights. UBS has disclaimed
any assurance that it will have sufficient financial resources
to satisfy its obligations under the Rights. If UBS has
insufficient funding to buy back the UBS ARS and the auction
process continues to fail, then we may incur further losses on
the carrying value of the UBS ARS.
The enforceability of the Right results in a put option and is
recognized as a separate freestanding instrument that is
accounted for separately from the underlying UBS ARS investment.
We elected to account for this put option at fair value under
FASB Statement No. 159, “The Fair Value Option for
Financial Assets and Liabilities” (SFAS 159). We
valued the put option using a discounted cash flow approach
including estimates of interest rates and timing and amount of
cash flow, based on data available at December 31, 2008 and
adjusted for any bearer risk associated with UBS’s
financial ability to repurchase the ARS beginning June 30,2010. These assumptions are volatile and subject to change as
the underlying sources of these assumptions and market
conditions change and any change in these assumptions and market
conditions would affect the value of this Right. The value of
the put option of $6.9 million, which largely offsets the
unrealized loss on the UBS ARS securities subject to the Right,
is included in the Consolidated Balance Sheet as of
December 31, 2008 as long-term investments and on the
Statement of Income, together with the unrealized loss on the
UBS ARS subject to the Right for the year ended
December 31, 2008, as Other Income, net. We believe that
subsequent changes in the value of the put option will largely
offset the subsequent fair value movements of the UBS ARS,
subject to the continued expected performance by the financial
institution of its obligations under the agreement.
Our remaining ARS are held by another investment advisor, who
has not made an offer similar to UBS and we continue to classify
them as
available-for-sale
securities. Accordingly, any change in associated market value
has been recorded against other comprehensive income during the
year ended December 31, 2008. If the market conditions
deteriorate further, we may be required to record unrealized
losses in other comprehensive income or impairment charges. We
may not be able to liquidate these investments unless the issuer
calls the security, a successful auction occurs, a buyer is
found outside of the auction process, or the security matures.
Gains (impairments) from non-marketable investments
—
(1
)
—
Income from continuing operations before income tax provision
14
14
19
Income tax provision
5
5
7
Income from continuing operations
9
9
12
Gain on sale of discontinued operations, net of taxes
1
—
—
Net income
10
%
9
%
12
%
2008
compared to 2007
Absolute
Percentage
Increase
Increase
2007
2008
(Decrease)
(Decrease)
Revenues (dollars in millions)
$
212.1
$
240.9
$
28.8
14
%
Revenues from research services (dollars in millions)
$
131.2
$
155.3
$
24.1
18
%
Revenues from advisory services and other (dollars in millions)
$
80.9
$
85.5
$
4.6
6
%
Revenues attributable to customers outside of the US (dollars in
millions)
$
62.3
$
67.9
$
5.6
9
%
Percentage of revenue attributable to customers outside of the US
29
%
28
%
(1
)
(3
)%
Number of clients (at end of period)
2,468
2,643
175
7
%
Number of research employees (at end of period)
336
409
73
22
%
Number of events
13
14
1
8
%
The increase in total revenues, research services revenues and
international revenues is primarily due to an increase in the
number of clients, which resulted primarily from an increase in
sales personnel, the acquisition of JupiterResearch, favorable
exchange rates, reduced discounting and increased prices. Of the
14% increase in revenues, the acquisition of JupiterResearch
accounted for 3% and the impact of exchange rates accounted for
1%. The increase in advisory services and other revenues is
primarily attributable to an increased demand for these services
and an increase in research personnel available to deliver such
services. No single client company accounted for more than 2% of
revenues during 2007 or 2008.
20
The decrease in international revenues as a percentage of total
revenues is primarily attributable to demand for our products
and services growing at a faster rate domestically than
internationally.
Research services revenues as a percentage of total revenues
increased from 62% in 2007 to 64% in 2008 as a result of our
objective to drive a higher percentage of our total revenue from
research services. In 2008 the Company modified its sales
compensation plan for greater alignment with this objective.
Cost
of Services and Fulfillment
Absolute
Percentage
Increase
Increase
2007
2008
(Decrease)
(Decrease)
Cost of services and fulfillment (dollars in millions)
$
81.6
$
87.8
$
6.2
8
%
Cost of services and fulfillment as a percentage of total
revenues
38
%
36
%
(2
)
(5
)%
Number of research and fulfillment employees (at end of period)
412
495
83
20
%
The increase in cost of services and fulfillment in dollars is
primarily attributable to increased compensation and benefits
costs resulting from an increase in the number of research and
fulfillment employees, both as a result of the acquisition of
JupiterResearch and organically, partially offset by a decrease
in stock-based compensation. The acquisition of JupiterResearch
resulted in additional cost of services and fulfillment expense
of $3.3 million. The decrease in cost of services and
fulfillment as a percentage of total revenues is primarily
attributable to an increased revenue base and the focus on
expense management in the second half of the year in light of
the global economic downturn.
Selling
and Marketing
Absolute
Percentage
Increase
Increase
2007
2008
(Decrease)
(Decrease)
Selling and marketing expenses (dollars in millions)
$
71.8
$
79.9
$
8.1
11
%
Selling and marketing expenses as a percentage of total revenues
34
%
33
%
(1
)
(3
)%
Selling and marketing employees (at end of period)
357
403
46
13
%
The increase in selling and marketing expenses in dollars is
primarily attributable to increased compensation and benefits
costs resulting from an increase in the number of selling and
marketing employees, including as a result of the acquisition of
JupiterResearch. The acquisition of JupiterResearch resulted in
additional selling and marketing expense of $1.4 million.
The decrease in selling and marketing expenses as a percentage
of total revenues is primarily attributable to an increased
revenue base and the focus on expense management in the second
half of the year in light of the global economic downturn.
General
and Administrative
Absolute
Percentage
Increase
Increase
2007
2008
(Decrease)
(Decrease)
General and administrative expenses (dollars in millions)
$
30.7
$
29.7
$
(1.0
)
(3
)%
General and administrative expenses as a percentage of total
revenues
14
%
12
%
(2
)
(14
)%
General and administrative employees (at end of period)
134
150
16
12
%
The decrease in general and administrative expenses in dollars
and as a percentage of total revenues is primarily attributable
to decreased professional services costs associated with the
stock option investigation and restatement of our historical
financial statements offset by increased compensation and
benefits costs resulting from an increase in the number of
general and administrative employees, including those added as a
result of the
21
acquisition of JupiterResearch. The acquisition of
JupiterResearch resulted in additional general and
administrative expense of $400,000.
Depreciation
Depreciation expense remained consistent at $4.0 million
for the year-ended December 31, 2008 compared to the
year-ended December 31, 2007.
Amortization
of Intangible Assets
Absolute
Percentage
2007
2008
Increase
Increase
Amortization expense (dollars in millions)
$
1.2
$
1.4
$
0.2
17
%
Amortization expense as a percentage of total revenues
1
%
1
%
—
—
The increase in amortization expense is primarily attributable
to amortization of intangible assets from the acquisition of
JupiterResearch on July 31, 2008, offset by a decrease
resulting from the amortization of the intangible assets from
the acquisition of Giga Information Group, Inc.
(“Giga”) and Giga Group, S.A. (“Giga
Group”) which became fully amortized in 2008.
Other
Income, Net
Other income, net decreased 36% to $5.4 million in 2008
from $8.4 million in 2007. The decrease is primarily due to
a net foreign exchange loss of $1.6 million resulting
primarily from the remeasurement of certain intercompany
payables and receivables. Of the net loss recognized,
$1.9 million related to periods prior to 2008. Also
contributing to the decrease in other income was lower interest
income primarily attributable to lower returns on invested
capital.
Gains
on Sales of Marketable Investments
In 2007, we sold approximately 20,000 shares of comScore,
Inc., receiving proceeds of approximately $655,000 and
recognizing a gain of approximately $603,000 related to the
sale. In 2008, we sold the remaining 106,000 shares of
comScore, receiving proceeds of approximately $2.3 million
and recording a gain of approximately $2.0 million related
to the sale.
Gains
(Impairments) from Non-Marketable Investments.
Gains on non-marketable investments resulted from distributions
from our investments and totaled $537,000 during 2007 compared
to $208,000 during 2008. Impairments of non-marketable
investments resulted in net charges of $2.1 million during
2007 compared to $792,000 during 2008.
Provision
for Income Taxes
Absolute
Percentage
2007
2008
Increase
Increase
Provision for Income Taxes (dollars in millions)
$
11.1
$
15.6
$
4.5
41
%
During 2008, our effective tax rate was 34.8% compared to 36.9%
in 2007. The decrease in our effective tax rate for 2008
resulted primarily from a decrease in valuation allowance
against foreign deferred tax asset and a decrease in
nondeductible expenses including nondeductible stock
compensation, offset by a decrease in tax exempt investment
income.
22
2007
compared to 2006
Revenues
Absolute
Percentage
2006
2007
Increase
Increase
Revenues (dollars in millions)
$
181.5
$
212.1
$
30.6
17
%
Revenues from research services
$
114.9
$
131.2
$
16.3
14
%
Revenues from advisory services and other
$
66.6
$
80.9
$
14.3
22
%
Revenue Attributable to customers outside of the US
$
53.2
$
62.3
$
9.1
17
%
Percentage of Revenue Attributable to customers outside of the US
29
%
29
%
—
—
Number of clients (at end of period)
2,312
2,468
156
7
%
Number of research employees (at end of period)
291
336
45
15
%
Number of events
9
13
4
44
%
The increase in total revenues and in research revenues is
primarily due to an increase in the number of clients in 2007 as
compared to 2006, increased demand for certain of our syndicated
research products, an increase in sales personnel, favorable
exchange rates, reduced discounting and increased prices. The
increase in advisory services and other revenues is primarily
attributable to increased demand for more customized services
and increased research personnel available to deliver advisory
services as well as to an increase in event sponsorship and
attendance created in part by the increase in number of events.
No single client company accounted for more than 2% of revenues
during 2006 or 2007. The effects of foreign currency translation
accounted for approximately 2% of the 17% increase in total
revenues from 2006 to 2007
Research services revenues as a percentage of total revenues
declined from 63% in 2006 to 62% in 2007 as customer demand
continued to shift towards advisory services, which is reflected
in the increase in advisory services and other revenues during
2007.
International revenues increased due to increased demand for our
products internationally and to a lesser extent the effects of
foreign currency translation.
Cost
of Services and Fulfillment
Absolute
Percentage
Increase
Increase
2006
2007
(Decrease)
(Decrease)
Cost of services and fulfillment (dollars in millions)
$
73.3
$
81.6
$
8.3
11
%
Cost of services and fulfillment as a percentage of total
revenues
40
%
38
%
(2
)
(5
)%
Number of research and fulfillment employees (at end of period)
362
412
50
14
%
The increase in cost of services and fulfillment in 2007 as
compared to 2006 is primarily attributable to increased
compensation and benefit costs resulting from an increase in
average headcount and an increase in non-cash stock-based
compensation expense. The decrease in cost of services and
fulfillment as a percentage of total revenues is primarily
attributable to an increased revenue base.
Selling
and Marketing
Absolute
Percentage
2006
2007
Increase
Increase
Selling and marketing expenses (dollars in millions)
$
59.6
$
71.8
$
12.2
21
%
Selling and marketing expenses as a percentage of total revenues
33
%
34
%
1
3
%
Selling and marketing employees (at end of period)
303
357
54
18
%
23
The increase in selling and marketing expenses, as well as the
increase in selling and marketing expenses as a percentage of
total revenues, in 2007 as compared to 2006 is primarily
attributable to increased compensation and benefit costs
resulting from an increase in new sales personnel, particularly
in the second half of the year with full productivity generally
not realized during 2007, annual increases in compensation
costs, and to a lesser extent increase in travel costs related
to the increase in average headcount.
General
and Administrative
Absolute
Percentage
2006
2007
Increase
Increase
General and administrative expenses (dollars in millions)
$
22.9
$
30.7
$
7.8
35
%
General and administrative expenses as a percentage of total
revenues
13
%
14
%
1
8
%
General and administrative employees (at end of period)
114
134
20
18
%
The increase in general and administrative expenses for 2007 as
compared to 2006, and in general and administrative expenses as
a percentage of total revenues in 2007 as compared to 2006 is
primarily attributable to increased professional costs
associated with the stock option investigation and restatement
of our financial statements. The increase in general and
administrative expenses is also due to increased compensation
expense resulting from an increase in average headcount.
Depreciation
Absolute
Percentage
2006
2007
Increase
Increase
Depreciation expense (dollars in millions)
$
3.6
$
4.0
$
0.4
11
%
Depreciation expense as a percentage of total revenues
2
%
2
%
—
—
The increase in depreciation expense is primarily attributable
to purchases of computer equipment and software during 2006 and
2007.
Amortization
of Intangible Assets.
Absolute
Percentage
2006
2007
(Decrease)
(Decrease)
Amortization expense (dollars in millions)
$
2.1
$
1.2
$
(0.9
)
(43
)%
Amortization expense as a percentage of total revenues
1
%
1
%
—
—
The decrease in amortization expense is primarily attributable
to the accelerated method we are using to amortize our acquired
intangible assets according to the expected cash flows to be
received from these assets.
Other Income, Net. Other income, net increased
47% to $8.4 million in 2007 from $5.7 million in 2006.
