FORRESTER RESEARCH INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 000-21433
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FORRESTER RESEARCH, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 04-2797789
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

400 TECHNOLOGY SQUARE 02139
CAMBRIDGE, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 613-6000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

TITLE OF EACH CLASS Common Stock, $.01 par value

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 18, 2002 (based on the closing price as quoted by the
Nasdaq National Market as of such date) was approximately $284,171,323.

As of March 18, 2002, 23,274,607 shares of the registrant's common stock
were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Company's Annual Meeting of
Stockholders for the year ended December 31, 2001 are incorporated by reference
into Part III hereof.

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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. These
statements are based on our current plans and expectations and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the forward-
looking statements. We undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events, or otherwise.

PART I

ITEM 1. BUSINESS

GENERAL

Forrester Research, Inc. is a leading independent emerging-technology
research firm that conducts research and analysis on the impact of emerging
technologies on business, consumers, and society. We provide our clients with an
integrated perspective on technology and business, which we call the
WholeView(TM). Our approach provides companies with the strategies, data, and
product evaluations they need to evolve their business models and infrastructure
to embrace broader markets and scale their operations. We help our clients
develop business strategies that use technology to win customers, identify new
markets, and gain competitive operational advantages. Our products and services
primarily benefit the senior management, business strategists, and marketing and
technology professionals at Global 3,500 companies who use our prescriptive,
executable research to understand and capitalize on changing business models and
emerging technologies.

We continued our effort to use the emerging technologies we analyze as an
integral part of our business throughout 2001. In January 2002, this focus
allowed us to rapidly transform our "Forrester eResearch(R)" technology platform
into WholeView Research -- an open, unified offering that provides clients with
comprehensive access to our Technographics(R), TechStrategy(TM), and
TechRankings(TM) products. Our technology allows us to conduct, design, sell,
and deliver our research through simplified Web interfaces specifically
developed to maximize its impact and effectiveness. Our WholeView Research
platform, Strategic Services, and Events combine to provide our clients with
comprehensive, integrated access to our research, analysts, online tools,
presentations, advice, and speeches.

We offer our clients annual memberships that provide access to a wide
variety of business issues and technology topics. These issues and topics
include the impact that the application of technologies may have on business
models, operational strategy, financial results, investment priorities,
organizational effectiveness, and staffing requirements. In 2001, clients
subscribed to discrete topics focused on business issues, technologies, or
geographical areas of their choosing. Starting in 2002, we began to offer
clients licenses to a new technology platform, which we call the WholeView.
WholeView Research provides fully integrated access to qualitative industry and
technology research designed to inform clients' strategic decision-making,
online customization tools to help them select and implement technology products
on the basis of lab-based evaluations, and quantitative measurements of how
consumers and businesses use technology. We also provide strategic services to
clients that explore in greater detail the issues and topics covered by our
research. We host Forum and Summit Events, conferences devoted to critical
business and technology issues, which bring together our clients and major
technology and business leaders to discuss the impact of technology change on
business.

We were incorporated in Massachusetts on July 7, 1983, and reincorporated
in Delaware on February 21, 1996.

INDUSTRY BACKGROUND

Emerging technologies continue to play a central role in companies' efforts
to remain both competitive and cost efficient in an increasingly complex
business arena. In 2001, a rapidly changing business environment forced Global
3,500 companies to reassess strategies, budgets, staffing, and business models.
These complex decisions require participation from corporate leaders, business
managers, marketing executives, and technol-

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ogy professionals. Together, these individuals must work to reduce and even
eliminate the traditional separations between marketing, business strategy, and
technology to reach new markets, gain competitive advantage, and develop high
customer service and loyalty levels. 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, our clients' information demands change. Clients continue to
rely on external sources of expertise that provide independent business advice
spanning a variety of areas including technology, business strategy, and
consumer behavior. Increasingly, however, businesses are demanding instant
access to help with the issues and challenges confronting them in this dynamic
environment. We believe that our WholeView Research offering responds to our
clients by providing a holistic approach to our objective research that is
thematic, prescriptive, executable, and that provides a comprehensive
perspective on the integrated use of technology in business.

FORRESTER'S SOLUTION

We believe that our business and emerging technology expertise enables us
to offer our clients the best available research on changing business models and
technologies, technology investments, and customer trends. Our solution provides
our clients with:

THE WHOLEVIEW. We provide our clients with a comprehensive and integrated
perspective on emerging technologies and business, which we call WholeView
Research. Our approach synthesizes our research methodologies and products to
provide clients with the information they need to collaborate on strategic
business decisions that use technology. WholeView Research consists of our core
research offerings of Technographics, TechStrategy, and TechRankings, which we
supplement with Research Central and Unlimited Analyst Access. Our WholeView
Research combines with our delivery, specialized services, and expertise to
offer clients access to the analysts, data, and research they need to:

- Assess potential new markets, competitors, products, and services.

- Anticipate technology-driven business model shifts.

- Understand how technology can improve business processes.

- Educate, inform, and align strategic decision-makers in their
organizations.

- Capitalize on emerging technologies.

PERSONAL VIEW. Clients access our WholeView Research, an inclusive library
of cross-linked documents, through our client Web interface that we call the
Personal View. The Personal View is an easy-to-use gateway to our research that
helps clients organize and access reports, data, and product evaluations and
accelerates the deployment of our ideas and analysis. We distill the abundance
of information, developments, and data into concise, connected, and easy-to-read
formats to facilitate rapid decision-making.

A UNIFIED SET OF SERVICES TO BUILD BUSINESS AND TECHNOLOGY
STRATEGIES. Clients may combine our WholeView Research with Strategic Services
and Forum and Summit Events to enhance their understanding and the value of the
core research offerings.

EXPERTISE ON EMERGING TECHNOLOGIES. We started our business in 1983 and
have a long history of, and extensive experience in, identifying emerging
technology 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
symposiums, and are often quoted in the press and other publications. They enjoy
direct access to the leaders and decision-makers within large enterprises and
technology vendors. We provide our research analysts with rigorous training to
ensure that they have the skills to challenge conventional viewpoints and
provide prescriptive, executable insight and research to our clients.

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FORRESTER'S STRATEGY

We seek to maintain and enhance our position as a leading technology
research firm and to capitalize on demand for our research by:

IDENTIFYING AND DEFINING NEW BUSINESS MODELS, TECHNOLOGIES, AND
MARKETS. We seek to position ourselves ahead of other research firms by
delivering strategic research and analysis about the impact of technology
on business models and technology infrastructure. We believe that our
research methodology and our creative culture allow us to identify and
analyze rapid shifts in the use of technology before these changes appear
on the horizon for most users, vendors, and other research firms. Our early
identification of these shifts enables us to offer research and introduce
new products and services that help our clients capitalize on emerging
business models and technologies.

LEVERAGING THE WHOLEVIEW. Our business model, technology platform,
and research methodologies allow us to sell existing products and 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 research and introduce innovative products.

USING TARGETED, GLOBAL SALES CHANNELS. We sell our products and
services via our headquarters in Cambridge, Massachusetts, our research
centers in Amsterdam, Frankfurt, London, and San Francisco, and our sales
offices in Austin, Chicago, Sydney, and Tokyo. Our direct sales force
decreased 31% from 267 on December 31, 2000, to 184 on December 31, 2001,
due to a reorganization of our sales force that was designed to align our
sales organization with our clients. By decreasing the size of our sales
force to reflect market conditions, we seek to increase average sales
volume per sales representative, lengthen the average tenure of our sales
representatives and sales management, and shorten our sales cycle through
marketing initiatives.

