Note 1 — Interim Consolidated Financial Statements

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Forrester Research, Inc. (“Forrester”) Annual Report on Form 10-K for the year ended December 31, 2012. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations, and cash flows as of the dates and for the periods presented have been included. The results of operations for the three and nine months ended September 30, 2013 may not be indicative of the results for the year ending December 31, 2013, or any other period.

Fair Value Measurements

The carrying amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short-term maturities. See Note 2 – Marketable Investments for the fair value of the Company’s marketable investments.

Revision of Prior Period Financial Statements

During the quarter ended September 30, 2013, the Company identified certain prior period errors that affected the interim and annual periods in the years ended December 31, 2012 and 2011, as well as the interim periods in the six months ended June 30, 2013. The Company has reflected in the financial information included in this Note the correction of all identified prior period errors in the periods in which they originated. The prior period errors relate to:

•

An adjustment of $0.8 million for the three and six months ended June 30, 2013 to increase the amount of research services revenue related to recognition of revenue for the event ticket included in the Company’s RoleView and Forrester Leadership Board subscription products. Based on the identification of this error, the Company reassessed its historical calculations and identified a required change in its methodology for the accounting for an insignificant amount of contract modifications during this period that resulted in an increase (decrease) to revenue for each of the periods is as follows: ($0.1) million and $0.1 million for the three months ended March 31, 2012 and September 30, 2012, respectively, and $0.1 million for the year ended December 31, 2011. This error has been reflected in deferred revenue in the revised consolidated balance sheet and statement of cash flows presented below.

•

Adjustments to the Company’s share of operating results in one of the technology-related investment funds in which the Company holds an interest, which adjustments are principally a result of information received by the Company from the fund after the applicable reporting periods. The Company records a portion of the fund’s operating results, based on the Company’s ownership interest in the fund, as investment gains (losses). The adjustments to the gains (losses) on investments for each period is as follows: ($0.1) million and $0.1 million for the three months ended March 31, 2013 and June 30, 2013, respectively; $0.6 million and ($0.1) million for the three months ended September 30, 2012 and December 31, 2012, respectively; and $0.5 million and ($1.4) million for the years ended December 31, 2012 and 2011, respectively. This error has been reflected in other assets in the revised consolidated balance sheet and in net (gains) losses from investments in the revised statement of cash flows presented below.

•

Adjustments to revenue for historical insignificant variances in deferred revenue for reconciling items between the Company’s general ledger and sub-ledger system. The increase (decrease) to revenue for each of the periods is as follows: ($0.1) million for the three months ended March 31, 2013; ($0.2) million, $0.2 million and $0.1 million for the three months ended June 30, 2012, September 30, 2012 and December 31, 2012, respectively; and $0.1 million and ($0.4) million for the years ended December 31, 2012 and 2011, respectively. This error has been reflected in deferred revenue in the revised consolidated balance sheet and statement of cash flows presented below.

•

Adjustments within the year ended December 31, 2012 for the improper capitalization of software development costs during the three months ended June 30, 2012 and September 30, 2012. These errors were corrected in the three months ended December 31, 2012 in the previously filed financial statements. The increase (decrease) in general and administrative expense for each of the periods is as follows: $0.2 million, $0.3 million and ($0.5) million for the three months ended June 30, 2012, September 30, 2012 and December 31, 2012, respectively. This error has been reflected in purchases of property and equipment in the revised consolidated statement of cash flows presented below.

In evaluating whether the Company’s previously issued consolidated financial statements were materially misstated, the Company considered the guidance in ASC Topic 250, Accounting Changes and Error Corrections, ASC Topic 250-10-S99-1, Assessing Materiality, and ASC Topic 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. The Company concluded that these errors were not material individually or in the aggregate to any of the prior reporting periods, and therefore, amendments of previously filed reports are not required. As such, the revisions for prior period corrections are reflected in the financial information for the applicable prior periods and will be reflected in future filings containing such prior period financial information.