The increase is primarily due to an increase in the average cash
and investment balances available for investment in 2007 as
compared to 2006 and to higher returns on invested capital.
Gains
on Sales of Marketable Investments.
In 2007, we sold approximately 20,000 shares of comScore,
Inc., received proceeds of approximately $655,000, and
recognized a gain of approximately $603,000 related to the sale.
Gains
(Impairments) from Non-Marketable Investments.
Gains on non-marketable investments resulted from distributions
from our investments and totaled $537,000 during 2007 compared
to $575,000 during 2006. Impairments of non-marketable
investments resulted in net charges of $2.1 million during
2007 compared to $227,000 during 2006.
24
Gain
on Sale of Discontinued Operations, Net of Taxes.
In 2006, we completed the sale of our Ultimate Consumer Panel
(“UCP”) product line to Lightspeed Online Research,
Inc. for $2.5 million in cash, of which $2.25 million
was paid at the closing date subject to a working capital
adjustment, with the remainder paid nine months after the
closing date. The sale resulted in a gain on the disposal of
discontinued operations of $1.4 million, net of
$1.0 million of taxes.
Provision
for Income Taxes
Absolute
Percentage
2006
2007
Increase
Increase
Provision for Income Taxes (dollars in millions)
$
10.0
$
11.1
$
1.1
11
%
During 2007, our effective tax rate was 36.9% compared to 38.5%
in 2006. The decrease in our effective tax rate for fiscal year
2007 resulted primarily from an increase in tax exempt
investment income and a decrease in the tax rate in Germany
offset by an increase in the state tax rate.
Results
of Quarterly Operations
The following tables set forth a summary of our unaudited
quarterly operating results for each of our eight most recently
ended fiscal quarters. We have derived this information from our
unaudited interim consolidated financial statements, which, in
the opinion of our management, have been prepared on a basis
consistent with our financial statements contained elsewhere in
this Annual Report on
Form 10-K
and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation in accordance
with generally accepted accounting principles in the United
States when read in conjunction with our consolidated financial
statements and related notes included elsewhere in this annual
report. Historically, our total revenues, operating profit, and
net income in the fourth quarter have reflected the significant
positive contribution of revenues attributable to advisory
services performed. As a result, we have historically
experienced a decline in total revenues, operating profit, and
net income from the quarter ended December 31 to the quarter
ended March 31. Our quarterly operating results are not
necessarily indicative of future results of operations.
Gains (loss) from non-marketable investments, net of impairments
—
(4
)
—
—
—
3
—
(1
)
Income before income tax provision
7
12
16
19
16
22
17
19
Income tax provision
3
4
3
9
7
8
6
4
Net income
4
%
8
%
13
%
10
%
9
%
14
%
11
%
15
%
Liquidity
and Capital Resources
We have financed our operations primarily through funds
generated from operations. Memberships for research services,
which constituted approximately 64% of our revenues during 2008,
are annually renewable and are generally payable in advance. We
generated cash from operating activities of $43.7 million
during 2008 and $38.1 million during 2007. The increase in
cash provided from operations is primarily attributable to
improved net income and a decrease in accounts receivable in the
fourth quarter of 2008 as compared with the fourth quarter of
2007 due to a slowdown in our business toward the end of 2008.
During 2008, we generated $38.6 million of cash from
investing activities, consisting primarily of $63.7 million
generated from net sales of marketable investments offset by
$22.4 million for the purchase of JupiterResearch.
During 2007, we used $25.3 million of cash in investing
activities, consisting primarily of $23.2 million used in
net purchases of marketable investments. We regularly invest
excess funds in short and intermediate-term interest-bearing
obligations of investment grade.
In June 2000, we committed to invest $20.0 million in two
technology-related private equity investment funds over an
expected period of five years. As of December 31, 2008, we
had contributed approximately $19.6 million to the funds.
The timing and amount of future contributions are entirely
within the discretion of the investment funds. In July 2000, we
adopted a cash bonus plan to pay bonuses, after the return of
invested capital, measured by the proceeds of a portion of the
share of net profits from these investments, if any, to certain
key employees who must remain employed with us at the time any
bonuses become payable under the plan, subject to the terms and
conditions of the plan. The principal purpose of this cash bonus
plan was to retain key employees by allowing them to participate
in a portion of the potential return from Forrester’s
technology-related investments if they remained employed by the
Company. The plan was established at a time when technology and
internet companies were
26
growing significantly, and providing incentives to retain key
employees during that time was important. To date, we have not
paid any bonuses under this plan.
We used $3.4 million in cash from financing activities
during 2008 and we generated $400,000 during 2007. The increased
use of cash in financing activities is primarily attributable to
an increase in purchases of our stock pursuant to our stock
repurchase program, offset by an increase in proceeds from
exercises of employee stock options.
Through 2008, our Board of Directors authorized an aggregate
$150.0 million to purchase our common stock under the stock
repurchase program. During 2007 and 2008, we repurchased 172,000
and 1.1 million shares of common stock at an aggregate cost
of approximately $4.6 million and $30.4 million,
respectively. As of December 31, 2008, we had cumulatively
repurchased approximately 6.1 million shares of common
stock at an aggregate cost of approximately $120.9 million.
As of December 31, 2008, we held approximately
$39.6 million of state and municipal bonds with an auction
reset feature (auction rate securities or “ARS”) whose
underlying assets are generally student loans which are
substantially backed by the federal government or
municipalities. In February 2008, auctions began to fail for
these securities. Based on current market conditions, auction
failures have continued and, as a result, our ability to
liquidate our investment and fully recover the carrying value of
our investment in the near term may be limited or not exist. In
November 2008, we accepted an offer (the “Right”) from
UBS AG (“UBS”), one of our investment advisors,
entitling us to sell at par ARS originally purchased from
UBS (approximately $35.5 million, par value) at anytime
during a two-year period from June 30, 2010 —
July 2, 2012 (“UBS ARS”). We have the ability and
intent to hold our UBS ARS, valued at $28.6 million at
December 31, 2008, until a successful auction occurs and
the UBS ARS are liquidated at par value or until we are able to
sell our UBS ARS under the Right. Based on our expected
operating cash flows and our cash resources, we do not
anticipate the current lack of liquidity on our ARS investments
will affect our ability to execute our current business plan.
As of December 31, 2008, we had cash and cash equivalents
of $129.5 million and marketable investments and long-term
investments of $130.5 million. We do not have a line of
credit and do not anticipate the need for one in the foreseeable
future. We plan to continue to introduce new products and
services and expect to make the requisite investments in our
infrastructure during the next 12 months. We believe that
our current cash balance, marketable investments, and cash flows
from operations will satisfy working capital, financing
activities, and capital expenditure requirements for at least
the next two years.
As of December 31, 2008, we had future contractual
obligations as follows for operating leases:
Contractual
Future Payments by Year
Obligations
Total
2009
2010
2011
2012
2013
Thereafter
(In thousands)
Operating leases
$
26,924
9,793
9,177
5,697
903
441
913
•
The above table does not offset the operating lease payments by
future minimum rentals of $157,000 we expect to receive under
subleases. The above table also does not include the remaining
$425,000 of capital commitments to the private equity funds
described above due to the uncertainty as to the timing of
capital calls made by such funds.
Off-Balance
Sheet Arrangements
We do not maintain any off-balance sheet financing arrangements.
Recent
Accounting Pronouncements
See Note 1 of the Notes to Consolidated Financial
Statements in Item 8. Financial Statements and
Supplementary Data for a full description of recent accounting
pronouncements including the respective expected dates of
adoption and effects on results of operations and financial
condition.
27
Item 7A.
Quantitative
and Qualitative Disclosures About Market Risk
The following discussion about our market risk disclosures
involves forward-looking statements. Actual results could differ
materially from those projected in the forward-looking
statements. We are exposed to market risk related to changes in
interest rates and foreign currency exchange rates. We do not
use derivative financial instruments.
The primary objective of our investment activities is to
preserve principal while at the same time maximizing the income
we receive from our investments without significantly increasing
risk. To achieve this objective, we maintain our portfolio of
cash equivalents and marketable investments in a variety of
securities, including U.S. government agencies, municipal
notes which may have an auction reset feature (“auction
rate securities” or “ARS”), corporate notes and
bonds, commercial paper, and money market funds. The securities,
other than money market funds, and the ARS for which we have
accepted the Right from UBS and were reclassified to trading,
are classified as available-for-sale and consequently are
recorded on the balance sheet at fair value with unrealized
gains or losses reported as a separate component of accumulated
other comprehensive income (loss). If interest rates rise, the
market value of our investments may decline, which could result
in a realized loss if we are forced to sell an investment before
its scheduled maturity. We have the ability to hold our fixed
income investments until maturity (without giving effect to any
future acquisitions or mergers). Therefore, we would not expect
our operating results or cash flows to be affected to any
significant degree by a sudden change in market interest rates
on our securities portfolio.
At December 31, 2008, we held approximately
$39.6 million of ARS. In February 2008, auctions began to
fail for these securities. As the funds associated with the ARS
may not be accessible for in excess of twelve months because of
continued failed auctions or the inability to find a buyer
outside of the auction process, these securities were classified
as long-term investments as of December 31, 2008. Based on
current market conditions, it is likely that auction failures
will continue and as a result, our ability to liquidate our
investment and fully recover the carrying value of our
investment in the near term may be limited or not exist. At
December 31, 2008, the Company held ARS with two investment
advisors, both of which provided a valuation based on
Level 3 inputs for the ARS investments. One investment
advisor utilized a discounted cash flow approach which resulted
in a valuation of $28.6 million, reflecting a
$6.9 million impairment during the year ended
December 31, 2008 and which was corroborated by a separate
and comparable discounted cash flow analysis prepared by the
Company. The assumptions used in preparing the discounted cash
flow model include estimates of interest rates, timing and
amount of cash flows, credit and liquidity premiums, and
expected holding periods of the ARS, based on data available at
December 31, 2008. The discounted cash flow technique was
used to value the ARS that were principally backed by student
loans, which has had virtually no market activity since the
auction failure began in 2008. The other investment advisor
provided a valuation at par value based on the limited market
activity, which Forrester considered to be a Level 3 input
in addition to the underlying credit rating of the ARS, which
was generally related to municipalities. Forrester corroborated
the valuation by reviewing confirmations of the trades and the
underlying credit ratings of the securities. Of the
$11.0 million held by this investment advisor, 68% of the
investments are rated AAA while the remainder is rated A. If the
issuers are unable to successfully close future auctions and
their credit ratings deteriorate, we may in the future be
required to record an additional impairment charge on these
investments.
In November 2008, we accepted an offer (the “Right”)
from UBS AG (“UBS”), one of our investment advisors,
entitling us to sell at par value auction-rate securities
originally purchased from UBS at anytime during a two-year
period from June 30, 2010 through July 2, 2012
(“UBS ARS”). In accepting the Right, we granted UBS
the authority to sell or auction the UBS ARS at par at any time
up until the expiration date of the offer and released UBS from
any claims relating to the marketing and sale of the UBS ARS.
Although we expect to sell our UBS ARS under the Right, if the
Right is not exercised before July 2, 2012 it will expire
and UBS will have no further rights or obligation to buy our
ARS. In lieu of our acceptance of the Right, the UBS ARS will
continue to accrue and pay interest as determined by the auction
process or the terms specified in the prospectus of the UBS ARS
if the auction process fails. The value of the Right may largely
offset the decline in fair value of the UBS ARS. The Company
valued the Right as a put option asset using a discounted cash
flow approach including estimates of, based on Level 3 data
available at December 31, 2008, interest rates, timing and
amount of cash flow, adjusted for any bearer risk associated
with UBS’s financial ability to repurchase the ARS
beginning June 30, 2010. The combined fair value of the
right and the ARS is equal to the par value of the ARS. The
assumptions used in valuing both the ARS and the put option are
volatile and subject to
28
change as the underlying sources of these assumptions and market
conditions change, which could result in significant changes to
the fair value of ARS.
The following table provides information about our investment
portfolio. For investment securities, the table presents
principal cash flows and related weighted-average interest rates
by expected maturity dates.
Principal amounts by expected maturity or auction reset date in
US dollars (dollars in thousands):
Approximately $70.7 million of the federal agency and
corporate obligations was reflected in cash and cash equivalents
at December 31, 2008 as the original maturities at the time
of purchase for these investments was 90 days or less.
Foreign Currency Exchange. On a global level,
we face exposure to movements in foreign currency exchange
rates. This exposure may change over time as business practices
evolve and could have a material adverse impact on our results
of operations. To date, the effect of changes in currency
exchange rates has not had a significant impact on our financial
position or our results of operations. Accordingly, we have not
entered into any hedging agreements. However, we are prepared to
hedge against fluctuations that the euro, or other foreign
currencies, will have on foreign exchange exposure if this
exposure becomes material. As of December 31, 2008, the
total assets, excluding goodwill and intangible assets, related
to
non-U.S. dollar
denominated currencies were approximately $54.0 million.
29
Item 8.
Consolidated
Financial Statements and Supplementary Data
The financial statements listed in the following Index to
Financial Statements are filed as a part of this 2008 Annual
Report on
Form 10-K.