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
organizations within existing client companies. We believe that within our
client base of 1,542 client companies as of December 31, 2001, there is
opportunity to sell additional products and services. 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 excellence,
cooperation, and creativity and fosters a dedication to quality research,
helps us to develop and retain high-caliber research professionals. We
provide a competitive compensation structure and recognition and rewards
for excellent individual and team performance.

OPTIMIZING THE USE OF NEW TECHNOLOGY. Our technology platform allows
us to conduct, design, sell, and deliver our research via the Internet.
Through this platform we can:

- Create research tools that allow us to perform, and clients to use,
research on the Internet.

- Conduct direct market campaigns.

- Improve sales leads fulfillment.

- Accelerate the production of our research.

We intend to continue to use emerging technologies to improve the reach and
quality of our research.

PRODUCTS AND SERVICES

During 2001, our clients purchased access to individualized research
packages that consisted of targeted selections of our core research offerings,
Advisory Services, and Forum and Summit Events. Our core research

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offerings included Strategy Research (now branded TechStrategy), Technographics
Data & Analysis, and Assessment Tools (data-oriented, interactive research
addressing such issues as emerging-technology selection). Clients with Strategy
Research licenses also received access to our Research Inquiry, a research call
center dedicated to providing additional information about our research.
Throughout 2001, our Advisory Services (now branded Strategic Services) provided
a number of ways for clients to interact directly with our analysts and included
our Partners Programs, eBusiness Review Program, Web Site Review Program,
Strategy Workshops, and speeches. Finally, our Forum and Summit Events consisted
of one- or two-day conferences focusing on the impact of technology change on
business.

In January 2002, we introduced WholeView Research -- a unified offering
that provides clients with comprehensive access to our core research offerings
of Technographics, TechStrategy, and TechRankings research. We also introduced
new Stategic Services and Forum and Summit Events, which, combined with our
WholeView Research offerings, provide unified guidance on customer trends,
business strategy, and technology investments. The WholeView interconnects our
reports, data, product rankings, and research archives and allows clients to
move barrier-free across our research. Through the Personal View, clients can
customize their access to our research that spans industries, geographies,
consumer and business-buyer profiles, technology products, and service
providers.

WHOLEVIEW RESEARCH

We offer annually renewable memberships which provide our clients
comprehensive access to the following core research offerings:

- TECHNOGRAPHICS. Technographics provides primary data and quantitative
research that analyzes how technology is considered, bought, and used by
consumers and businesses. Consumer Technographics delivers both primary
data and quantitative research based on surveys of approximately 200,000
households in North America and Europe, analyzed and categorized into
relevant market segments, to help organizations capitalize on changing
consumer behavior. Business Technographics is an ongoing quantitative
research program that provides comprehensive, in-depth assessments of
what motivates businesses to choose certain technologies and vendors over
others.

- TECHSTRATEGY. Our TechStrategy research provides qualitative industry
and technology research that analyzes the impact of technology change and
informs strategic decision-making.

- TECHRANKINGS. Our TechRankings products consist of customizable,
interactive research databases and Web tools that evaluate technologies
on the basis of laboratory testing and measurement of characteristics
weighted by us. TechRankings research synthesizes a rigorous combination
of product evaluation results, market analysis, and user interviews to
provide detailed, objective guidance to clients as they select and
implement emerging technologies.

- RESEARCH CENTRAL. All WholeView clients can access our Research Central
team -- a team available on demand to help clients navigate our research,
find data and forecasts, collect analysis, and integrate our models with
their initiatives.

- UNLIMITED ANALYST ACCESS. WholeView clients may also purchase Unlimited
Analyst Access licenses, which provide clients with direct access to our
research analysts in 30-minute phone calls that examine a client's
specific issues.

In addition, we offer the following services as part of our WholeView
approach:

- STRATEGIC SERVICES. We provide clients with a proactive relationship
with our analysts to develop strategies for specific corporate goals.

- FORUM AND SUMMIT EVENTS. We provide one- and two-day conferences that
bring our clients together with major technology and business leaders
devoted to leading technology issues.

We work with each client to design a portfolio of core research offerings,
Strategic Services, and Event seats to address its specific business objectives.

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CORE RESEARCH

Clients purchase licenses to access their Personal View -- a password
protected Web site that contains a comprehensive, cross-linked library of our
Technographics, TechStrategy, and TechRankings research which helps clients
organize and access reports, data, and product evaluations. Within the Personal
View, clients can customize their research and access:

- Forrester reports that deliver a concise, forward-looking analysis of a
significant topic.

- Forrester briefs and Data Overviews that offer succinct, timely
examinations of current industry developments written as events demand.

- Customizable research databases and Web tools.

- Product evaluations, benchmarks, and surveys.

The following table lists the specific research topic areas covered in the
WholeView core research offerings:

AUTOMOTIVE -- Distribution, Suppliers, and Retail
CONSUMER DEVICES & SERVICES -- Broadband, Consumer Electronics, Devices,
PCs, Mobile Devices, PCs & Peripherall
CONSUMER PACKAGED GOODS -- Merchandising, Distributors, Logistics, and
Retail
CONTENT MANAGEMENT -- Web Content, Enterprise Content, Digital Assets,
Digital Asset Management, Document Management
CUSTOMER RELATIONSHIP MANAGEMENT -- Sales, Marketing & Service, Call
Centers, Email, Email Management
ENTERPRISE APPLICATIONS -- ERP, Enterprise Services Automation, B2B
Sell-Side, MRP
FINANCIAL SERVICES -- Banking, Insurance, Investment, Credit
HEALTHCARE -- Health Plans, Pharmaceuticals, Healthcare Providers,
Biotechnology
INFRASTRUCTURE -- Portals, Servers, Corporate Wireless, Storage, Tools
INTEGRATION & WEB SERVICES -- Middleware, EAI/B2B Integration Tools
MANUFACTURING & B2B -- Collaboration, Trade Forecasts, Energy, Chemicals,
New Business Models
MARKETING -- Branding, Promotion, Cross-Media marketing, Advertising
MEDIA & ENTERTAINMENT -- Publishing, Television, Music, Content
Syndication
NETWORKS & SECURITY -- Enterprise Network Management, Equipment, Services
PROCUREMENT & SOURCING -- Purchasing, Supplier Management, Marketplaces,
Direct/Indirect Purchasing
RETAIL -- Manufacturers, Retailers, Channels, Operations
SERVICES -- ASPs, Hosting, Outsourcing, Systems Integrators
SITE TECHNOLOGY & DESIGN -- Site Design, Commerce Platforms, Measurement,
User Experience
SUPPLY CHAIN -- Planning & Execution, Logisitics, Product Design,
Distribution
TECHNOLOGY LEADERSHIP -- Budgeting, Organization, Staffing, Partnerships
TELECOM -- Telecom Services, Mobile Services, Carrier Strategy,
Communications Infrastructure
TRAVEL -- Airlines, Hotels, Business & Leisure Travel, Travel Agencies,
Rental Cars

In addition, clients subscribing to WholeView receive access to Research
Central, a call center staffed by members of our research staff who are
dedicated to providing additional information about our research, methodologies,
coverage areas, and sources. Specifically, the Research Central team is
available on demand to help clients navigate our research, find data and
forecasts important to them, collect analysis from a variety of related reports,
and integrate our models into client initiatives.