The effects of these prior period errors on the consolidated financial statements are as follows (in thousands, except per share amounts):

Revised Consolidated Statements of Income


	Three Months Ended March 31, 2013									Three Months Ended June 30, 2013								Six Months Ended June 30, 2013
	As Previously Reported			Adjustments			As Revised			As Previously Reported			Adjustments			As Revised		As Previously Reported			Adjustments			As Revised
Revenues:
Research services	$	50,378		$	(100	)	$	50,278		$	50,512		$	800		$	51,312	$	100,890		$	700		$	101,590
Advisory services and other		21,121			(38	)		21,083			27,652			(11	)		27,641		48,773			(49	)		48,724

Total revenues		71,499			(138	)		71,361			78,164			789			78,953		149,663			651			150,314
Income from operations		3,418			(138	)		3,280			8,999			789			9,788		12,417			651			13,068
Gains (losses) on investments, net		(51	)		(149	)		(200	)		(51	)		149			98		(102	)		—			(102	)
Income before income taxes		3,743			(287	)		3,456			9,203			938			10,141		12,946			651			13,597
Income tax provision		1,402			(115	)		1,287			3,581			375			3,956		4,983			260			5,243
Net income	$	2,341		$	(172	)	$	2,169		$	5,622		$	563		$	6,185	$	7,963		$	391		$	8,354

Basic income per common share	$	0.10		$	—		$	0.10		$	0.26		$	0.03		$	0.29	$	0.37		$	0.01		$	0.38

Diluted income per common share	$	0.10		$	—		$	0.10		$	0.26		$	0.02		$	0.28	$	0.36		$	0.02		$	0.38


	Nine Months Ended September 30, 2012							Three Months Ended December 31, 2012									Full Year Ended December 31, 2012
	As Previously Reported		Adjustments			As Revised		As Previously Reported			Adjustments			As Revised			As Previously Reported			Adjustments		As Revised
Revenues:
Research services	$	151,132	$	13		$	151,145	$	51,866		$	80		$	51,946		$	202,998		$	93	$	203,091
Advisory services and other		66,732		(7	)		66,725		23,200			15			23,215			89,932			8		89,940

Total revenues		217,864		6			217,870		75,066			95			75,161			292,930			101		293,031
Operating expenses:
General and administrative		26,667		457			27,124		10,199			(457	)		9,742			36,866			—		36,866
Total operating expenses		194,598		457			195,055		67,673			(457	)		67,216			262,271			—		262,271
Income from operations		23,266		(451	)		22,815		7,393			552			7,945			30,659			101		30,760
Gains (losses) on investments, net		290		608			898		(739	)		(65	)		(804	)		(449	)		543		94
Income before income taxes		24,452		157			24,609		7,058			487			7,545			31,510			644		32,154
Income tax provision		3,129		62			3,191		2,807			195			3,002			5,936			257		6,193
Net income	$	21,323	$	95		$	21,418	$	4,251		$	292		$	4,543		$	25,574		$	387	$	25,961

Basic income per common share	$	0.94	$	0.01		$	0.95	$	0.19		$	0.01		$	0.20		$	1.14		$	0.01	$	1.15

Diluted income per common share	$	0.93	$	—		$	0.93	$	0.19		$	0.01		$	0.20		$	1.12		$	0.01	$	1.13


	Three Months Ended June 30, 2012							Six Months Ended June 30, 2012							Three Months Ended September 30, 2012
	As Previously Reported		Adjustments			As Revised		As Previously Reported		Adjustments			As Revised		As Previously Reported			Adjustments			As Revised
Revenues:
Research services	$	51,072	$	(100	)	$	50,972	$	100,832	$	(196	)	$	100,636	$	50,300		$	209		$	50,509
Advisory services and other		28,021		(61	)		27,960		48,521		(60	)		48,461		18,211			53			18,264

Total revenues		79,093		(161	)		78,932		149,353		(256	)		149,097		68,511			262			68,773
Operating expenses:
General and administrative		8,645		148			8,793		18,256		148			18,404		8,411			309			8,720
Total operating expenses		67,632		148			67,780		133,264		148			133,412		61,334			309			61,643
Income from operations		11,461		(309	)		11,152		16,089		(404	)		15,685		7,177			(47	)		7,130
Gains (losses) on investments, net		84		—			84		143		—			143		147			608			755
Income before income taxes		11,675		(309	)		11,366		16,771		(404	)		16,367		7,681			561			8,242
Income tax provision		3,906		(124	)		3,782		5,821		(162	)		5,659		(2,692	)		224			(2,468	)
Net income	$	7,769	$	(185	)	$	7,584	$	10,950	$	(242	)	$	10,708	$	10,373		$	337		$	10,710