We have audited the accompanying consolidated balance sheets of
Forrester Research, Inc. and subsidiaries (the
“Company”) as of December 31, 2008 and 2007 and
the related consolidated statements of income,
stockholders’ equity and comprehensive income, and cash
flows for each of the three years in the period ended
December 31, 2008. These financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Forrester Research, Inc. and subsidiaries at
December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2008, in conformity
with accounting principles generally accepted in the United
States of America.
As described in Note 8 to the consolidated financial
statements, effective January 1, 2007, the Company adopted
FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes — an interpretation of
FASB Statement No. 109.”
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2008, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated March 13, 2009 expressed an
unqualified opinion thereon.
Accounts receivable, net of allowance for doubtful accounts of
$727 and $485 in 2007 and 2008, respectively (Note 15)
69,865
64,226
Deferred income tax assets (Note 7)
13,236
7,947
Deferred commissions
10,631
9,749
Prepaid expenses and other current assets
11,304
15,553
Total current assets
354,010
310,904
LONG-TERM ASSETS:
Long-term investments (Note 5)
—
46,500
Property and equipment, net (Note 15)
6,834
6,759
Goodwill, net (Note 4)
53,677
67,424
Deferred income taxes, net (Note 7)
2,274
8,523
Intangible assets, net (Note 4)
309
7,138
Non-marketable investments (Note 6)
8,414
7,000
Other assets
839
703
Total long-term assets
72,347
144,047
Total assets
$
426,357
$
454,951
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
$
4,174
$
3,532
Accrued expenses (Note 15)
28,891
27,527
Deferred revenue
111,418
113,844
Total current liabilities
144,483
144,903
Non-current liabilities
6,858
6,551
Total liabilities
151,341
151,454
COMMITMENTS (NOTE 8)
STOCKHOLDERS’ EQUITY (NOTE 9):
Preferred stock, $.01 par value
Authorized — 500 shares
Issued and outstanding — none
—
—
Common stock, $.01 par value
Authorized — 125,000 shares
Issued — 28,165 and 29,146 shares in 2007 and
2008, respectively
Outstanding — 23,153 and 23,045 shares in 2007
and 2008, respectively
282
291
Additional paid-in capital
284,431
315,149
Retained earnings
81,478
110,693
Treasury stock — 5,011 and 6,101 shares in 2007
and 2008, respectively, at cost
(90,428
)
(120,851
)
Accumulated other comprehensive loss
(747
)
(1,785
)
Total stockholders’ equity
275,016
303,497
Total liabilities and stockholders’ equity
$
426,357
$
454,951
The accompanying notes are an integral part of these
consolidated financial statements.
Forrester Research, Inc. (“Forrester” or “the
Company”) conducts independent research and provides
pragmatic and forward-thinking advice to global leaders in
business and technology. Forrester’s products and services
are targeted to specific roles, including principally senior
management, business strategists, and marketing and technology
professionals at $1 billion-plus companies who collaborate
with Forrester to align their technology investments with their
business goals.
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of Forrester and its wholly-owned subsidiaries. All
intercompany balances have been eliminated in consolidation.
Management
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Forrester considers
the more significant of these estimates to be revenue
recognition, non-cash stock-based compensation, allowance for
doubtful accounts, non-marketable investments, goodwill and
intangible assets, income taxes and valuation and impairment of
marketable investments. On an ongoing basis, management
evaluates its estimates. Actual results could differ from these
estimates.
Financial
Instruments
Forrester’s financial instruments consist of cash
equivalents, marketable investments, accounts receivable,
non-marketable investments and accounts payable. The estimated
fair values of these financial instruments approximate their
carrying values. The fair market value of marketable investments
is based on market quotes. Forrester’s cash equivalents and
marketable investments are generally investment-grade corporate
bonds and obligations of the federal government or municipal
issuers.
Cash,
Cash Equivalents, and Marketable Investments
Forrester considers all short-term, highly liquid investments
with original maturities at the time of purchase of 90 days
or less to be cash equivalents. Investments with original
maturities greater than 90 days and remaining maturities
less than one year are classified as short-term investments.
Investments with an auction reset feature are classified as
long-term investments.
The Company’s investments are comprised of securities of
U.S. government agencies, municipal notes which mature on
auction reset feature (Auction Rate Securities or ARS),
corporate notes and bonds, commercial paper and money market
funds meeting certain criteria. Forrester accounts for all
marketable investments, except for ARS subject to the right
offering with UBS as discussed further in Note 5, as
available-for-sale
securities in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 115, “Accounting
for Certain Investments in Debt and Equity Securities”
(“SFAS No. 115”). Under
SFAS No. 115, securities purchased to be held for
indefinite periods of time and not intended at the time of
purchase to be held until maturity are classified as
available-for-sale
securities and are carried at fair value, with unrealized gains
and losses recorded in accumulated other comprehensive income.
Realized gains and losses on securities are included in earnings
and are determined using the specific identification method.
Forrester continually evaluates whether any
available-for-sale
securities have been impaired and, if so, whether such
impairment is temporary or other than temporary. The Company
considers various factors in determining whether to recognize an
impairment charge, including the length of time and extent to
which
F-6
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the fair value has been less than the Company’s cost basis,
the financial condition and near-term prospects of the investee,
and the Company’s intent and ability to hold the investment
for a period of time sufficient to allow for any anticipated
recovery in the market value. During the years ended
December 31, 2006, 2007 and 2008the Company did not record
any other-than- temporary impairment charges on its
available-for-sale
securities.
During the fourth quarter of 2008, the Company reclassified ARS
held by UBS from
available-for-sale
to trading securities. As the funds associated with the ARS may
not be accessible for in excess of twelve months because of
continued failed auctions or the inability to find a buyer
outside of the auction process, these securities were classified
as long-term investments as of December 31, 2008.
Investments that the Company designates as trading assets are
reported at fair value, with gains or losses resulting from
changes in fair value recognized in Other income, net. See
Note 5 for further detailed discussion.
Concentrations
of Credit Risk
Forrester has no significant off-balance sheet or concentration
of credit risk such as foreign exchange contracts, option
contracts, or other foreign hedging arrangements. Financial
instruments that potentially subject Forrester to concentrations
of credit risk are principally cash equivalents, marketable
investments, and accounts receivable. Forrester places its
investments in highly rated securities. No single customer
accounted for greater than 2% of revenues or accounts receivable
in any of the periods presented.
Deferred
Commissions
Commissions incurred in acquiring new or renewing existing
contracts are deferred and expensed to operations as the related
revenue is recognized. Forrester evaluates the recoverability of
deferred commissions at each balance sheet date.
Goodwill
and Other Intangible Assets with Indefinite Lives
Forrester accounts for goodwill and other intangible assets with
indefinite lives in accordance with SFAS No. 142,
“Goodwill and Other Intangible Assets”, which
establishes financial accounting and reporting standards for
acquired goodwill and other intangible assets. Under the
provisions of SFAS No. 142, goodwill and
indefinite-lived intangible assets are required to be tested for
impairment annually, in lieu of being amortized, using a fair
value approach at the reporting unit level. Furthermore, testing
for impairment is required on an interim basis if an event or
circumstance indicates that it is more likely than not an
impairment loss has been incurred. An impairment loss shall be
recognized to the extent that the carrying amount of goodwill or
any indefinite-lived intangible asset exceeds its implied fair
value. Impairment losses shall be recognized in operating
results.
Impairment
of Other Long-Lived Tangible and Intangible Assets
Forrester continually evaluates whether events or circumstances
have occurred that indicate that the estimated remaining useful
life of long-lived assets and certain identifiable intangible
assets may warrant revision or if events or circumstances
indicate that the carrying value of these assets may be
impaired. To compute whether assets have been impaired, the
estimated undiscounted future cash flows for the estimated
remaining useful life of the assets are compared to the carrying
value. To the extent that the future cash flows are less than
the carrying value, the assets are written down to the estimated
fair value of the asset.
Foreign
Currency
The functional currencies of Forrester’s wholly-owned
subsidiaries, with the exception of the German holding companies
where the functional currency is the U.S. dollar, are their
respective local currencies. The financial statements of the
subsidiaries other than the German holding companies are
translated to United States dollars using period-end exchange
rates for assets and liabilities and average exchange rates
during the corresponding period for
F-7
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
revenues and expenses, with translation gains and losses
accumulated as a component of accumulated other comprehensive
loss. Gains and losses related to the remeasurement of monetary
assets and liabilities denominated in a currency other than an
entity’s functional currency (principally certain
intercompany payables and receivables) are included in Other
income, net in the Consolidated Statement of Income, except for
the translation gains and losses related to deferred tax
liabilities in the German holding companies, which are recorded
as components of income tax expense. Forrester recorded a total
net foreign exchange loss related to remeasurement of
intercompany transactions of $1.4 million during the year
ended December 31, 2008, of which $1.9 million related
to prior years. For the three years ended December 31,2008, the only material translation gains and (losses) arising
from the German holding companies were related to deferred tax
liabilities and gains of $671,000, $767,000 and $597,000 were
included in income tax expense in 2006, 2007 and 2008,
respectively.
Accumulated
Other Comprehensive Loss
The components of accumulated other comprehensive loss as of
December 31, 2007 and 2008 are as follows (in thousands):
2007
2008
Net unrealized gain on marketable investments, net of taxes
$
2,088
$
365
Cumulative translation adjustment
(2,835
)
(2,150
)
Total accumulated other comprehensive loss
$
(747
)
$
(1,785
)
The components of comprehensive income are as follows (in
thousands):
Change in unrealized gain (loss) on marketable investments, net
of taxes
271
2,552
(4,699
)
Reclassification adjustment for realized gains in net income,
net of taxes
—
(356
)
(1,095
)
Reclassification adjustment for realized loss from transfer of
ARS from
available-for-sale
securities to trading securities, net of taxes
—
—
4,070
Total other comprehensive income
$
17,748
$
20,808
$
28,177
Revenue
Recognition
Forrester generates revenues from licensing research, performing
advisory services, hosting events and conducting
teleconferences. Forrester executes contracts that govern the
terms and conditions of each arrangement. Revenues from
contracts that contain multiple deliverables are allocated among
the separate units based on their relative fair values; however,
the amount recognized is limited to the amount that is not
contingent on future performance conditions. Research service
revenues are recognized ratably over the term of the agreement.
Advisory service revenues are recognized during the period in
which the customer receives the agreed upon deliverable.
Forrester Teleconferences revenue and reimbursed
out-of-pocket
expenses are recorded as advisory service revenues. Events
revenues are recognized upon completion of the event. Annual
memberships which include access to research, unlimited phone or
email analyst inquiry, unlimited participation in Forrester
Teleconferences, and the right to attend one event, are
accounted for as one unit of accounting and recognized ratably
as research services revenue over the membership period. Clients
are offered a money back guarantee, which gives them the right
to cancel their contracts prior to the end of the contract term.
For contracts that are terminating during the
F-8
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
contract term, refunds would be issued for unused products or
services. Furthermore, revenue recognition determines the timing
of commission expenses that are deferred and recorded as expense
as the related revenue is recognized. The recoverability of
deferred commissions is evaluated at each balance sheet date.
Stock-Based
Compensation
Statement of Financial Accounting Standards (“SFAS”)
No. 123 (revised 2004), “Share-Based
Payment” (“SFAS No. 123R”) requires
the recognition of the fair value of stock-based compensation in
net income. All of Forrester’s stock-based compensation is
accounted for as equity instruments and Forrester has five
equity plans required to be evaluated under
SFAS No. 123R: two equity incentive plans, two
directors’ stock option plans and an employee stock
purchase plan. Under the provisions of SFAS No. 123R,
Forrester recognizes the fair value of stock-based compensation
in net income over the requisite service period of the
individual grantee, which generally equals the vesting period.
SFAS No. 123R requires the cash flows resulting from
the tax benefits due to tax deductions in excess of the
compensation cost recognized for those options (excess tax
benefits) to be classified as financing cash flows. Certain
amounts in the consolidated statements of cash flows for the
years ended 2006 and 2007 have been reclassified to reflect this
presentation.
Under the provisions of SFAS No. 123R, Forrester
recorded approximately $7.2 million, $8.3 million and
$5.4 million of non-cash stock-based compensation in the
accompanying consolidated statements of income for the years
ended December 31, 2006, 2007 and 2008, respectively,
included in the following expense categories (in thousands):
The assumptions underlying this computation are included in
Note 11 to these consolidated financial statements.
Allowance
for Doubtful Accounts
Forrester maintains an allowance for doubtful accounts for
estimated losses resulting from the inability of our customers
to make contractually obligated payments. When evaluating the
adequacy of the allowance for doubtful accounts, the Company
makes judgments regarding the collectibility of accounts
receivable by specifically analyzing historical bad debts,
customer concentrations, current economic trends, and changes in
the customer payment terms. If the financial condition of the
Company’s customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional
allowances may be required and if the financial condition of the
Company’s customers were to improve, the allowances may be
reduced accordingly.
Depreciation
and Amortization
Forrester provides for depreciation and amortization of property
and equipment, computed using the straight-line method, over
estimated useful lives of assets as follows:
Estimated
Useful Life
Computers and equipment
2 to 5 Years
Computer software
3 Years
Furniture and fixtures
7 Years
Leasehold improvements
Shorter of Life of the Asset or Life of Lease
F-9
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Forrester provides for amortization of intangible assets,
computed using an accelerated method according to the expected
cash flows to be received from the underlying assets over the
respective lives as follows:
Estimated
Useful
Life
Customer relationships
5 to 10 Years
Research content
1 Year
Registered trademarks
1 Year
Income
Taxes
Forrester accounts for income taxes in accordance with
SFAS No. 109, “Accounting for Income
Taxes”(“SFAS No. 109”).