Clients may also purchase Unlimited Analyst Access licenses, which enables
clients to contact any of our analysts for quick feedback on projects a client
may have underway, to discuss ideas and models in the research, or to answer
questions about unfolding industry events. Unlimited Analyst Access sessions are
30-minute phone calls, scheduled upon client request.

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STRATEGIC SERVICES

We also offer the following Strategic Services:

PARTNERS PROGRAM

- PARTNERS PROGRAM. Our Partners Program is designed to help clients
effectively apply our research by providing them with ongoing advice and
guidance from our research team. Customizable to meet client needs, the
Partners Program provides various ways to interact with our analysts
including Advisory Days, Advisory Calls/Meetings, and Strategy Workshops.
Sample programs include online strategy development, effective IT
architecture, and Web and commerce site development.

- TECHNOLOGY STRATEGY DEVELOPMENT PROGRAM. Our Technology Strategy
Development Program focuses on a client's distinct business needs to help
create and refine technology strategies that drive business forward. Each
program is custom-built under the direction of a dedicated Forrester
Strategy Advisor -- a senior research analyst with several years of
industry experience -- who collaborates with the client to plan the
optimum program format and deliverables. Example programs include
developing a business plan to take a technology to a new market and
designing an IT organization to implement Internet-centric technologies.

PRODUCT SELECTION ADVISORY PROGRAM

- PRODUCT SELECTION ADVISORY PROGRAM. Our Product Selection Advisory
Program combines expert guidance from our analysts with TechRankings
research to help clients select the best technology product with the
lowest risk. The Product Selection Advisory Program enhances TechRankings
research and online tools with four 1-hour conference calls led by a
TechRankings analyst.

TECHNOGRAPHICS DATA & SERVICES

Our Technographics Data & Services leverage our core research findings to
provide the detail that data marketers, product developers, and consumer experts
need to gain an in-depth understanding of how consumers and businesses think
about and use technology.

- TECHNOGRAPHICS DATA SETS. We combine respondent data sets from our
Technographics surveys into three offerings: Consumer Technographics
North America, Consumer Technographics Europe, and Business
Technographics North America. In addition to our Benchmark studies,
clients have unlimited, on-demand access to a Technographics data
specialist to help them use the research effectively to meet their
specific business needs.

- TECHNOGRAPHICS CUSTOM DATA PROJECTS. Any of the surveys conducted by our
Consumer Technographics North America team are available for custom
analysis. Hundreds of relevant questions from all surveys are answered by
more than 200,000 respondents each year. These responses are the
foundation for customizable array of services tailored to clients' data
needs. Either with the help of a Technographics data specialist or by
downloading the data sets directly from our Web site, clients have the
precise data they need to drive their primary market research.

MARKET OPPORTUNITY AND MESSAGING REVIEW ADVISORY PACKAGES

Our Market Opportunity and Messaging Review Advisory Packages provide
clients with the guidance they need to make smart, competitive decisions about
how to position and brand their companies and products.

- MARKET OPPORTUNITY REVIEW. Built to help emerging companies in the
product-marketing development stage, the Market Opportunity Review
Package offers prescriptive insight into various markets. We work with
clients to identify their most strategic customer base and most
profitable opportunities.

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- BASIC MESSAGING REVIEW. Created for companies preparing to launch a
product or service or embark on an analyst tour, the Basic Messaging
Review Package focuses on message testing and positioning. Product slide
presentations are critiqued for clarity, impact, and areas of
enhancement.

- COMPREHENSIVE MESSAGING REVIEW. Our Comprehensive Messaging Review
Package extends the benefits of the Basic Messaging Review into a more
interactive relationship. In addition to reviewing a client's message, a
Forrester analyst explores competitive messaging, the position of the
message in the market, potential product-marketing opportunities, and
user-demand expectations. Product presentations are also critiqued to
surface the unique value of the offering.

SITE EVALUATION & DESIGN SERVICES

Our Site Evaluation & Design Services provide targeted, action-oriented
assessments of B2B or B2C Web sites; teach clients how to review their sites;
and take clients through the steps of a scenario-based design process.

- WEB SITE REVIEW. Our Web Site Review provides a targeted,
action-oriented assessment of a client's B2C or B2B Web site, extranet,
or intranet. Feedback is based on comprehensive examination of the site
by Forrester analysts, as well as any additional information a client
provides about its Web strategies.

- WEB SITE REVIEW BOOT CAMP. The Web Site Review Boot Camp teaches clients
how to review their sites with the objectivity and expertise of a
Forrester analyst in a two-day intensive training session for Web design
and strategy.

- EFFECTIVE SITE DESIGN BOOT CAMP. The Effective Site Design Boot Camp
takes clients through the steps of a scenario-based design process to
help produce useful, user-friendly sites. For marketing, IT, and
eBusiness decision-makers who hire, manage, or approve the work of online
site designers and design firms, this workshop provides a framework for
making successful design-related decisions and reveals tactics for
coaxing better results out of designers.

FORUM AND SUMMIT EVENTS

We also host Forum and Summit Events in various locations throughout the
year. Forums and Summits bring together senior executives for one- or two-day
conferences to network with their peers and to hear leaders from the technology
industry and other business sectors discuss the impact of technology change on
business.

PRICING AND CONTRACT SIZE

During 2001, the prices for contracts that include only research were a
function of the number of research packages purchased and the number of research
recipients within the client organization. The average contract for annual
memberships for research only at December 31, 2001 was approximately $49,400, a
decrease of 5% from $51,900 at December 31, 2000. In 2001, the prices for
contracts that included research and advisory services were also a function of
the number of research packages purchased, the number of research recipients
within the client organization, and the amount and type of advisory services.
All memberships to our advisory services included research. The average contract
for an annual membership for our Level One Partners Program at December 31,
2001, was approximately $179,200, an increase of 13% from $159,000 at December
31, 2000. The average contract for an annual membership for our Level Two
Partners Program at December 31, 2001 was approximately $82,700, an increase of
13% from $73,000 at December 31, 2000.

We believe that the agreement value of contracts to purchase research and
advisory services provides a significant measure of our business volume. We
calculate agreement value as the total revenues recognizable from all research
and advisory service contracts in force at a given time without regard to how
much revenue has already been recognized. Agreement value decreased 38% to
$116.2 million at December 31, 2001 from $187.8 million at December 31, 2000.

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RESEARCH ANALYSTS AND METHODOLOGY

We employ a structured methodology in our research that enables us to
identify and analyze technology trends, markets, and audiences and ensures
consistent research quality and recommendations across all coverage areas. Our
research provides consistent research themes and comprehensive coverage of
business and technology issues across our coverage areas.

Our Technographics research combines our qualitative research methodology
with traditional survey research methodologies such as correlations,
frequencies, cross-tabulations, and multivariant statistics to produce research
reports, quantitative survey data, and data briefs. We use third-party data
vendors for data collection and tabulation.

Our research process subjects initial ideas to research, analysis, and
rigorous validation, and produces conclusions, predictions, and recommendations.
In our TechStrategy research, we use the following primary research inputs:

- Confidential interviews with early adopters and mainstream users of new
technologies.

- In-depth interviewing with technology vendors and suppliers of related
services.

- Ongoing briefings with vendors to review current positions and future
directions.

For our TechRankings research, we combine 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 scorecards,
databases, and reports.