Basic income per common share	$	0.34	$	—		$	0.34	$	0.48	$	(0.01	)	$	0.47	$	0.46		$	0.02		$	0.48

Diluted income per common share	$	0.34	$	(0.01	)	$	0.33	$	0.47	$	(0.01	)	$	0.46	$	0.45		$	0.02		$	0.47


	Three Months Ended March 31, 2012							Full Year Ended December 31, 2011
	As Previously Reported		Adjustments			As Revised		As Previously Reported		Adjustments			As Revised
Revenues:
Research services	$	49,760	$	(96	)	$	49,664	$	191,648	$	(153	)	$	191,495
Advisory services and other		20,500		1			20,501		91,968		(128	)		91,840

Total revenues		70,260		(95	)		70,165		283,616		(281	)		283,335
Income from operations		4,628		(95	)		4,533		36,997		(281	)		36,716
Gains (losses) on investments, net		59		—			59		1,018		(1,417	)		(399	)
Income before income taxes		5,096		(95	)		5,001		38,645		(1,698	)		36,947
Income tax provision		1,915		(38	)		1,877		15,635		(679	)		14,956
Net income	$	3,181	$	(57	)	$	3,124	$	23,010	$	(1,019	)	$	21,991

Basic income per common share	$	0.14	$	—		$	0.14	$	1.02	$	(0.05	)	$	0.97

Diluted income per common share	$	0.14	$	(0.01	)	$	0.13	$	0.99	$	(0.04	)	$	0.95

Revised Consolidated Statements of Comprehensive Income

The consolidated statements of comprehensive income for all periods is impacted by the same amount as net income for the respective period.

Revised Consolidated Balance Sheet


	As of December 31, 2012
	As Previously Reported		Adjustments			As Revised
Current Assets:
Prepaid expenses and other current assets	$	18,846	$	132		$	18,978
Total current assets		336,565		132			336,697
Other assets		9,123		(314	)		8,809
Total assets	$	487,832	$	(182	)	$	487,650

Current Liabilities:
Deferred revenue	$	150,479	$	16		$	150,495
Total current liabilities		181,329		16			181,345
Total liabilities		190,762		16			190,778
Retained earnings		117,648		(198	)		117,450
Total stockholders’ equity		297,070		(198	)		296,872
Total liabilities and stockholders’ equity	$	487,832	$	(182	)	$	487,650

Revised Consolidated Statements of Cash Flows


	Three Months Ended March 31, 2013							Six Months Ended June 30, 2013
	As Previously Reported		Adjustments			As Revised		As Previously Reported			Adjustments			As Revised
Cash flows from operating activities:
Net income	$	2,341	$	(172	)	$	2,169	$	7,963		$	391		$	8,354
Net (gains) losses from investments		51		149			200		102			—			102
Prepaid expenses and other current assets		1,271		(115	)		1,156		4,619			260			4,879
Deferred revenue		2,709		138			2,847		(12,955	)		(651	)		(13,606	)
Net cash provided by operating activities		35,453		—			35,453		37,231			—			37,231


	Nine Months Ended September 30, 2012									Year Ended December 31, 2012									Year Ended December 31, 2011
	As Previously Reported			Adjustments			As Revised			As Previously Reported			Adjustments			As Revised			As Previously Reported			Adjustments			As Revised
Cash flows from operating activities:
Net income	$	21,323		$	95		$	21,418		$	25,574		$	387		$	25,961		$	23,010		$	(1,019	)	$	21,991
Net (gains) losses from investments		(290	)		(608	)		(898	)		449			(543	)		(94	)		(1,018	)		1,417			399
Prepaid expenses and other current assets		3,929			62			3,991			6,279			257			6,536			(7,805	)		(679	)		(8,484	)
Deferred revenue		(23,302	)		(6	)		(23,308	)		1,807			(101	)		1,706			16,364			281			16,645
Net cash provided by operating activities		43,223			(457	)		42,766			53,147			—			53,147			55,444			—			55,444
Purchases of property and equipment		(4,845	)		457			(4,388	)		(5,103	)		—			(5,103	)		(39,776	)		—			(39,776	)
Net cash provided by (used in) investing activities		(15,989	)		457			(15,532	)		(4,076	)		—			(4,076	)		(53,036	)		—			(53,036	)