SFAS No. 109 requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences
of temporary differences between the financial statements and
tax basis of assets and liabilities as well as operating loss
carryforwards.
Forrester’s provision for income taxes is comprised of a
current and a deferred provision. The current provision is
calculated as the estimated taxes payable or refundable on tax
returns for the current year. The deferred income tax provision
is calculated for the estimated future tax effects attributable
to temporary differences and carryforwards using expected
enacted tax rates in effect in the years during which the
differences are expected to reverse. Valuation allowances are
provided if, based on the weight of available evidence, it is
more likely than not that some or all of the deferred tax asset
will not be realized.
Net
Income Per Common Share
Basic net income per common share is computed by dividing net
income by the basic weighted average number of common shares
outstanding during the period. Diluted net income per common
share is computed by dividing net income by the diluted weighted
average number of common shares and common equivalent 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 upon the exercise
of outstanding stock options.
Basic and diluted weighted average common shares are as follows:
2006
2007
2008
(In thousands)
Basic weighted average common shares outstanding
22,195
23,074
23,062
Weighted average common equivalent shares
778
655
523
Diluted weighted average common shares outstanding
22,973
23,729
23,585
As of December 31, 2006, 2007 and 2008, options to purchase
approximately 1,095,000, 1,282,000 and 1,503,000 shares,
respectively, were outstanding but not included in the diluted
weighted average common share calculation as the effect would
have been anti-dilutive.
Recent
Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141
(revised), “Business Combinations,”
(“SFAS No. 141R”). The standard changes the
accounting for business combinations including the measurement
of acquirer shares issued in consideration for a business
combination, the recognition of contingent consideration, the
accounting for pre-acquisition gain and loss contingencies, the
recognition of capitalized in-process research and development,
the accounting for acquisition-related restructuring cost
accruals, the treatment of acquisition related transaction costs
and the recognition of changes in the acquirer’s income tax
valuation allowance. SFAS No. 141R is effective for
F-10
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
fiscal years beginning after December 15, 2008. The Company
will adopt SFAS No. 141R for any business combinations
entered into beginning in fiscal 2009. The Company has not
completed the evaluation of the potential impact, if any, of the
adoption of SFAS No. 141R on the Company’s
consolidated financial position, results of operations and cash
flows. Adoption is prospective and early adoption is not
permitted. The adoption of SFAS No. 141R is not
expected to have a significant impact on the Company’s
consolidated financial statements for acquisitions prior to
January 1, 2009.
In February 2008, the FASB issued FASB Staff Position
157-1,
“Application of FASB Statement No. 157 to FASB
Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13”
(FSP 157-1)
and
FSP 157-2,
“Effective Date of FASB Statement No. 157”
(FSP 157-2).
FSP 157-1
amends SFAS No. 157 to remove certain leasing
transactions from its scope, and was effective upon initial
adoption of SFAS No. 157.
FSP 157-2
delays the effective date of SFAS No. 157 for all
non-financial assets and non-financial liabilities, except for
items that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually),
until the beginning of the first quarter of fiscal 2009. The
adoption of SFAS No. 157 is not expected to have a
significant impact on the Company’s consolidated financial
statements when it is applied to non-financial assets and
non-financial liabilities that are not measured at fair value on
a recurring basis, beginning in the first quarter of 2009.
In December 2007, the FASB issued SFAS No. 160,
“Non-controlling Interests in Consolidated Financial
Statements”(“SFAS No. 160”).
SFAS No. 160 amends ARB 51 to establish accounting and
reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary by
requiring all non-controlling interests in subsidiaries be
reported in the same way in the consolidated financial
statements and eliminates the diversity in accounting for
transactions between an entity and non-controlling interests by
requiring they be treated as equity transactions.
SFAS No. 160 is effective prospectively for fiscal
years beginning after December 15, 2008 and may not be
applied before that date. The adoption of SFAS No. 160
is not expected to have a significant impact on the
Company’s consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162,
“The Hierarchy of Generally Accepted Accounting
Principles.’’ SFAS No. 162 has an
objective to identify accounting principles and the framework
for selecting the principles used in the preparation of
financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting
principles in the United States (the GAAP hierarchy). The
statement was issued to provide companies with guidance
regarding the hierarchy of the accounting promulgation when
researching the accounting treatment for a transaction or event.
The Statement will be effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight
Board (“PCAOB”) amendments to AU Section 411,
“The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles.” The adoption of
SFAS No. 162 is not expected to have a significant
impact on the Company’s consolidated financial statements.
(2)
Acquisition
of JupiterResearch
On July 31, 2008, Forrester acquired all of the outstanding
capital stock of JUPR Holdings, Inc., (“Holdings”) the
parent company of JupiterResearch, LLC
(“JupiterResearch”). JupiterResearch provided business
professionals with syndicated research, analysis, and advice
backed by proprietary data. The acquisition supported the
Company’s role-based strategy and added greater depth and
breadth to the marketing and strategy syndicated product
offering, increased the number of client companies and is
expected to reduce operating expenses of the combined entity
through economies of scale. The total consideration was
$22.0 million which consisted of initial cash consideration
of $23.0 million less a working capital adjustment of
$1.0 million which was received in the fourth quarter of
2008. The aggregate purchase price of $22.6 million
consisted of $22.0 million for the acquisition of all
outstanding shares of Holdings common stock, $398,000 of direct
acquisition costs and $154,000 for severance related to
14 employees of JupiterResearch terminated as a result of
the acquisition, of which $8,000 was
F-11
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
paid during the year ended December 31, 2008. A summary of
the preliminary purchase price allocation is as follows (table
in thousands):
Assets:
Accounts receivable
$
2,636
Prepaid expenses and other current assets
500
Property and equipment, net
398
Deferred tax asset, net
1,364
Goodwill
15,404
Intangible assets
8,267
Total assets
$
28,569
Liabilities:
Accounts payable
$
419
Accrued expenses
1,219
Deferred revenue
4,378
Total liabilities
6,016
Net assets acquired
$
22,553
A portion of the goodwill is expected to be deductible for tax
purposes.
Acquired customer relationships are amortized based upon
patterns in which the economic benefits are expected to be
realized. Other finite-lived identifiable intangible assets are
amortized according to the expected cash flows to be received.
The following are the identifiable intangible assets acquired
and their respective weighted average lives (dollars in
thousands):
Assigned
Useful
Value
Life
Customer relationships
$
6,918
10 years
Research content
1,116
1 year
Trademarks
233
1 year
$
8,267
Amortization expense during the year ended December 31,2008 related to the intangible assets acquired from
JupiterResearch was approximately $1.1 million. In
addition, Forrester recorded $69,000 of stock compensation
expense related to options to be cashed out in 2009. The
unamortized fair value of these options as of December 31,2008 was $97,000 with a remaining recognition period of
approximately .5 years.
The results of JupiterResearch’s operations have been
included in Forrester’s consolidated financial statements
since July 31, 2008, in the Marketing and Strategy Client
Group segment, and the Company has not furnished financial
information or pro forma financial information relating to the
acquisition because such information is not material to the
Company’s consolidated financial position or results of
operations.
(3)
Discontinued
Operations
On September 26, 2006, Forrester completed the sale of its
Ultimate Consumer Panel (“UCP”) product line to
Lightspeed Online Research, Inc. for $2.5 million in cash
of which $2.25 million was paid at the closing date subject
to a working capital adjustment, with the remainder paid in June
2007. The sale resulted in a gain on the disposal of
discontinued operations of $1.4 million net of
$1.0 million of taxes. The sale included the transfer of
certain assets,
F-12
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
including all UCP customer contracts, historical data,
intellectual property, six employees, and licenses as well as
certain liabilities arising in the normal course of business.
Forrester sold the product line as it was no longer a strategic
fit with its core focus on broad, global business and consumer
technology data.
During 2006, the UCP product line had gross revenues of
$1.8 million. Net income from the discontinued operations
was $300,000 (net of $204,000 of income tax expense) for the
year ended December 31, 2006. The gross revenue and net
income numbers noted above for UCP for 2006 only include amounts
recorded through September 26, 2006 as UCP was disposed of
on that date. The operating results of the UCP product line
previously would have been included in the marketing and
strategy operating segment.
(4)
Goodwill
and Other Intangible Assets
SFAS No. 142 requires that goodwill and intangible
assets with indefinite lives no longer be amortized but instead
be measured for impairment at least annually or whenever events
indicate that there may be an impairment. Forrester has selected
November 30th as its date for performing the annual
goodwill impairment test. Forrester compared each reporting
unit’s carrying value to its estimated fair value as of
November 30, 2008 and determined that no impairment of its
goodwill had occurred.
In January 2007, Forrester reorganized its business and Goodwill
was reallocated using a relative fair value approach as required
under SFAS No. 142. A summary of the goodwill by
segment and the changes in the carrying amount of goodwill for
the Information Technology Client Group (“IT”),
Technology Industry Client Group (“TI”), Marketing and
Strategy Client Group (“M&S”) and Events segments
is as follows:
The Company reduced goodwill due to a Giga tax purchase
accounting adjustment. The adjustment relates to the utilization
or anticipated utilization of net operating losses for which a
valuation was recorded at the acquisition date.
A summary of Forrester’s intangible assets as of
December 31, 2007 and 2008 is as follows:
Amortization expense related to identifiable intangible assets
was approximately $2.1 million, $1.2 million and
$1.4 million during the years ended December 31, 2006,
2007 and 2008, respectively. Estimated amortization expense
related to identifiable intangible assets that will continue to
be amortized is as follows (in thousands):
Federal agency and corporate obligations, short-term(1)
83,550
64
(86
)
83,528
Total short-term investments
$
154,005
$
765
$
(86
)
$
154,684
UBS ARS
35,500
—
(6,887
)
28,613
Non-UBS ARS
11,000
—
—
11,000
Total short and long-term investments
$
200,505
$
765
$
(6,973
)
$
194,297
(1)
$70.7 million included in cash and cash equivalents at
December 31, 2008.
F-14
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In 2007, Forrester owned an approximately 1.2% ownership
interest in comScore, Inc. (“comScore”), a provider of
infrastructure services which utilizes proprietary technology to
accumulate comprehensive information on consumer buying
behavior. In June 2007, comScore (NASDAQ: SCOR) completed an
initial public offering in which Forrester’s ownership
interest was converted to approximately 126,000 shares. In
December 2007, Forrester sold approximately 20,000 shares
receiving proceeds of approximately $655,000 and recognizing a
gain of approximately $603,000 related to the sale. As of
December 31, 2007, the investment of approximately
$3.5 million was recorded as an
available-for-sale
investment in the accompanying consolidated balance sheet,
stated at fair market value with any unrealized gains and losses
reported as a component of other comprehensive income. At
December 31, 2007, approximately $3.2 million of
unrealized gain was recorded as a component of other
comprehensive income. In 2008, Forrester sold the remaining
106,000 shares of comScore, receiving proceeds of
approximately $2.3 million and recording a gain of
approximately $2.0 million related to the sale.
The following table summarizes the maturity periods of the
short- and long-term investments in the Company’s portfolio
as of December 31, 2008, excluding the Right from UBS. In
February 2008, certain ARS that Forrester holds experienced
failed auctions that limited the liquidity of these securities.
Based on current market conditions, it is likely that auction
failures will continue. As the funds associated with the ARS may
not be accessible for in excess of twelve months because of
continued failed auctions or the inability to find a buyer
outside of the auction process, these securities were classified
as long-term investments as of December 31, 2008. The ARS
were classified as short-term investments as of
December 31, 2007. The following table reflects the ARS at
their current reset dates. The actual contractual maturities of
these investments were they not to reset would occur at various
dates between 2009 and 2041 with $1.2 million maturing in
one to five years, $900,000 maturing in five to ten years and
$44.4 million maturing after ten years.
FY 2009
FY 2010
FY 2011
Total
(In thousands)
Non-ARS state and municipal obligations
$
37,092
$
31,507
$
2,558
$
71,157
UBS ARS
28,613
—
—
28,613
Non-UBS ARS
11,000
—
—
11,000
Federal agency and corporate obligations
700
11,078
1,016
12,794
Total short and long-term
$
77,405
$
42,585
$
3,574
$
123,564
The following table shows the gross unrealized losses and market
value of Forrester’s investments with unrealized losses
that are not deemed to be
other-than-temporarily
impaired, aggregated by investment category and length of time
that individual securities have been in a continuous unrealized
position (in thousands):
The unrealized losses on the federal agency and corporate
obligations were the result of overall market risk aversion and
lack of demand for securities that are non-government
guaranteed. The Company believes it will be able to collect all
principal and interest amounts due at maturity given the high
credit quality of these investments. Since the decline in the
market value is attributable to changes in market conditions and
not credit quality, and since
F-15
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the Company has the ability and intent to hold those investments
until a recovery of par value, which may be maturity, the
Company does not consider these investments to be other-than
temporarily impaired as of December 31, 2008.