All of our research begins with discussion sessions with analysts to
generate ideas for research. Analysts test ideas throughout the research report
process at both informal and weekly research meetings. Our reports are
consistent in format and we require our analysts to write research reports in a
structure that combines graphics with easy-to-read text to deliver concise,
decisive, 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. An analyst who has not been involved in the creation of a particular
report reviews the report to ensure quality, clarity, and readability. All
research is reviewed and graded by senior research management.

SALES AND MARKETING

We sell our products and services through our headquarters in Cambridge,
Massachusetts, our research centers in Amsterdam, Frankfurt, London, and San
Francisco, and our sales offices in Austin, Chicago, Sydney, and Tokyo. In 2001,
we reorganized our direct sales force to better serve clients and address
additional markets. We also closed our sales offices in Atlanta, Los Angeles,
Melbourne, New York, and Zurich. We employed 184 sales representatives as of
December 31, 2001, a decrease of 31% from 267 as of December 31, 2000. Our
direct sales force consists of:

- Account managers who are responsible for maintaining and leveraging the
current client base by renewing and selling additional products and
services to existing clients.

- Account executives who develop new business in assigned territories.

- Sales directors who focus on high-level client contact and service.

- Telesales representatives who operate from our headquarters in Cambridge.

We also sell our research products directly online through our Web site and
use local independent sales representatives to market and sell our products and
services internationally in Brazil, Hong Kong, India, Italy, Korea, Mexico,
Portugal, South Africa, Turkey, and the United Arab Emirates.

Our marketing efforts are designed to increase awareness of the Forrester
brand and further our reputation as a leader in emerging technology research. We
actively promote brand awareness via our Web site, Forum and Summit Events,
extensive worldwide press relations, and direct mail campaigns. We also

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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, 2001, our research was delivered to 1,542 client
companies. No single client company accounted for more than 2% of our revenues
for the year ended December 31, 2001.

COMPETITION

We believe that the principal competitive factors in our industry include
the following:

- Quality of research and analysis.

- The ability to offer products that meet the changing needs of
organizations for research and analysis.

- Independence from vendors and clients.

- Timely delivery of information.

- Customer service.

- The ability to leverage new technologies.

- Price.

We believe that we compete favorably with respect to each of these factors.
We feel that our early focus on emerging technologies is a significant
competitive advantage. Additionally, we believe that our advanced eResearch
technology platform, our WholeView research approach, and easy-to-read research
format distinguish us from our competitors.

We compete in the market for research about emerging technologies. Our
principal direct competitors include other independent providers of similar
services, such as Gartner Group, as well as 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, 2001, we employed a total of 581 persons, including 191
research staff and 184 sales representatives.

Our culture emphasizes certain key values -- client service, quality, and
creativity -- that we believe are critical to our future growth. We promote
these values through rigorous training and frequent recognition for achievement.
We encourage teamwork and promote individuals who foster these values. Each new
employee that we hire undergoes a week-long training process. This training
includes workshops and presentations by our executives, which focus on our
corporate goals and provide individuals with the skills necessary to achieve our
key values.

All members of our research staff participate in our incentive compensation
bonus plan. Their performance is measured against individual and team goals to
determine an eligible bonus funded by our overall performance against key
business objectives. Individual and team goals include on-time delivery of
high-quality research and advisory services support to clients. In addition,
analysts, research directors, and research management are eligible to receive
equity awards under our incentive stock option plan.

10

All of our direct sales representatives participate in our annual
commission plan. Under this plan, we pay commissions monthly to sales personnel
based upon attainment of net bookings against established quotas. In addition,
all account managers, account executives, regional managers, and regional
directors are eligible to participate in our incentive stock option plan based
on performance.

RISKS AND UNCERTAINTIES

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:

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 whom 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.

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. The factors
include, but are not limited to:

- The timing and size of new and renewal memberships for our research from
clients.

- The timing of revenue-generating Forum and Summit Events sponsored by us.

- The use of our Strategic Services by our clients.

- The introduction and marketing of new products and services by us and our
competitors.

- The hiring and training of new analysts and sales personnel.

- Changes in demand for our research.

- General economic conditions.

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, or strategic alliances by us or the
technology 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.

A DECLINE IN RENEWALS FOR OUR MEMBERSHIP-BASED RESEARCH SERVICES. Our
success depends in large part upon renewals of memberships for our research
products. Approximately 51%, 74%, and 74% of our client companies with
memberships expiring during the years ended December 31, 2001, 2000, and 1999,
respectively, renewed one or more memberships for our products and services. The
decline in renewal rates for our research products in 2001 is reflective of the
more difficult economic environment, and any future declines in renewal rates
could have an adverse effect on our revenues.

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.

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
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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.

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. In
January 2002, we introduced WholeView Research to provide clients fully
integrated, barrier-free access to our core research offerings. These new
products and services must successfully gain market acceptance by addressing
specific industry and business organization sectors, 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.

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.

This list of uncertainties and risks is not exhaustive. Certain factors
that could affect our actual future activities and results and cause actual
results to differ materially from those contained in forward-looking statements
made by us include, but are not limited to, those discussed above as well as
those discussed in other reports filed by us with the Securities and Exchange
Commission.

12

EXECUTIVE OFFICERS

The following table sets forth information about our directors and
executive officers as of March 18, 2002.

George F. Colony, Forrester's founder, has served as Chairman of the Board
and Chief Executive Officer since its inception in July 1983.

Richard C. Belanger became Forrester's chief technology officer in May
1998. Prior to joining Forrester, from 1996 to 1998, Mr. Belanger served as vice
president of interactive media and vice president of technology for Mainspring
Communications, an Internet strategy research consulting firm. He was vice
president of technology at Information Access Company, an online information
provider, from 1995 to 1996, and vice president of information services at
Information Access Center, formerly Ziff-Davis Technical Information Company,
from 1992 to 1995.

Joel Blenner became Forrester's vice president, sales in April 1999. Prior
to joining Forrester, Mr. Blenner was vice president of sales at MicroTouch
Systems, a supplier of touch- and pen-sensitive input screens, from 1996 to
1999, and vice president of North American sales at Corporate Software, a
reseller of software and services for personal computers, from 1989 to 1992.

Tahar Bouhafs became Forrester's managing director, Asia, MEA, Latin
America in October 2001. Mr. Bouhafs was previously our director of
international channels from 1998 to 2001 and director of European sales from
1992 to 1998. Prior to joining Forrester, Mr. Bouhafs was a faculty member in
the computer science departments at Fitchburg State College and Boston
University from 1985 to 1992.

Neil Bradford became managing director, Forrester Global in October 2001.
Mr. Bradford was previously managing director for Forrester Research Ltd., a
role he assumed after Forrester's acquisition of Fletcher Research Limited, a
UK-based research firm cofounded by Mr. Bradford in November 1999. Prior to
cofounding Fletcher and joining Forrester, Mr. Bradford was a consultant at
McKinsey and Company, a management consulting firm, from 1995 to 1997.

Robert W. Davidson became managing director, Forrester Europe in June 2001.
Prior to joining Forrester, Mr. Davidson was vice president and corporate
controller from 2000 to 2001 and vice president, finance from 1998 to 2000 for
Baan Company N.V., a software solutions and services company. Previously,

13

Mr. Davidson spent seven years at PSI/Vicorp, a software solutions company,
where he served as chief operating officer, Europe, from 1996 to 1998.

