|
|
 | | | |
- close
- close
- close
- close
| |||||||||
Forrester Research 10-K 2009 Documents found in this filing:
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Commission File Number
000-21433
Registrant’s telephone number, including area code:
(617) 613-6000
Securities registered pursuant to Section 12(b) of the
Act:
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):
(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
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.
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.
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.
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.
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:
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.
We offer our clients a selection of engagement opportunities
that are organized for and directed toward the multiple
professional roles we cover.
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:
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.
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:
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:
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
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.
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.
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
has already been recognized. Agreement value increased 13% to
$222.5 million at December 31, 2008 from
$197.2 million at December 31, 2007.
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:
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.
We believe that the principal competitive factors in our
industry include the following:
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.
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.
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:
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.
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
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.
We have not received written comments from the Securities and
Exchange Commission that remain unresolved.
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.
We are not currently a party to any material legal proceedings.
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.
None.
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:
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.
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:
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:
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:
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.
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.
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
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.
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.
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.
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
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.
The following table sets forth selected financial data as a
percentage of total revenues for the years noted.
2008
compared to 2007
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.
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.
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.
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.
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
acquisition of JupiterResearch. The acquisition of
JupiterResearch resulted in additional general and
administrative expense of $400,000.
Depreciation expense remained consistent at $4.0 million
for the year-ended December 31, 2008 compared to the
year-ended December 31, 2007.
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 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.
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 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.
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.
2007
compared to 2006
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.
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.
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.
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.
The increase in depreciation expense is primarily attributable
to purchases of computer equipment and software during 2006 and
2007.
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.
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 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.
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.
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.
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:
Off-Balance
Sheet Arrangements
We do not maintain any off-balance sheet financing arrangements.
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.
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
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.
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.
FORRESTER
RESEARCH, INC.
Board of Directors and Shareholders
Forrester Research, Inc.
Cambridge, MA
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.
/s/ BDO
Seidman, LLP
Boston, Massachusetts
March 13, 2009
FORRESTER
RESEARCH, INC.
The accompanying notes are an integral part of these
consolidated financial statements.
FORRESTER
RESEARCH, INC.
The accompanying notes are an integral part of these
consolidated financial statements.
FORRESTER
RESEARCH, INC.
COMPREHENSIVE INCOME
The accompanying notes are an integral part of these
consolidated financial statements.
FORRESTER
RESEARCH, INC.
The accompanying notes are an integral part of these
consolidated financial statements.
FORRESTER
RESEARCH, INC.
December 31,
2008
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.
The accompanying consolidated financial statements include the
accounts of Forrester and its wholly-owned subsidiaries. All
intercompany balances have been eliminated in consolidation.
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.
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.
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
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 2008 the 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.
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.
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.
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.
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.
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
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.
The components of accumulated other comprehensive loss as of
December 31, 2007 and 2008 are as follows (in thousands):
The components of comprehensive income are as follows (in
thousands):
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
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.
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.
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.
Forrester provides for depreciation and amortization of property
and equipment, computed using the straight-line method, over
estimated useful lives of assets as follows:
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:
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.
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:
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.
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
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.
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
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):
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):
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.
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,
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.
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:
A summary of Forrester’s intangible assets as of
December 31, 2007 and 2008 is as follows:
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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):
The following table summarizes the Company’s marketable
investments, excluding the Right from UBS (in thousands):
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.
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
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.
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:
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):
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
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):
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
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.
FORRESTER
RESEARCH, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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):
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||