In November 2008, the Company accepted an offer (the
“Right”) from UBS AG (“UBS”), one of its
investment advisors, entitling the Company to sell at par value
auction-rate securities originally purchased from UBS
(approximately $35.5 million, par value) at anytime during
a two-year period from June 30, 2010 through July 2,2012 (“UBS ARS”). In accepting the Right, the Company
also granted UBS the authority to sell or auction the UBS ARS at
par at any time up until the expiration date of the offer and
released UBS from any claims relating to the marketing and sale
of the UBS ARS. Although the Company expects to sell its UBS ARS
under the Right, if the Right is not exercised before
July 2, 2012, it will expire and UBS will have no further
rights or obligation to buy the Company’s UBS ARS. If the
Company does not exercise the Right, the UBS ARS will continue
to accrue interest as determined by the auction process or the
terms outlined in the prospectus of the UBS ARS if the auction
process fails.
UBS’s obligations under the Right are not secured by its
assets and do not require UBS to obtain any financing to support
its performance obligations under the Right. UBS has disclaimed
any assurance that it will have sufficient financial resources
to satisfy its obligations under the Right.
The enforceability of the Right results in a put option and
should be recognized as a separate freestanding asset and is
accounted for separately from the ARS investment. As of
December 31, 2008, the Company recorded approximately
$6.9 million as the fair value of the put option asset,
classified as long-term investment on the Balance Sheet as of
December 31, 2008, with a corresponding credit to other
income, net, in the Consolidated Statement of Income for the
year ended December 31, 2008. The put option does not meet
the definition of a derivative instrument under SFAS 133.
Therefore, the Company elected to measure the put option at fair
value under SFAS 159, which permits an entity to elect the
fair value option for recognized financial assets, in order to
match the changes in the fair value of the ARS. The Company
valued the Right using a discounted cash flow approach including
estimates of interest rates and timing and amount of cash flow,
based on data available as of December 31, 2008 and
adjusted for any bearer risk associated with UBS’s
financial ability to repurchase the UBS ARS beginning
June 30, 2010. These assumptions are volatile and subject
to change as the underlying sources of these assumptions and
market conditions change.
Prior to accepting the UBS offer, the Company classified its ARS
as
available-for-sale
investments, and therefore recorded resulting unrealized gains
or losses, net of tax, in accumulated other comprehensive income
in Stockholders’ Equity. In connection with the acceptance
of the UBS offer in November 2008, resulting in a right to
require UBS to purchase the UBS ARS at par value beginning on
June 30, 2010, the Company has reclassified its ARS subject
to the Right and held by UBS from
available-for-sale
to trading securities in accordance with SFAS 115. The
transfer to trading securities reflects management’s intent
to exercise its put option during the period June 30, 2010
to July 3, 2012. Prior to its agreement with UBS,
management’s intent was to hold the UBS ARS until the
earlier of anticipated recovery in market value or maturity. In
connection with the transfer to trading securities, the Company
recognized an unrealized loss of approximately
$6.9 million, included in Other income, net for the year
ended December 31, 2008, for the amount of the unrealized
loss not previously recognized in earnings. No additional gain
or loss was reported on these securities for the year ended
December 31, 2008. The Company holds additional ARS with
another investment advisor who has not made an offer similar to
UBS. These ARS will continue to be held as
available-for-sale.
The Company intends to retain its investment in the issuer of
these ARS until the earlier of anticipated recovery in market
value or maturity and as a result has not recorded an
other-than-temporary
loss on these ARS.
There were no gross realized gains or losses on sales of the
Company’s federal obligations, state and municipal bonds
and corporate bonds for the years ended December 31, 2006,
2007 or 2008.
F-16
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Fair
Value
Effective January 1, 2008, the Company adopted
SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”). In February
2008, the Financial Accounting Standards Board
(“FASB”) issued FASB Staff Position
No. FAS 157-2,
“Effective Date of FASB Statement No. 157”, which
provides a one year deferral of the effective date of
SFAS 157 for non-financial assets and non-financial
liabilities, except those that are recognized or disclosed in
the financial statements at fair value at least annually.
Therefore, the Company has adopted the provisions of
SFAS 157 with respect to its financial assets and
liabilities only. SFAS 157 defines fair value, establishes
a framework for measuring fair value under generally accepted
accounting principles and enhances disclosures about fair value
measurements. Fair value is defined under SFAS 157 as the
exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date.
Valuation techniques used to measure fair value under
SFAS 157 must maximize the use of observable inputs and
minimize the use of unobservable inputs. The standard describes
a fair value hierarchy based on three levels of inputs, of which
the first two are considered observable and the last
unobservable, that may be used to measure fair value which are
the following:
•
Level 1 — Quoted prices in active markets for
identical assets or liabilities.
•
Level 2 — Inputs other than Level 1 that are
observable, either directly or indirectly, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the
full term of the assets or liabilities.
•
Level 3 — Unobservable inputs that are supported
by little or no market activity and that are significant to the
fair value of the assets or liabilities.
The adoption of this statement did not have a material impact on
the Company’s consolidated results of operations or
financial condition.
In accordance with SFAS 157, the following table represents
the Company’s fair value hierarchy for its financial assets
(cash equivalents and marketable investments) measured at fair
value on a recurring basis as of December 31, 2008 (in
thousands):
$70.7 million included in cash and cash equivalents at
December 31, 2008.
Historically, the fair value of the ARS investments approximated
par value due to the frequent resets through the auction
process. While the Company continues to earn interest on its ARS
investment at the contractual rate, these investments are not
currently trading and therefore do not have a readily
determinable market value. Accordingly, the estimated fair value
of the majority of the ARS no longer approximates par value. At
December 31, 2008, the Company held ARS with two investment
advisors, both of which provided a valuation of Level 3
inputs for the ARS investments. One investment advisor utilized
a discounted cash flow approach to arrive at this valuation,
which was corroborated by a separate and comparable discounted
cash flow analysis prepared by the Company. The assumptions used
in preparing the discounted cash flow model include estimates,
based on data available at December 31, 2008, of interest
rates, timing and amount of cash flows, credit and liquidity
premiums, and expected holding periods of the ARS. The
discounted cash flow technique was used to value the ARS
F-17
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
investments that were principally backed by student loans, which
has had virtually no market activity since the auction failures
began in 2008. The Company valued the Right as a put option
asset using a discounted cash flow approach including estimates
of interest rates, timing and amount of cash flow, adjusted for
any bearer risk associated with UBS’s financial ability to
repurchase the ARS beginning June 30, 2010, based on
Level 3 data available at December 31, 2008. The
combined fair value of the Right and the UBS ARS is equal to the
par value of the UBS ARS. The other investment advisor provided
a valuation at par value based on the limited market activity,
which Forrester considered to be a Level 3 input in
addition to the underlying credit rating of the ARS, which was
generally related to municipalities. Forrester believed these
Level 3 inputs to be the most appropriate for determining
the fair value of the ARS due to greater liquidity in the market
for municipal auction rate securities. Forrester corroborated
the valuation by reviewing confirmations of the trades and the
underlying credit ratings of the securities. Of the
$11.0 million held by this investment advisor, 68% of the
investments are rated AAA while the remainder is rated A. The
assumptions used in valuing both the ARS and the put option are
volatile and subject to change as the underlying sources of
these assumptions and market conditions change.
The following table provides a summary of changes in fair value
of the Company’s Level 3 financial assets as of
December 31, 2008 (in thousands):
At December 31, 2007 and 2008, the carrying value of
non-marketable investments is as follows (in thousands):
2007
2008
Private equity funds
$
8,328
$
6,914
Doculabs, Inc.
86
86
$
8,414
$
7,000
In June 2000, Forrester committed to invest $20.0 million
in two technology-related private equity investment funds with
capital contributions required to be funded over an expected
period of five years. During the years ended December 31,2006, 2007 and 2008, Forrester contributed approximately
$625,000, $138,000, and $75,000 respectively, to these
investment funds, resulting in total cumulative contributions of
approximately $19.6 million to date. One of these
investments is being accounted for using the cost method and,
accordingly, is valued at cost unless an other than temporary
impairment in its value occurs or the investment is liquidated.
The other investment is being accounted for using the equity
method as the investment is a limited partnership and Forrester
has an ownership interest in the limited partnership in excess
of 5% and, accordingly, Forrester records its share of the
investee’s operating results each period. As a result of
these accounting methods, during 2007 and 2008, the Company
recorded impairments of approximately $2.2 million and
$792,000, respectively, which are included in the consolidated
statements of income. There were no impairments recorded in
2006. During the years ended December 31, 2006, 2007 and
2008, gross distributions of $861,000, $1.6 million and
$542,000, respectively, were recorded and resulted in gains of
$575,000, $537,000 and $208,000, respectively in the
consolidated statements of income. During each of the years
ended December 31, 2006, 2007 and 2008, fund management
charges of
F-18
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
approximately $338,000 were included in other income, net in the
consolidated statements of income. Fund management charges are
recorded as a reduction of the investment’s carrying value.
Forrester has adopted a cash bonus plan to pay bonuses, after
the return of invested capital, measured by the proceeds of a
portion of its share of net profits from these investments, if
any, to certain key employees, subject to the terms and
conditions of the plan. The payment of such bonuses would result
in compensation expense with respect to the amounts so paid. To
date, no bonuses have been paid under this plan. The principal
purpose of this cash bonus plan was to retain key employees by
allowing them to participate in a portion of the potential
return from Forrester’s technology-related investments if
they remained employed by the Company. The plan was established
at a time when technology and internet companies were growing
significantly, and providing incentives to retain key employees
during that time was important. The purpose of this cash bonus
plan is the retention of key employees.
In December 2003, Forrester committed to invest an additional
$2.0 million over an expected capital contribution period
of 2 years in an annex fund of one of the two private
equity investment funds. The annex fund investment is outside of
the scope of the previously mentioned bonus plan. This
investment is being accounted for using the equity method as the
investment is a limited partnership and Forrester has an
ownership interest in the limited partnership in excess of 5%
and, accordingly, Forrester records its share of the
investee’s operating results each period. During 2007 and
2008, gross distributions of $344,000 and $26,000, respectively,
were recorded and accounted for as a return of capital. During
2006, 2007 and 2008, the Company recorded impairments of
approximately $227,000, $123,000 and $4,000, respectively, which
are included in the consolidated statements of income.
The timing of the recognition of future gains or losses from
these investment funds is beyond Forrester’s control. As a
result, it is not possible to predict when Forrester will
recognize such gains or losses, if Forrester will award cash
bonuses based on the net profit from such investments, or when
Forrester will incur compensation expense in connection with the
payment of such bonuses. If the investment funds realize large
gains or losses on their investments, Forrester could experience
significant variations in its quarterly results unrelated to its
business operations. These variations could be due to
significant gains or losses or to significant compensation
expenses. While gains may offset compensation expenses in a
particular quarter, there can be no assurance that related gains
and compensation expenses will occur in the same quarters.
During the year ended December 31, 2006, Forrester
recognized revenues of approximately $200,000 related to a core
research and advisory services contract purchased by one of the
private equity investment firms.
In March 2000, Forrester invested $1.0 million in the
common stock of Doculabs, Inc. (“Doculabs”), an
independent technology research firm and in March 2001,
Forrester invested an additional $2.0 million. Forrester
currently has an approximately 13.9% ownership interest in
Doculabs. This investment is being accounted for using the cost
method and, accordingly, is being valued at cost unless an
impairment in its value that is other than temporary occurs or
the investment is liquidated. There were no impairments recorded
in 2006, 2007 or 2008. In 2006 and 2007, Forrester received
dividends of $67,000 and $22,000, respectively which were
recorded as a reduction of the investment’s carrying value.
In July 2000, Forrester invested $1.6 million to purchase
preferred shares of comScore Networks, Inc.
(“comScore”), a provider of infrastructure services
which utilizes proprietary technology to accumulate
comprehensive information on consumer buying behavior, resulting
in approximately a 1.2% ownership interest. This investment was
being accounted for using the cost method and, accordingly, was
valued at cost unless a permanent impairment in its value
occurred or the investment was liquidated. No impairments were
recorded for 2006 or 2007. In June 2007, comScore (NASDAQ: SCOR)
completed an initial public offering in which Forrester’s
ownership interest was converted to approximately
126,000 shares and as a result the investment was
reclassified to an
available-for-sale
security and recorded as a marketable investment in the
accompanying consolidated balance sheet.
F-19
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(7)
Income
Taxes
Forrester accounts for income taxes in accordance with
SFAS No. 109, “Accounting for Income
Taxes” (“SFAS No. 109”).
SFAS No. 109 requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences
of temporary differences between the financial statement and tax
basis of assets and liabilities as well as operating loss
carryforwards. Forrester measures deferred taxes based on
enacted tax rates assumed to be in effect when these differences
reverse.