Stanley H. Dolberg currently serves as Forrester's vice president,
strategy. Mr. Dolberg was previously our vice president, research from 1999 to
2001 and group director for the business-to-business strategy research group and
director of commerce technology strategies from 1998 to 1999. He was also the
director of software from 1996 to 1998 and a senior analyst for the software
team from 1995 to 1996.

Emily Nagle Green currently serves as managing director, Forrester North
America. Ms. Green previously was managing director, Forrester Research B.V.
from 1998 to 2001 and director, people & technology strategies, from 1996 to
1998. Prior to joining Forrester, Ms. Green was vice president of marketing and
sales at Point of View, Inc., a video technology training firm, from 1994 to
1995, and vice president of strategic marketing for ADC Fibermux, a computer
networking hardware manufacturer, from 1991 to 1994.

Warren Hadley became Forrester's chief financial officer in February 2002.
Mr. Hadley previously was our director of finance from 1999 to 2001 and
corporate controller from 1996 to 1999. Prior to joining Forrester, Mr. Hadley
served as an audit manager for MacDonald, Levine, Jenkins, an accounting firm,
from 1993 to 1995.

Timothy J. Moynihan, Esq. became Forrester's general counsel in February
2002. Mr. Moynihan previously served as our corporate counsel from 1998 to 2002.
Mr. Moynihan also has served as secretary of Forrester since 2001, as assistant
secretary from 2000 to 2001, and as a member of Forrester's legal department
since 1996.

Timothy M. Riley became Forrester's vice president, strategic growth in
1997. Prior to joining Forrester, Mr. Riley served as the vice president of
human resources at Renaissance Solutions, a strategy and knowledge management
consulting firm, from 1993 to 1997. Mr. Riley served as director of human
resources at Bolt Beranek and Newman, a technology research and development
company, from 1987 to 1993.

CarolAnn Shindelar became Forrester's vice president, marketing in August
2001. Ms. Shindelar previously served as our director, product marketing, having
joined us in December 2000. Prior to joining Forrester, Ms. Shindelar served as
Senior Vice President of marketing for AntiquesAmerica, an Internet e-commerce
startup, in 2000, and vice president of marketing for Cahners In-Stat Group, a
technology research firm, from 1998 to 1999.

Henk W. Broeders became a director of Forrester in May 1998. Mr. Broeders
is currently Chairman of the Executive Board of Cap Gemini N.V., a management
consulting firm located in the Netherlands. Cap Gemini NV is the Dutch
subsidiary of the global CGEY organization. From 1992 to 1998, Mr. Broeders was
general manager of IQUIP Informatica B.V., a software company in the
Netherlands.

Robert M. Galford became a director of Forrester in November 1996. Mr.
Galford is currently managing partner of the Center for Executive Development,
an executive education provider, in Boston. From 1999 to April 2001 he was the
executive vice president and chief people officer at Digitas, Inc., a technology
and marketing services firm. From 1994 to 1999 he consulted to professional
services firms and taught in the Executive Programs at the Kellogg School of
Management at Northwestern University and Columbia University's Graduate School
of Business. Before joining Columbia's Executive Programs, he taught at Boston
University from 1993 to 1994. Prior to his work in executive education, Mr.
Galford was vice president of the MAC Group from 1986 to 1991 and its successor
firm, Gemini Consulting, both of which are management consulting firms, from
1991 to 1994.

George R. Hornig became a director of Forrester in November 1996. Mr.
Hornig is currently a managing director at Credit Suisse First Boston, an
investment banking firm. He was an executive vice president of Deutsche Bank
Americas Holding Corporation, a diversified financial services holding company,
and several of its affiliated entities, from 1993 to 1998. He is also a Director
of Unity Mutual Life Insurance Company and U.S. Timberlands Company, L.P.

Michael H. Welles became a director of Forrester in November 1996. Mr.
Welles is vice president and general manager of the platforms business with NMS
Communications, an OEM infrastructure supplier to
14

the telecom industry, since July 2000. He previously served as vice president of
news operations and engineering for Individual.com, NewsEdge Corporation, and
Individual, Inc., a group of news solutions companies, from May 1997 to June
2000. Before that he was a general manager at Lotus Development Corporation, a
software company, from 1991 to 1997.

ITEM 2. PROPERTIES

Our headquarters are located in approximately 147,000 square feet of office
space in Cambridge, Massachusetts. This facility accommodates research,
marketing, sales, technology, and operations personnel. The initial lease term
of this facility expires in January 2006. We have the option to extend this
lease for up to two additional terms of five years each.

We also have leased office space for our research centers in Amsterdam,
Frankfurt, London, San Francisco, and for our sales offices in Chicago and
Tokyo.

We believe that our existing facilities are adequate for our current needs
and that additional facilities are available for lease to meet future needs.

ITEM 3. LEGAL PROCEEDINGS

We are not currently a party to any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the Nasdaq National Market under the symbol
"FORR". All share and per share amounts contained herein give effect to our
two-for-one stock split effected on February 7, 2000. On March 18, 2002, the
closing price of our common stock was $18.96.

As of March 18, 2002 there were approximately 58 stockholders of record of
our common stock.

The following table represents the ranges of high and low sale prices of
our common stock for the fiscal years ended December 31, 2000, and December 31,
2001:

We did not declare or pay any dividends during the fiscal years ended
December 31, 2000 and 2001. 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.

15

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected financial data presented below is derived from our
consolidated financial statements and should be read in connection with those
statements which are included herein.

16

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

We are a leading independent emerging-technology research firm that
conducts research and analysis on the impact of emerging technologies on
business, consumers, and society. We provide our clients with an integrated
perspective on technology and business, which we call the WholeView. Our
approach provides companies with the strategies, data, and product evaluations
they need to evolve their business models and infrastructure to embrace broader
on-line markets and to scale their operations. We help our clients develop
business strategies that use technology to win customers, identify new markets,
and gain competitive operational advantages. Our products and services primarily
benefit the senior management, business strategists, and marketing and
technology professionals at Global 3,500 companies who use our prescriptive,
actionable research to understand and capitalize on business models and emerging
technologies.

We derive revenues from memberships to our core research and from our
advisory services and Forum and Summit events. We offer contracts for our
products and services that are typically renewable annually and payable in
advance. Accordingly, a substantial portion of our billings are initially
recorded as deferred revenue. Research revenues are recognized ratably on a
monthly basis over the term of the contract. Our advisory services clients
purchase such services together with memberships to our research. Billings
attributable to advisory services are initially recorded as deferred revenue and
recognized as revenue when performed. Similarly, Forum and Summit billings are
initially recorded as deferred revenue and are recognized upon completion of
each event.

Our operating expenses consist of cost of services and fulfillment, selling
and marketing expenses, general and administrative expenses, and depreciation
and amortization. Cost of services and fulfillment represents the costs
associated with the production and delivery of our products and services, and
they include the costs of salaries, bonuses, and related benefits for research
personnel and all associated editorial, travel, and support services. Selling
and marketing expenses include salaries, employee benefits, travel expenses,
promotional costs, sales commissions, and other costs incurred in marketing and
selling our products and services. General and administrative expenses include
the costs of the technology, operations, finance, and strategy groups and our
other administrative functions.

We believe that the "agreement value" of contracts to purchase research and
advisory services provides a significant measure of our business volume. We
calculate agreement value as the total revenues recognizable from all research
and advisory service contracts in force at a given time, without regard to how
much revenue has already been recognized. Agreement value decreased 38% to
$116.2 million at December 31, 2001 from $187.8 million at December 31, 2000.
Agreement value increased 62% at December 31, 2000 from $115.8 million at
December 31, 1999. No single client accounted for more than 2% of agreement
value at December 31, 2001. Our historical experience is that a substantial
portion of client companies renew expiring contracts for an equal or higher
level of total research and advisory service fees each year. Approximately 51%,
74%, and 74% of our client companies with memberships expiring during the years
ended December 31, 2001, 2000, and 1999, respectively, renewed one or more
memberships for our products and services. These renewal rates are not
necessarily indicative of the rate of future retention of our revenue base. The
declines in agreement value and renewal rates in 2001 are reflective of the more
difficult economic environment and may lead to a decrease in revenue for 2002.

On July 12, 2001, we announced a sales force reorganization and general
work force reduction in response to conditions and demands of the market and a
slower economy. As a result, we reduced our work force by 111 positions, closed
sales offices in Atlanta, Los Angeles, Melbourne, New York, and Zurich, and
recorded a reorganization charge of approximately $3.1 million in the quarter
ended September 30, 2001. Approximately 66% of the terminated employees had been
members of the sales force, while 12% and 22% had held research and
administrative roles, respectively. This charge consisted primarily of severance
and related expenses from the work force reduction. This charge also included
office consolidation costs, such as contractual lease commitments for space that
was vacated, the write-off of related leasehold improvements, and other payments
for professional services incurred in connection with the reorganization.
Additional depreciable assets that

17

were written off include computer equipment, software, and furniture and
fixtures related to employees and locations terminated in connection with the
reorganization.

Reorganization costs as of December 31, 2001 are as follows (in thousands):

A significant portion of the remaining liabilities accrued as of December
31, 2001 are expected to be paid out in the three months ended March 31, 2002.

On January 10, 2002, in response to conditions and demands of the market
and a slower economy, we announced the reduction of our work force by
approximately 126 positions and expect to record a reorganization charge of
approximately $4.0 million to $6.0 million in the quarter ended March 31, 2002.
This charge will consist primarily of severance and related expenses from the
reduction of the work force, including office consolidations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States. 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 estimates, including those
related to our revenue recognition, allowance for doubtful accounts,
non-marketable investments, and goodwill and other intangible assets. 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 have identified the following policies as critical to our business
operations and the understanding of our results of operations. This listing 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
generally accepted accounting principles, with no need for management's judgment
in their application. There are also areas in which management's judgment in
selecting any available alternative would not produce a materially different
result. For a detailed discussion on the application of these and other
accounting policies, see Note 1 in the Notes to Consolidated Financial
Statements in Item 14 of this Annual Report on Form 10-K, beginning on page F-6.

- - REVENUE RECOGNITION. We generally invoice our core research, advisory, and
other services when orders are received. The contract amount is recorded as
accounts receivable and deferred revenue when the client is invoiced. Core
research is generally recorded as revenue ratably over the term of the
agreement. Advisory and other services are recognized during the period in
which the services are performed. Furthermore, our revenue recognition
determines the timing of commission expenses that are deferred and expensed
to operations as the related revenue is recognized. We evaluate the
recoverability of deferred commissions at each balance sheet date. As of
December 31, 2001, deferred revenues and deferred commissions totaled $59.9
million and $4.4 million, respectively.

- - ALLOWANCE FOR DOUBTFUL ACCOUNTS. We maintain an allowance for doubtful
accounts for estimated losses resulting from the inability of our customers
to make contractually obligated payments that totaled approximately $966,000
as of December 31, 2001. Management specifically analyzes accounts
receivable

18

and historical bad debts, customer concentrations, current economic trends,
and changes in our customer payment terms when evaluating the adequacy of
the allowance for doubtful accounts. If the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required.

- - NON-MARKETABLE INVESTMENTS. We hold minority interests in companies and
equity investment funds that totaled approximately $9.8 million as of
December 31, 2001. We record an impairment charge when we believe that an
investment has experienced a decline in value that is other than temporary.
We recorded impairment charges that totaled approximately $1.0 million in
2000 and $3.2 million in 2001. Future adverse changes in market conditions
or poor operating results of underlying investments could result in losses
or an inability to recover the carrying value of the investments that may
not be reflected in an investment's current carrying value, thereby possibly
requiring an impairment charge in the future.

- - GOODWILL AND OTHER INTANGIBLE ASSETS. We have goodwill and other intangible
assets related to the acquisition of our Research Centre Deutschland in
Frankfurt, Germany, that totaled approximately $14.3 million as of December
31, 2001. We periodically evaluate this acquired business for potential
impairment indicators. Our judgments regarding the existence of impairment
indicators are based on market conditions and operational performance. As of
December 31, 2001, we believe that the carrying value of our goodwill and
other intangible assets is not impaired. Future events could cause us to
conclude that impairment indicators exist and that goodwill or other
intangible assets associated with our acquired business are impaired. Any
resulting impairment loss could have a material adverse impact on our
financial condition and results of operations.

We expect to adopt Statement of Financial Accounting Standard (SFAS) No.
142 in the quarter ending March 31, 2002. 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 when events
indicate that there may be an impairment. The extensive effort needed to
comply with adopting SFAS No. 142 makes it impracticable to reasonably
estimate the financial statement impact, specifically whether there will be
any transitional impairment losses realized as a cumulative effect of this
change in accounting principle. As of December 31, 2001, we had unamortized
goodwill of $13.2 million and unamortized identifiable intangible assets of
$1.1 million. Amortization expense related to goodwill and assembled
workforce was approximately $180,000 in 2000 and $710,000 in 2001.
Amortization expense related to other identifiable intangible assets that
will continue to be amortized in the future was approximately $80,000 in
2000 and $325,000 in 2001.

19

RESULTS OF OPERATIONS

The following table sets forth selected financial data as a percentage of
total revenues for the periods indicated:

YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000

Revenues. Total revenues increased 1% to $159.1 million in 2001, from
$157.1 million in 2000. Revenues from core research increased 3% to $123.7
million in 2001, from $120.5 million in 2000. Increases in total revenues and
revenues from core research were primarily attributable to sales of additional
core research products to existing clients. No single client company accounted
for more than 2% of revenues in 2001.

Advisory services and other revenues decreased 3% to $35.4 million in 2001,
from $36.7 million in 2000. This decrease was primarily attributable to the
decrease in demand for advisory services in the second half of the year.

Revenues attributable to customers outside the United States increased 14%
to $46.8 million in 2001, from $41.1 million in 2000. Revenues attributable to
customers outside the United States increased as a percentage of total revenues
to 29% in 2001, from 26% in 2000. The increase in international revenues is
primarily attributable to the expansion of our international operations,
specifically our European headquarters in Amsterdam, Netherlands; our Research
Centers in London, England and Frankfurt, Germany; and our sales office in
Tokyo, Japan. We invoice our international clients in US dollars, except for
those billed by our UK Research Centre, which invoices clients in British pounds
sterling. To date, the effect of changes in currency exchange rates have not had
a significant impact on our results of operations.

Cost of Services and Fulfillment. Cost of services and fulfillment
increased as a percentage of total revenues to 31% in 2001, from 29% in 2000.
These expenses increased 8% to $49.1 million in 2001, from $45.5 million in
2000. The increases in these expenses and in expense as a percentage of revenues
were principally due to additional survey costs associated with our
TechRankings(R) and Technographics(R) product offerings, and the opening of our
Research Center in San Francisco, California.