Income from continuing operations before income tax provision
for the years ended December 31, 2006, 2007 and 2008
consists of the following (in thousands):
2006
2007
2008
Domestic
$
23,622
$
25,886
$
40,076
Foreign
2,472
4,118
4,734
Total
$
26,094
$
30,004
$
44,810
The components of the income tax provision for the years ended
December 31, 2006, 2007 and 2008 are as follows (in
thousands):
2006
2007
2008
Current —
Federal
$
375
$
334
$
9,238
State
855
2,238
3,325
Foreign
720
1,611
1,515
1,950
4,183
14,078
Deferred —
Federal
7,180
7,513
2,059
State
220
151
(43
)
Foreign
687
(786
)
(499
)
8,087
6,878
1,517
Income tax provision
$
10,037
$
11,061
$
15,595
A reconciliation of the federal statutory rate to
Forrester’s effective tax rate for the years ended
December 31, 2006, 2007 and 2008 is as follows:
2006
2007
2008
Income tax provision at federal statutory rate
35.0
%
35.0
%
35.0
%
Increase (decrease) in tax resulting from —
State tax provision, net of federal benefit
2.7
6.2
4.7
Non-deductible expenses
0.9
1.5
0.4
Tax-exempt interest income
(5.0
)
(8.1
)
(3.8
)
Stock compensation deduction
3.0
2.7
(0.3
)
Other, net
—
2.2
(0.1
)
Change in tax rate
—
(5.8
)
—
Change in valuation allowance
1.9
3.2
(1.1
)
Effective income tax rate
38.5
%
36.9
%
34.8
%
F-20
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The components of deferred income taxes as of December 31,2007 and 2008 are as follows (in thousands):
2007
2008
Non-deductible reserves and accruals
$
2,192
$
3,645
Stock compensation
3,347
3,996
Other depreciation and amortization
1,910
820
Net operating loss and other carryforwards
25,135
22,072
Gross deferred tax asset
$
32,584
$
30,533
Less — Valuation allowance
(12,794
)
(10,922
)
Net deferred tax asset
$
19,790
$
19,611
Goodwill Amortization
(5,848
)
(5,291
)
Deferred commissions
(4,331
)
(3,831
)
Net deferred tax asset
$
9,611
$
10,489
The Company considers all available evidence, both positive and
negative, to determine whether, based on the weight of that
evidence, a valuation allowance is needed for some portion or
all of a net deferred income tax asset. Judgment is used in
considering the relative impact of negative and positive
evidence. In arriving at these judgments, the weight given to
the potential effect of negative and positive evidence is
commensurate with the extent to which it can be objectively
verified. Although realization is not assured, based upon
projections of Forrester’s future taxable income over the
periods during which the deferred tax assets are deductible and
the carryforwards expire, management believes it is more likely
than not that Forrester will realize the benefits of these
deductible differences, net of the existing valuation allowances.
As of December 31, 2008, the Company maintained a valuation
allowance of approximately $10.9 million, which primarily
relates to federal NOL carryforwards from the Giga acquisition
and foreign NOL carryforwards that the Company does not believe
it is more likely than not to realize. During the year ended
December 31, 2008, Forrester’s valuation allowance
decreased by approximately $1.9 million. As of
December 31, 2007, the Company maintained a valuation
allowance of approximately $12.8 million, which primarily
related to federal NOL carryforward from the Giga acquisition
and foreign NOL carryforwards.
As of December 31, 2008, the Company had federal NOL
carryforwards of approximately $34.3 million. If unused,
the NOL carryforwards would expire on various dates from 2013
through 2028. Included in the federal NOL carryover is
$6.0 million of NOLs that were acquired as part of the
Jupiter acquisition. The Company is currently assessing its
ability to utilize these NOLs when considering potential
limitations under IRC Section 382 and the final
determination of purchase accounting.
The Company also has foreign net operating loss carryforwards of
approximately $33.4 million, which can be carried forward
indefinitely. Approximately $6.1 million of the foreign net
operating loss carryforwards were acquired from Giga Information
Group, Inc. (“Giga”), the utilization of which is
subject to limitation under the tax law of the United Kingdom.
Upon the January 1, 2009 adoption of
SFAS No. 141(R), changes in deferred tax asset
valuation allowances and income tax uncertainties after the
acquisition date generally will affect income tax expense,
including charges and uncertainties associated with acquisitions
that closed prior to the effective date of
SFAS No. 141(R).
During the year ended December 31, 2008, the Company
recognized approximately $8.5 million of tax benefits from
excess tax deductions resulting from employee stock option
exercises during 2008 and in prior years. The tax benefit was
recorded as an increase to additional
paid-in-capital.
Pursuant to footnote 82 of SFAS No. 123(R), excess tax
benefits from share-based payments is recognized in the year
that the deduction reduces cash tax payable.
F-21
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As of December 31, 2008, the Company has not provided for
U.S. deferred income taxes on the undistributed earnings of
approximately $8.1 million for its foreign subsidiaries,
since these earnings are to be indefinitely reinvested.
Determination of the amount of U.S. income tax liability
that would be incurred is not practicable.
On January 1, 2007, the Company adopted FASB Interpretation
No. (“FIN”) 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”), which applies to
all tax positions accounted for under SFAS No. 109.
FIN 48 prescribes a two step process for the measurement of
uncertain tax positions that have been taken or are expected to
be taken in a tax return. The first step is a determination of
whether the tax position should be recognized in the financial
statements. The second step determines the measurement of the
tax position. FIN 48 also provides guidance on
derecognition of such tax positions, classification, potential
interest and penalties, accounting in interim periods and
disclosure. The adoption of FIN 48 did not have a material
impact on the Company’s financial position or results of
operation.
The following table summarizes the activity of the unrecognized
tax benefits:
2007
2008
Unrecognized tax benefits balance at January 1
$
1,110
$
1,409
Gross increases for tax positions of prior years
320
398
Gross decreases for tax positions of prior years
—
(12
)
Settlements
—
(320
)
Lapse of applicable statute of limitations
(21
)
(253
)
Unrecognized tax benefits balance at December 31
$
1,409
$
1,222
The Company and its subsidiaries file income tax returns in the
United States and various state and international jurisdictions.
Major taxing jurisdictions include the U.S., the Netherlands and
the United Kingdom. The Company is no longer subject to
U.S. state or local and
non-U.S. income
tax examinations by tax authorities in its major jurisdictions
for years before 2002, except to the extent of net operating
loss and tax credit carryforwards from those years.
The Company recognizes interest and penalties related to
uncertain tax positions in income tax expense. As of
December 31, 2007 and 2008, the Company had approximately
$283,000 and $164,000 of accrued interest and penalties related
to uncertain tax positions, respectively.
It is reasonably possible that the gross unrecognized benefits
will be decreased by a range of zero to $271,000 within the next
twelve months due primarily to the expiration of the relevant
statutes of limitations.
Total amount of unrecognized tax benefits that would affect the
effective tax rate if recognized is $676,000 as of
December 31, 2007 and $861,000 as of December 31, 2008.
(8)
Commitments
As of December 31, 2008, Forrester had future contractual
obligations as follows for operating leases (in thousands):
2009
$
9,793
2010
9,177
2011
5,697
2012
903
2013
441
Thereafter
913
Total minimum lease payments
$
26,924
F-22
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The above table does not include an offset for future minimum
rentals expected to be received under subleases of $157,000. The
above table also does not include the remaining $425,000 of
capital commitments to the private equity funds described in
Note 6 due to the uncertainty as to the timing of capital
calls made by such funds.
Sublease income was approximately $721,000 in 2006, $330,000 in
2007 and $238,000 in 2008.
Aggregate rent expenses, net of sublease income, were
approximately $7.7 million, $9.4 million and
$9.4 million for the years ended December 31, 2006,
2007, and 2008, respectively.
(9)
Stockholders’
Equity
Preferred
Stock
Forrester has authorized 500,000 shares of $.01 par
value preferred stock. The Board of Directors has full authority
to issue this stock and to fix the voting powers, preferences,
rights, qualifications, limitations, or restrictions thereof,
including dividend rights, conversion rights, redemption
privileges and liquidation preferences and the number of shares
constituting any series or designation of such series.
Treasury
Stock
Through 2008, Forrester’s Board of Directors authorized an
aggregate $150 million to purchase common stock under the
stock repurchase program. The shares repurchased may be used,
among other things, in connection with Forrester’s employee
stock option and purchase plans. As of December 31, 2008,
Forrester had repurchased approximately 6.1 million shares
of common stock at an aggregate cost of $120.8 million,
including commissions paid for the acquisition of the common
stock.
(10)
Stock
Option Investigation; Restatement of Historical Financial
Statements
In 2006, as a result of the inquiry into the Company’s
historical stock option granting practices, the Company
determined that the vesting
and/or
exercise of certain stock options that were granted on a
discounted basis (exercise price is less than the fair market
value of the stock on the date of grant) could be subject to
Internal Revenue Code section 409A. In February 2007, the
Company filed a notice of participation in the voluntary program
described in Internal Revenue Service (IRS) Announcement
2007-18,
called the Compliance Resolution Program for Employees other
than Corporate Insiders for Additional 2006 Taxes Arising under
Section 409A due to the Exercise of Stock Rights. The
Company also participated in the similar program prescribed by
the California Franchise Tax Board. Under these programs,
employers elected to pay the requisite additional tax and
associated interest and penalties on behalf of employees (and
former employees) who exercised discounted stock options in 2006.
During 2007, Forrester paid a total of $362,000 to the Internal
Revenue Service and the California Franchise Tax Board under
these programs. Also, during 2007, the Board of Directors
approved a tender offer to amend or replace certain previously
granted stock options that had exercises prices less than the
market value of Forrester stock on the correct measurement date
and therefore would have been subject to tax under Internal
Revenue Code Section 409A. In the tender offer, the Company
adjusted the exercise prices of the affected options to the same
prices used to calculate compensation expense in the
consolidated financial statements. The Company agreed to
compensate the employees who elected to participate in the
tender offer by paying to each such person in January 2008 an
amount equal to 105% of the difference between the original
exercise price and the corrected exercise price for each
affected option. As of December 31, 2007, the Company had
$434,000 (related to the tender offer) included in accrued
expenses, which was paid in 2008.
During 2007 and 2008, the Company incurred approximately
$4.6 million and $877,000 of costs (primarily professional
fees), respectively, related to the stock option investigation,
the SEC inquiry and the restatement of the Company’s
historical financial statements, which have been recorded in the
consolidated statements of income under the caption General and
Administrative Expense.
F-23
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(11)
Stock
Option Plans
In February 1996, Forrester adopted the Forrester Research, Inc.
1996 Equity Incentive Plan, which was amended and restated and
approved by the stockholders in September 1996 (the “1996
Plan”). The 1996 Plan provided for the issuance of
incentive stock options (“ISOs”) and non-qualified
stock options (“NSOs”) to purchase up to
13,500,000 shares of common stock. Under the terms of the
1996 Plan, ISOs may not be granted at less than fair market
value on the date of grant (and in no event less than par
value). ISO grants to holders of 10% of the combined voting
power of all classes of Forrester stock must be granted at an
exercise price not less than 110% of the fair market value at
the date of grant. Options generally vest ratably over two to
four years and expire after 10 years. Options granted under
the 1996 Plan immediately vest upon certain events, as described
in the 1996 Plan. Upon adoption of the 2006 Equity Incentive
Plan described below, the 1996 Plan was terminated.
In May 2006, the Forrester Research, Inc. 2006 Equity Incentive
Plan (the “2006 Plan”) was approved by the
stockholders of the Company. The 2006 Plan provides for the
issuance of stock-based awards, including ISOs and NSOs, to
purchase up to 4,350,000 shares authorized in the 2006 Plan
plus up to 2,500,000 returned 1996 Plan shares. Under the terms
of the 2006 Plan, ISOs may not be granted at less than fair
market value on the date of grant (and in no event less than par
value). Options generally vest annually over two to four years
and expire after 10 years. Options granted under the 2006
Plan immediately vest upon certain events, as described in the
2006 Plan.
In September 1996, Forrester adopted the 1996 Stock Option Plan
for Non-Employee Directors (the “1996 Directors’
Plan”), which provided for the issuance of options to
purchase up to 600,000 shares of common stock. The
1996 Directors’ Plan provided that each non-employee
director shall be awarded an option to purchase
6,000 shares of common stock, at an exercise price equal to
the fair market value of the common stock upon his or her
election as a director. These options vest in four equal annual
installments, with the first installment vested on the date of
grant. In addition, the 1996 Directors’ Plan provided
that each non-employee director will also receive an option to
purchase 12,500 shares of common stock, at an exercise
price equal to the fair market value of the common stock at time
of grant, each year immediately following Forrester’s
annual stockholders’ meeting. These options vest in four
equal installments on the first, second, third, and fourth
anniversaries of the date of grant. Options granted under the
1996 Directors’ Plan immediately vest upon certain
events, as described in the 1996 Directors’ Plan. Upon
adoption of the 2006 Directors’ Plan described below,
the 1996 Directors’ Plan terminated.
In May 2006, the Forrester Research, Inc. 2006 Stock Option Plan
for Directors’ (the “2006 Directors’
Plan”) was approved by the stockholders of the Company. The
2006 Directors’ Plan provides for the issuance of
options to purchase up to 450,000 shares of common stock.