Selling and Marketing. Selling and marketing expenses remained constant as
a percentage of total revenues at 37% in 2001 and 2000. These expenses increased
1% to $58.3 million in 2001, from $58.0 million in 2000. The increase in
expenses was principally due to expansion of our international sales offices in
Europe and the Asia-Pacific region, offset by cost savings as a result of the
July 2001 reorganization.

20

General and Administrative. General and administrative expenses decreased
as a percentage of total revenues to 10% in 2001, from 12% in 2000. These
expenses decreased 10% to $16.9 million in 2001, from $18.6 million in 2000. The
decreases in expenses and expense as a percentage of revenues were principally
due to decreased staffing in our technology, operations, finance, and strategy
groups and a related decrease in compensation, travel, and recruiting expenses.

Depreciation and Amortization. Depreciation and amortization expenses
increased 40% to $11.1 million in 2001, from $7.9 million in 2000. The increase
in these expenses was principally due to previous purchases of computer
equipment, software, and leasehold improvements to support business growth in
past years. Further, amortization of goodwill related to our October 2000
acquisition of Forit, GmbH in Frankfurt, Germany, increased to approximately
$1.0 million in 2001, from $260,000 in 2000.

Other Income, Net. Other income decreased to $6.4 million in 2001, from
$6.9 million in 2000. Other income in 2001 consisted of $9.1 million of interest
income from marketable securities; a gain of approximately $1.7 million realized
on the sale of our Internet AdWatch(TM) product to Evaliant Media Resources, LLC
in exchange for Evaliant membership interests; aggregate write-downs of
approximately $3.2 million on certain non-marketable investments; and $1.1
million of other miscellaneous non-operating expenses. Other income in 2000
consisted primarily of $8.0 million of interest income from marketable
securities, a non-marketable investment write-down of approximately $1.0
million, and approximately $175,000 of other miscellaneous non-operating
expenses. We achieved the additional interest income in spite of generally lower
yields due to higher cash and marketable securities balances resulting from
positive cash flows from operations of $28.7 million and $16.4 million from
proceeds of stock option exercises and our employee stock purchase plan during
2001.

Income Tax Provision. During 2001, we recorded a tax provision of $8.9
million, reflecting an effective tax rate of 33.0%. During 2000, we recorded a
tax provision of $12.4 million, reflecting an effective tax rate of 36.5%. The
decrease in our effective tax rate resulted primarily from an increase in our
investments in tax-exempt marketable securities.

YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999

Revenues. Total revenues increased 80% to $157.1 million in 2000, from
$87.3 million in 1999. Revenues from core research increased 86% to $120.5
million in 2000, from $64.7 million in 1999. Increases in total revenues and
revenues from core research were primarily attributable to an increase in the
number of client companies to 2,378 at December 31, 2000, from 1,793 at December
31, 1999, an increase in the sales organization to 267 employees at December 31,
2000, from 153 employees at December 31, 1999, and sales of additional core
research products to existing clients. No single client company accounted for
more than 2% of revenues in 2000.

Advisory services and other revenues increased 62% to $36.7 million in
2000, from $22.6 million in 1999. This increase was primarily attributable to
increased demand for our advisory services programs, the increase in research
staff providing advisory services to 207 employees at December 31, 2000, from
125 at December 31, 1999, and the increase in the number of events held to 11 in
2000, from eight in 1999.

Revenues attributable to customers outside the United States increased 108%
to $41.1 million in 2000, from $19.8 million in 1999. Revenues attributable to
customers outside the United States increased as a percentage of total revenues
to 26% in 2000, from 22% in 1999. The increase in international revenues was
primarily attributable to the continued expansion of our European headquarters
in Amsterdam, Netherlands, and our UK Research Centre in London, England; the
increase in sales personnel at each location; and our acquisition of Forit, GmbH
in Frankfurt, Germany, on October 9, 2000. We invoice our international clients
in US dollars, except for those billed by our UK Research Centre, which invoices
clients in British pounds sterling. To date, the effect of changes in currency
exchange rates have not had a significant impact on our results of operations.

Cost of Services and Fulfillment. Costs of services and fulfillment
decreased as a percentage of total revenues to 29% in 2000, from 32% in 1999.
These expenses increased 64% to $45.5 million in 2000, from

21

$27.7 million in 1999. The decrease in expenses as a percentage of revenues
reflects a larger revenue base in 2000, proportionally lower production costs
resulting from the leverage of our eResearch platform, and increased analyst
productivity. The expense increase in 2000 reflects an increase in research
analyst staffing and related compensation expenses, increased survey costs
related to our Technographics and TechRankings offerings, and increased
expenditures related to the increase in the number of events hosted during the
year.

Selling and Marketing. Selling and marketing expenses increased as a
percentage of total revenues to 37% in 2000 from 36% in 1999. These expenses
increased 86% to $58.0 million in 2000, from $31.1 million in 1999. The increase
in expenses and expense as a percentage of revenues were principally due to the
increase in the number of direct sales personnel and related commission and
travel expenses.

General and Administrative. General and administrative expenses increased
as a percentage of total revenues to 12% in 2000, from 11% in 1999. These
expenses increased 89% to $18.6 million in 2000, from $9.9 million in 1999. The
increase in expenses and expense as a percentage of revenues was principally due
to increased staffing in our technology, operations, finance, and strategy
groups and related compensation and recruiting expenses, as well as travel costs
to integrate operations.

Depreciation and Amortization. Depreciation and amortization expenses
increased 98% to $7.9 million in 2000, including aproximately $260,000 related
to the amortization of goodwill, from $4.0 million in 1999. The increase in
these expenses was principally due to purchases of computer equipment, software,
and leasehold improvements to support business growth.

Other Income, Net. Other income, consisting primarily of interest income,
increased to $6.9 million in 2000, from $3.7 million in 1999. The increase was
principally due to additional interest income from higher cash and marketable
securities balances resulting from positive cash flows from operations of $70.4
million, proceeds of $22.7 million from our public offering in February 2000,
and $21.8 million from proceeds of stock option exercises and our employee stock
purchase plan during 2000. Other income also includes a $1.0 million write-down
of a non-marketable investment.

Income Tax Provision. During 2000, we recorded a tax provision of $12.4
million, reflecting an effective tax rate of 36.5%. During 1999, we recorded a
tax provision of $6.6 million, reflecting an effective tax rate of 37.5%. The
decrease in our effective tax rate resulted primarily from an increase in our
investments in tax-exempt marketable securities and a reduction in our effective
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 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 and Forum
events held in the fourth quarter. As a result, we have historically experienced
a decline in total revenues, operating profit, and net income from the quarter
ended

22

December 31 to the quarter ended March 31. Our quarterly operating results are
not necessarily indicative of future results of operations.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations during these periods primarily through
funds generated from operations. In addition, we received $22.7 million of net
proceeds from our public offering of common stock in February 2000, as well as
$21.8 million and $16.4 million in proceeds from exercises of employee stock
options and our employee stock purchase plan during 2000 and 2001, respectively.
Memberships for core research, which constituted approximately 78% of our
revenues during 2001, are annually renewable and are generally payable in
advance. We generated cash from operating activities of $28.7 million in 2001
and $70.0 million in 2000. This decline in cash from operations is primarily the
result of the decrease in agreement value to $116.2 million at December 31, 2001
from $187.8 million at December 31, 2000, and is reflected in lower

23

accounts receivable and deferred revenue balances as of December 31, 2001. The
decline is also attributable to fewer exercises of employee stock options
resulting in reduced tax benefits to us. These declines in key business metrics
are reflective of the more difficult economic environment.