Under the 2006 Directors’ Plan, each non-employee
director shall be awarded an option to purchase
6,000 shares of common stock, at an exercise price equal to
the fair market value of the common stock upon his or her
election as a director. These options vest in four equal annual
installments, with the first installment vested on the date of
grant. In addition, each non-employee director will also receive
an option to purchase 12,500 shares of common stock, at an
exercise price equal to the fair market value of the common
stock on the grant date, each year immediately following
Forrester’s annual stockholders’ meeting. These
options vest in four equal installments on the first, second,
third, and fourth anniversaries of the date of grant. Options
granted under the 2006 Directors’ Plan immediately
vest upon certain events, as described in the
2006 Directors’ Plan.
F-24
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summarizes information about stock options
outstanding and exercisable at December 31, 2008:
Weighted
Average
Weighted
Remaining
Options
Weighted
Options
Average
Contractual
Exercisable
Average
Outstanding
Exercise
Life of
At
Exercise
At December 31,
Price of
Options
December 31,
Price of
2008
Options
Outstanding
2008
Options
Range of Exercise Prices
(In thousands)
Outstanding
(in years)
(In thousands)
Exercisable
$11.69-$15.67
345
$
14.69
5.38
330
$
14.66
15.78-18.42
358
17.56
4.91
349
17.57
18.47-22.19
432
21.29
6.39
391
21.35
22.22-26.30
315
25.01
4.79
215
25.17
26.40-26.98
144
26.59
7.74
57
26.54
27.11-27.11
363
27.11
9.25
—
0.00
27.17-28.62
488
28.22
8.11
153
28.24
28.63-31.42
347
31.09
7.83
180
31.26
31.54-65.00
137
50.00
3.07
110
53.85
65.01-65.59
5
65.59
1.65
5
65.59
2,934
$
25.16
6.63
1,790
$
23.70
F-25
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The weighted average remaining contractual life of options
exercisable as of December 31, 2008 was 5.38 years. As
of December 31, 2008, shares available for future grant of
awards under the 2006 Plan and the 2006 Directors’
Plan were approximately 3,600,000 and 263,000, respectively.
The option period under the employee stock purchase plan that
would have resulted in the purchase of shares at the end of June
2007 was terminated and no option period was authorized for the
remainder of the year. As a result no compensation expense was
recognized related to the employee stock purchase plan for the
year ended December 31, 2007. (See Note 13 for further
discussion of the Employee Stock Purchase Plan). The options
granted under the stock option plans and shares subject to the
employee stock purchase plan were valued utilizing the Black
Scholes model using the following assumptions and had the
following fair values:
The dividend yield of zero is based on the fact that Forrester
has never paid cash dividends and has no present intention to
pay cash dividends. Expected volatility is based, in part, on
the historical volatility of Forrester’s common stock as
well as management’s expectations of future volatility over
the expected term of the awards granted. The risk-free interest
rate used is based on the U.S. Treasury Constant Maturity
rate with an equivalent remaining term. Where the expected term
of a stock-based award does not correspond with a term for which
the interest rates are quoted, Forrester uses the rate with the
maturity closest to the award’s expected term. The expected
term calculation is based upon Forrester’s historical
experience of exercise patterns.
Based on Forrester’s historical experience for grants with
varying vesting terms, an estimated forfeiture rate of 10% was
used to determine current period expense. Forrester evaluated
various employee groups and determined that the forfeiture
experience and expectations were not materially different
amongst employee groups and therefore concluded that one
forfeiture rate was appropriate. Forrester will record
additional expense if the actual forfeiture rate is lower than
estimated, and will record recovery of prior expense if the
actual forfeiture rate is higher than estimated.
On April 3, 2006, Forrester issued to its employees options
to purchase 587,500 shares of common stock. These options
were subject to performance criteria and would vest only if
certain pro forma operating margin targets related to full year
2006 performance were achieved. The vesting of these options was
over 24 or 36 months, or the options could be forfeited,
depending on the actual pro forma operating margin achieved for
2006. During 2006, operating performance was expected to result
in the options vesting over 36 months and expense was
recognized assuming that vesting period. Based on historical
exercise patterns for options with similar vesting and the
expected vesting period at the time of grant, Forrester used an
expected option term of 2 years for the year one vest,
3 years for the year two vest and 4 years for the year
three vest to value these options. The actual pro forma
operating margin for 2006 resulted in accelerated vesting of the
options over 24 months and the compensation expense
associated with the accelerated vesting was recognized on a
prospective basis in accordance with SFAS No. 123R.
The expense related to these options was recognized on a graded
basis.
On April 2, 2007, Forrester issued to its employees options
to purchase 293,600 shares of common stock. These options
were subject to performance criteria and would vest only if
certain pro forma operating margin targets related to full year
2007 performance were achieved. The vesting of these options was
over 24 or 36 months, or the options could be forfeited,
depending on the actual pro forma operating margin achieved for
2007. During
F-26
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
2007, operating performance was expected to result in the
options vesting over 36 months and expense was recognized
assuming that vesting period. Based on historical exercise
patterns for options with similar vesting and the expected
vesting period at the time of grant, Forrester used an expected
option term of 2 years for the year one vest, 3 years
for the year two vest and 4 years for the year three vest
to value these options. The actual pro forma operating margin
for 2007 resulted in the options vesting over 36 months and
the expense related to these options was recognized on a graded
basis.
On April 1, 2008, Forrester issued to its employees options
to purchase 370,000 shares of common stock. These options
were subject to performance criteria and would vest only if
certain pro forma operating profit targets related to full year
2008 performance were achieved. The vesting of these options was
over 24, 36 or 48 months, or the options could be
forfeited, depending on the actual pro forma operating profit
achieved for 2008. During 2008, operating performance was
expected to result in the options vesting over 48 months
and expense was recognized assuming that vesting period. Based
on historical exercise patterns for options with similar vesting
and the expected vesting period at the time of grant, Forrester
used an expected option term of 2 years for the year one
vest, 3 years for the year two vest, 4 years for the
year three vest and 5 years for the year four vest to value
these options. The actual pro forma operating profit targets for
2008 resulted in accelerated vesting of the options over
24 months and the compensation expense associated with the
accelerated vesting will be recognized on a prospective basis in
accordance with SFAS No. 123R. The expense related to
these options is being recognized on a graded basis.
The unamortized fair value of stock options as of
December 31, 2008 was $4.7 million, with a weighted
average remaining recognition period of 1.36 years.
Terminated employees have three months from date of termination
to exercise their vested options. During 2007, following the
Company’s conclusion that its historical financial
statements could no longer be relied upon, the registration
statement covering the offer and sale of stock upon the exercise
of stock options was not available. As a result, no option
holders were able to exercise their options and terminated
employees faced the prospect of having their options expire
before being able to exercise them. Because the suspension of
the registration statement was not anticipated, the Company
modified vested options held by terminated employees to extend
their expiration dates to 30 days after the date the
suspension was lifted, but no later than December 31, 2007
(tolled stock options). Options for terminated employees that
were tolled before March 14, 2007 were accounted for as
liability awards because the option holders were no longer
employees at the time of the modification and because of the
Company’s inability to provide shares upon exercise . When
the Company’s registration statement covering the offer and
sale of stock became available, these awards were reclassified
as equity awards. Options that were tolled after March 14,2007 were accounted for as equity awards because their options
were tolled in conjunction with the employee’s termination.
A summary of the options tolled during 2007 is as follows:
Total
Number of
Number of
Expense
Individuals
Shares
(in 000’s)
Amount related to the modification of previously issued stock
options
16
76,800
$
533
Tolled stock options accounted for as liability awards and
related fair market value adjustments
8
66,588
478
24
143,388
$
1,011
As discussed in Note 10, during 2007, the Board of
Directors approved a tender offer to amend or replace certain
previously granted stock options that had exercise prices less
than the market value of the Company’s common stock on the
correct measurement date and therefore would have been subject
to tax under Internal Revenue Code Section 409A. In the
tender offer, the Company adjusted the exercise prices of the
affected options to the same prices used to calculate
compensation expense in the consolidated financial statements.
The Company agreed to compensate the employees who elected to
participate in the tender offer by paying to each such person in
January 2008 an amount equal to 105% of the difference between
the original exercise price and the corrected
F-27
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
exercise price for each affected option. In total,
117 employees had options to purchase approximately
213,000 shares modified in December 2007 in connection with
the tender offer. The total incremental cost of the modification
was approximately $434,000.
(12)
Employee
Pension Plans
Forrester sponsors several defined contribution plans for
eligible employees. Generally, the defined contribution plans
have funding provisions which, in certain situations, require
contributions based upon formulas relating to employee wages or
the level of elective participant contributions, as well as
allow for additional discretionary contributions. Further,
certain plans contain vesting provisions. Forrester’s
contributions to these plans totaled approximately
$2.0 million for each of the years ended December 31,2006, 2007, and 2008, respectively.
(13)
Employee
Stock Purchase Plan
In September 1996, Forrester adopted the 1996 Employee Stock
Purchase Plan (the “Stock Purchase Plan”), which
provides for the issuance of up to 900,000 shares of common
stock. As of December 31, 2008, approximately
64,000 shares remain available for issuance. With certain
limited exceptions, all employees of Forrester who have
completed six months or more of continuous service in the employ
of Forrester and whose customary employment is more than
20 hours per week, including officers and directors who are
employees, are eligible to participate in the Stock Purchase
Plan. Purchase periods under the Stock Purchase Plan are
generally six months in length and commence on each successive
January 1 and July 1. During each purchase period under the
Stock Purchase Plan, the maximum number of shares of common
stock that may be purchased by an employee is limited to the
number of shares equal to $12,500 divided by the fair market
value of a share of common stock on the first day of the
purchase period. An employee may elect to have up to 10%
deducted from his or her compensation for the purpose of
purchasing shares under the Stock Purchase Plan. The price at
which the employee’s shares are purchased is the lower of:
a) 85% of the closing price of the common stock on the day
that the purchase period commences, or b) 85% of the
closing price of the common stock on the day that the purchase
period terminates. The Company did not have purchase periods
during 2007. Shares purchased by employees under the Stock
Purchase Plan are as follows:
Through December 31, 2006, Forrester’s operations were
managed within the following three operating groups:
(i) Americas, (ii) Europe, Middle East and Africa
(EMEA) and (iii) Asia Pacific. As of January 1, 2007,
Forrester was reorganized into three client groups (“Client
Groups”), with each client group responsible for writing
relevant research for the roles within the client organizations
on a worldwide basis. The three client groups are: Information
Technology Client Group (“IT”), Technology Industry
Client Group (“TI”), and the Marketing and Strategy
Client Group (“M&S”). All of the Client Groups
generate revenues through sales of similar research and advisory
and other service offerings targeted at specific roles within
their targeted clients. Each of the Client Groups consists of a
sales force responsible for selling to clients located within
the Client Group’s target client base and research
personnel focused primarily on issues relevant to particular
roles and to the
day-to-day
responsibilities of persons within the roles. The operations of
JupiterResearch (see Note 2) are included in the
M&S Client Group. Amounts included in the
“Events” segment relate to the operations of the
events sales and production departments.
F-28
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Revenue reported in the “Events” operating segment
consists primarily of sponsorships and event tickets to
Forrester events. As of January 1, 2008, the European sales
force was integrated into the Client Groups. As a result,
expenses related to the European sales force were reclassified
from corporate expenses to the Client Groups for 2006 and 2007,
in order to conform with the current year presentation.
Forrester evaluates reportable segment performance and allocates
resources based on direct margin. Direct margin, as presented
below, is defined as operating income excluding certain selling
and marketing expenses, client services, non-cash stock-based
compensation expense, general and administrative expenses,
depreciation expense and amortization of intangibles. The
accounting policies used by the reportable segments are the same
as those used in the consolidated financial statements.
Forrester does not identify or allocate assets, including
capital expenditures, by operating segment. Accordingly, assets
are not being reported by segment because the information is not
available by segment and is not reviewed in the evaluation of
performance or making decisions in the allocation of resources.
The following tables present information about reportable
segments. Segment information for the years ended
December 31, 2007 and 2006 has been restated to conform to
the current year’s presentation.
Net long-lived assets by location as of December 31, 2007
and 2008 are as follows (in thousands):
2007
2008
United States
$
49,988
$
69,796
Europe (excluding United Kingdom)
19,613
18,912
United Kingdom
417
245
Other
55
71
$
70,073
$
89,024
F-29
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Net revenues by geographic destination and as a percentage of
total revenues for the years ended December 31, 2006, 2007,
and 2008 are as follows (dollars in thousands):
2006
2007
2008
United States
$
128,232
$
149,745
$
172,973
Europe (excluding United Kingdom)
21,829
25,328
31,179
United Kingdom
13,685
16,348
14,294
Canada
8,872
11,731
13,267
Other
8,855
8,904
9,162
$
181,473
$
212,056
$
240,875
United States
71
%
71
%
72
%
Europe (excluding United Kingdom)
12
12
13
United Kingdom
8
8
6
Canada
5
5
5
Other
4
4
4
100
%
100
%
100
%
(15)
Certain
Balance Sheet Accounts
Property
and Equipment:
Property and equipment as of December 31, 2007 and 2008
consist of the following (in thousands):
2007
2008
Computers and equipment
$
10,246
$
10,787
Computer software
9,099
10,155
Furniture and fixtures
3,343
3,909
Leasehold improvements
5,876
5,975
Total property and equipment
28,564
30,826
Less accumulated depreciation and amortization
21,730
24,067
Property and equipment, net
$
6,834
$
6,759
Accrued
Expenses:
Accrued expenses as of December 31, 2007 and 2008 consist
of the following (in thousands):
2007
2008
Payroll and related
$
14,016
$
9,873
Taxes
3,651
7,805
Other
11,224
9,847
$
28,891
$
27,525
F-30
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Allowance
for Doubtful Accounts:
A roll-forward of the allowance for doubtful accounts as of and
for the years ended December 31, 2006, 2007, and 2008 is as
follows (in thousands):
2006
2007
2008
Balance, beginning of year
$
799
$
717
$
727
Provision for doubtful accounts
358
480
594
Additions from acquisition
—
—
107
Write-offs
(440
)
(470
)
(943
)
Balance, end of year
$
717
$
727
$
485
(16)
Summary
Selected Quarterly Financial Data (Unaudited)
The following is a summary of selected quarterly financial data
for the years ended December 31, 2007 and 2008 (in
thousands, except per share data):
Unaudited Consolidated Statement of Income Data for the
On February 9, 2009, in response to conditions and demands
of the market and a slower economy, Forrester announced a
reduction in its workforce by approximately 50 positions and
expects to record a
pre-tax
reorganization charge of approximately $2.5 million to
$3.0 million in the quarter ended March 31, 2009
related principally to cash severance and related benefits costs
for terminated employees. Forrester is also finalizing
associated
facilities-related
costs.
F-31
Item 9.
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not Applicable.
Item 9A.
Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures (as defined in
Rule 13a-15(e)
of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) as of the end of the period covered
by this report. Based on the evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of
December 31, 2008.
Management’s
Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rule 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act of 1934. Internal control over
financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles (GAAP).
Internal control over financial reporting includes those
policies and procedures that: 1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
Company; 2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that receipts and
expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company;
and 3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or
disposition of the Company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, a system of internal
control over financial reporting can provide only reasonable
assurance and may not prevent or detect material misstatements.
Further, because of changes in conditions, effectiveness of
internal controls over financial reporting may vary over time.
Management assessed the effectiveness of the Company’s
internal control over financial reporting as of
December 31, 2008. In making its assessment, management
used the criteria set forth in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations (“COSO”) of the Treadway Commission.
Based on this assessment, management believes that as of
December 31, 2008, the Company’s internal control over
financial reporting is effective based on those criteria.
The effectiveness of our internal control over financial
reporting as of December 31, 2008 has been audited by BDO
Seidman, LLP, our independent registered public accounting firm,
as stated in their report, which appears on page 32 of this
Annual Report on
Form 10-K.
Changes
in Internal Control Over Financial Reporting
There was no change in our internal control over financial
reporting in the year ending December 31, 2008 that has
materially affected or is reasonably likely to materially affect
our internal control over financial reporting.
31
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
Board of Directors and Shareholders
Forrester Research, Inc.
Cambridge, MA
We have audited Forrester Research, Inc. (the
“Company”) and subsidiaries internal control over
financial reporting as of December 31, 2008, based on
criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Item 9A,
Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Forrester Research, Inc. and subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on
the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Forrester Research, Inc. and
subsidiaries as of December 31, 2008 and 2007, and the
related consolidated statements of income, stockholders’
equity and comprehensive income, and cash flows for each of the
three years in the period ended December 31, 2008 and our
report dated March 13, 2009 expressed an unqualified
opinion thereon.
George F. Colony, Forrester’s founder, has served as
Chairman of the Board of Directors and Chief Executive Officer
since the Company’s inception in July 1983, and as
President since September 2001 and from
1983-2000.
Michael A. Doyle began serving as the Company’s
Chief Financial Officer and Treasurer in September 2007. Prior
to joining the Company, Mr. Doyle was Chief Financial
Officer of Easylink Services Corporation, a publicly traded
telecommunications messaging provider, since 2004. Prior to
joining Easylink, Mr. Doyle was the Chief Financial Officer
for North America of Dun & Bradstreet Corporation from
2002 to 2004, and from 1997 to 2002, he held various senior
financial and marketing positions with Cendant Corporation.
Dwight Greisman became Forrester’s Chief Marketing
Officer in August 2008. Mr. Greisman joined the Company in
2005 as Vice President and Practice Leader, Forrester Leadership
Boards. Previously, he was Managing Director at the Forbes
Consulting Group Quantitative Analytics Division from 2001-2004.
Elizabeth Lemons became Forrester’s Chief People
Officer in March 2007. Ms. Lemons joined the Company in
June 2006 as Vice President, Strategic Growth for the Americas.
Previously, she was Director of Human Resources at the Joslin
Diabetes Center from 2005 to June 2006 and Vice President and
Partner at Executive Destinations Inc., an executive career
management firm, from
1997-2005.
Gail S. Mann, Esq. became Forrester’s Chief
Legal Officer and Secretary in February 2004. Ms. Mann
previously was of counsel to the law firm of Morse,
Barnes-Brown & Pendleton, P.C. from 2002 until
joining Forrester, Vice President and Associate General Counsel
of Harcourt General, Inc., a global multimedia publishing
company, and its affiliate, The Neiman Marcus Group, a high end
specialty retailer, from
1999-2001,
and Vice President and Assistant General Counsel of Digital
Equipment Corporation from 1994 to 1998.
Julie Meringer became Managing Director of
Forrester’s Information Technology Client Group in January
2007. Ms. Meringer joined Forrester in 1991. From 2005
until 2007, Ms. Meringer served as Vice President of
Forrester’s consulting group and previously was a Vice
President for our CIO Group, one of the Forrester Leadership
Boards, from 2002 to 2004. Prior to 2002, Ms. Meringer held
various leadership roles in our London office and research
organization.
Mark R. Nemec, Ph.D. became Managing Director of
Forrester’s Technology Industry Client Group in January
2007. Previously, Mr. Nemec was Vice President, Forrester
Leadership Boards in 2006, and prior to that, Vice President,
Council Manager. Prior to joining Forrester in 2005,
Mr. Nemec was a senior director at the Advisory Board
Company, a research consultancy based in Washington, D.C from
2000 to 2005. Previously, Mr. Nemec was on the faculty of
Davidson College from 1999 to 2000.
33
George M. Orlov became Forrester’s Chief Information
Officer and Chief Technology Officer in December 2004. Prior to
joining Forrester, Mr. Orlov was Chief Information Officer
and Chief Technology Officer for Callisma, Inc., a professional
services firm focused on technology infrastructure that was
acquired by SBC Communications in 2003. Prior to 2003,
Mr. Orlov served as Vice President and Chief Information
Officer at Pacific Gas & Electric from 1998 to 2000,
and prior thereto, he held the same position with Commonwealth
Edison Company from 1996 to 1998.
Charles Rutstein became Forrester’s Chief Operating
Officer effective January 1, 2007. Mr. Rutstein joined
Forrester in 1999. In 2006, Mr. Rutstein served as
President, Forrester Americas. In 2005, he served as our Vice
President, Community and previously was our Vice President of
Consulting from 2003 to 2005. Prior to 2003, Mr. Rutstein
held various leadership positions in our research organization.
Before joining Forrester, Mr. Rutstein served as a
principal consultant with Price Waterhouse Management Consulting
Services.
Dennis van Lingen became Managing Director of our
Marketing and Strategy Client Group in January 2007.
Mr. Van Lingen also serves as Forrester’s Chief
Europe, Middle East, and Africa (EMEA) Officer. He was formerly
President of EMEA from May 2006 to December 2006 and Vice
President of Marketing for the Americas from January 2004 to May
2006. Mr. Van Lingen joined Forrester in 2000 as Director
of Marketing for Europe. Before joining Forrester, Mr. Van
Lingen worked as a senior manager in the marketing and public
relations divisions of Nissan Europe for 10 years.
Our Code of Business Conduct and Ethics covers all employees,
officers and directors, including our principal executive,
financial and accounting officers. A copy of our Code of
Business Conduct and Ethics can be found on our web site,
www.forrester.com.
We intend to satisfy the disclosure requirements under
Item 5.05 of
Form 8-K
regarding an amendment to, or waiver from, a provision of the
Company’s Code of Business Conduct and Ethics, and that
relates to a substantive amendment or material departure from a
provision of the Code, by posting such information on our
Internet website at www.forrester.com. We also intend to
satisfy the disclosure requirements of the Nasdaq Stock Market
regarding waivers of the Code of Business Conduct and Ethics by
posting such information on our Internet website at
www.forrester.com.
The remainder of the response to this item is contained under
the caption “EXECUTIVE OFFICERS” in Part I of
this report, and in our Proxy Statement for our 2009 Annual
Meeting of Stockholders (the “2009 Proxy Statement”)
under the captions “Election of Directors” and
“Section 16(a) Beneficial Ownership Reporting
Compliance”, all of which is incorporated herein by
reference.
Item 11.
Executive
Compensation
The response to this item is contained in the 2009 Proxy
Statement under the captions “Directors’
Compensation” and “Executive Compensation” and is
incorporated herein by reference.
Item 12.
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The response to this item is contained in the 2009 Proxy
Statement under the caption “Security Ownership of Certain
Beneficial Owners and Management” and is incorporated
herein by reference.
34
The following table summarizes, as of December 31, 2008,
the number of options issued under our equity compensation plans
and the number of shares available for future issuance under
these plans:
(a)
(c)
Number of Securities
(b)
Number of Securities Remaining
to be Issued Upon Exercise
Weighted Average Exercise
Available for Future Issuance Under
of Outstanding Options,
Price of Outstanding Options,
Equity Compensation Plans (Excluding
Plan Category
Warrants and Rights
Warrants and Rights
Securities Reflected in Column (a)(1)
Equity Compensation plans approved by stockholders(1)
2,934,433
$
25.16
3,926,558
Equity compensation plans not approved by stockholders
N/A
N/A
N/A
Total
2,934,433
$
25.16
3,926,558
(1)
Column (c) includes, as of December 31, 2008,
3,599,734 shares available for issuance under our 2006
Equity Incentive Plan, 262,500 shares under our
2006 Director’s Stock Option Plan, and
64,324 shares that are available for issuance under our
Amended and Restated 1996 Employee Stock Purchase Plan.
The shares available under out 2006 Equity Incentive Plan are
available to be awarded as restricted or unrestricted stock or
stock units.
Item 13.
Certain
Relationships and Related Transactions, and Director
Independence
The response to this item is contained in the Company’s
2009 Proxy Statement under the captions “Information with
respect to Board of Directors”, “Certain Relationships
and Related Transactions”, and “Related Person
Transactions” and is incorporated herein by reference.
Item 14.
Principal
Accounting Fees and Services
The response to this item is contained in the Company’s
2009 Proxy Statement under the caption “Independent
Registered Public Accounting Firm” and is incorporated
herein by reference.
PART IV
Item 15.
Exhibits,
Financial Statements Schedules.
a. Financial Statements. See Index on
page 36.
b. Financial Statement Schedules. None.
c. Exhibits. A complete listing of
exhibits required is given in the Exhibit Index that
precedes the exhibits filed with this report on
page E-1
hereof.
Agreement and Plan of Merger dated as of January 20, 2003
between Forrester Research, Inc., Whitcomb Acquisition Corp.,
and Giga Information Group, Inc.
Specimen Certificate for shares of Common Stock, $.01 par
value, of Forrester Research, Inc.
10.1+(3)
Registration Rights and Non-Competition Agreement
10.2+(5)
1996 Amended and Restated Equity Incentive Plan, as amended
10.3+(5)
1996 Employee Stock Purchase Plan, as amended
10.4+(6)
1996 Amended and Restated Stock Option Plan for Non-Employee
Directors
10.5+(7)
2006 Equity Incentive Plan
10.6+(7)
2006 Stock Option Plan for Directors
10.7+(8)
Form of Stock Option Certificate (1996 Amended and Restated
Equity Incentive Plan)
10.8+(9)
Form of Performance-Based Option Certificate (1996 Amended and
Restated Equity Incentive Plan)
10.9+(10)
Form of Director’s Option Certificate (1996 Amended and
Restated Stock Option Plan for Non-Employee Directors)
10.10+(11)
Form of Incentive Stock Option Certificate (2006 Equity
Incentive Plan)
10.11+(11)
Form of Non-Qualified Stock Option Certificate (2006 Equity
Incentive Plan)
10.12+(12)
Form of Performance-Based Option Certificate (2006 Equity
Incentive Plan)
10.13+(12)
Form of Director’s Option Certificate (2006 Stock Option
Plan for Directors)
10.14+(13)
Description of Matrix Bonus Plan
10.15+(12)
Employment Offer Letter from Company to Michael A. Doyle dated
July 24, 2007
10.16+(14)
Employment Agreement between Forrester Research B.V. and Dennis
Van Lingen dated as of June 20, 2000, and Addendum thereto
dated May 21, 2001
10.17(5)
Fifth Amendment to Lease dated as of January 1, 2005
between Technology Square Finance, LLC and the Company for the
premises located at 400 Technology Square, Cambridge,
Massachusetts
10.18(14)
Sixth Amendment to Lease dated as of April 22, 2008 between
ARE-Tech Square, LLC and Forrester Research, Inc. for the
premises located at 400 Technology Square, Cambridge,
Massachusetts
Pursuant to the requirements of Section 13 or 15(d) 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.
Pursuant to the requirement of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the registrant in the capacities and on the dates
indicated.
Signature
Capacity In Which Signed
Date
/s/ GEORGE
F. COLONY
George
F. Colony
Chairman of the Board and Chief Executive Officer (Principal
Executive Officer)