Included in cash from operations are deferred tax benefits of $8.4 million
in 2001 and $13.6 million in 2000, which resulted primarily from stock option
exercises. These exercises have generated a cumulative tax deduction of
approximately $111.2 million for us. Approximately $27.7 million of this tax
deduction will eliminate current-year taxable income, while $34.3 million was
used to eliminate taxable income for 2000 and carried back to obtain a refund of
certain taxes paid in prior years. The remaining $49.2 million of this tax
deduction will be carried forward to offset future taxable income. The offset of
these deferred tax benefits have been recorded as an increase to additional
paid-in capital within stockholders' equity.

During 2001, we used $43.0 million of cash in investing activities,
consisting of $10.0 million for purchases of property and equipment and $33.0
million for net purchases of marketable securities and other non-marketable
investments. We regularly invest excess funds in short-and intermediate-term
interest-bearing obligations of investment grade.

As of December 31, 2001, we had cash and cash equivalents of $17.7 million
and $187.4 million in marketable securities. 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 to invest in our
infrastructure during the next 12 months. We believe that our current cash
balance, marketable securities, and cash flows from operations will satisfy
working capital, financing activities, and capital expenditure requirements for
at least the next two years.

In June 2000, we committed to invest $20.0 million in two private equity
investment funds over a period of up to five years. We have 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, 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. As of December 31, 2001, we had contributed approximately
$7.2 million to the funds. Subsequent to December 31, 2001, we contributed an
additional $1.7 million. The timing and amount of future contributions are
entirely within the discretion of the investment funds.

As of December 31, 2001, we had recorded total write-downs to the private
equity funds of $907,000 as a result of the impairment of certain investments
within the funds. The timing of the recognition of future gains or losses from
the investment funds is beyond our control. As a result, it is not possible to
predict when we will recognize such gains or losses, if we will award cash
bonuses based on the net profit from such investments, or when we will incur
compensation expense in connection with the payment of such bonuses. If the
investment funds realize large gains or losses on their investments, we could
experience significant variations in our quarterly results unrelated to our
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 quarter.

As of December 31, 2001, we had contractual obligations as follows (in
thousands):

We do not maintain any off-balance sheet financing arrangements.

24

We hold minority interests in companies and equity investment funds having
operations or technology in areas within our strategic focus. During 2000 and
2001, we recognized revenues of approximately $71,000 and $102,000,
respectively, related to a Partners Program purchased by one of the private
equity investment firms. The remaining revenues will be recognized in accordance
with our revenue recognition policy through the termination date of the contract
in March 2003. We believe that the services sold to the private equity
investment firm were at arm's-length fair market value. During 1999, 2000 and
2001, we purchased survey services and data from companies in which we held a
minority interest that totaled approximately $220,000, $699,000, and $1,404,000,
respectively. We believe that the services received were at arm's-length fair
market value.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
141 requires all business combinations initiated after June 30, 2001, to be
accounted for using the purchase method. SFAS No. 141 also specifies criteria
that acquired intangible assets must meet to be recognized and reported apart
from goodwill. The adoption of SFAS No. 141 is not expected to have a material
effect on our consolidated financial position or results of operations. 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 when
events indicate that there may be an impairment. In connection with the SFAS No.
142 transitional goodwill impairment evaluation, we are required to perform an
assessment of whether there is an indication that goodwill is impaired as of the
date of adoption. To accomplish this, we must identify our reporting units and
determine the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units as of the date of adoption. We will then have up to six months
from the date of adoption to determine the fair value of each reporting unit and
compare it with the carrying amount of the reporting unit. To the extent the
carrying amount of a reporting unit exceeds the fair value of the reporting
unit, an indication exists that the reporting unit goodwill may be impaired and
we must perform the second step of the transitional impairment test. In the
second step, we must compare the implied fair value of the reporting unit
goodwill with the carrying amount of the reporting unit goodwill, both of which
would be measured as of the date of adoption. The implied fair value of goodwill
is determined by allocating the fair value of the reporting unit to all of the
assets (recognized and unrecognized) and liabilities of the reporting unit in a
manner similar to a purchase price allocation, in accordance with SFAS No. 141.
The residual fair value after this allocation is the implied fair value of the
reporting unit goodwill. This second step is required to be completed as soon as
possible, but no later than the end of the year of adoption. Any transitional
impairment loss will be recognized as a cumulative effect of a change in
accounting principle in the statement of income.

SFAS No. 142 is effective for fiscal years beginning after December 15,
2001. Early adoption is permitted for companies with fiscal years beginning
after March 15, 2001. Although we expect to adopt SFAS No. 142 in the fiscal
quarter ended March 31, 2002, the extensive effort needed to comply with
adopting the statement makes it impracticable to reasonably estimate the
financial statement impact, specifically whether there will be any transitional
impairment losses realized as a cumulative effect of a change in accounting
principle. As of December 31, 2001, we had unamortized goodwill of $13.2 million
and unamortized identifiable intangible assets of $1.1 million. Amortization
expense related to goodwill and assembled workforce was approximately $180,000
for 2000 and $710,000 for 2001. Amortization expense related to other
identifiable intangible assets that will continue to be amortized in the future
was approximately $80,000 for 2000 and $325,000 for 2001.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This statement supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, and the accounting and reporting provisions of APB Opinion No.
30, Reporting the Results of Operations -- Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions. Under this statement, it is required that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, and it broadens the
presentation of discontinued operations to include more

25

disposal transactions. The provisions of this statement are effective for
financial statements issued for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years, with early adoption permitted.
Adoption of SFAS No. 144 is not expected to have a material effect on our
consolidated financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We are exposed to market risk
related to changes in interest rates and foreign currency exchange rates. We do
not use derivative financial instruments for speculative or trading purposes.

Interest Rate Sensitivity. We maintain an investment portfolio consisting
mainly of federal and state government obligations and corporate obligations,
with a weighted-average maturity of less than one year. These available-for-sale
securities are subject to interest rate risk and will fall in value if market
interest rates increase. We have the ability to hold our fixed income
investments until maturity. 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. 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 in US dollars (dollars in
thousands):

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
financial results. Historically, our primary exposure had been related to non-US
dollar denominated operating expenses in Europe, Canada, and Asia, where we sell
primarily in US dollars. The introduction of the euro as a common currency for
members of the European Monetary Union has not, to date, had a significant
impact on our financial position or results of operations. To date, 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, 2001,
the total assets related to non-US dollar denominated currencies was
approximately $23.8 million.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements listed in the following Index to Financial
Statements are filed as a part of this 2001 Annual Report on Form 10-K under
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

26

FORRESTER RESEARCH, INC.
INDEX TO FINANCIAL STATEMENTS

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information regarding Executive Officers of the registrant is
included in Item 1 in Part I of this 2001 Annual Report on Form 10-K under the
section captioned "Executive Officers." The information set forth under the
sections captioned "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in our Proxy Statement for our Annual Meeting of
Stockholders for the year ended December 31, 2001 (the "2002 Proxy Statement")
is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information set forth under the captions "Executive Compensation" and
"Compensation Committee Interlocks and Insider Participation" of the 2002 Proxy
Statement, except for the "Report of the Compensation Committee" and the
"Performance Graph", is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item may be found under the section
captioned "Security Ownership of Certain Beneficial Owners and Management" in
the 2002 Proxy Statement, and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item may be found under the section
captioned "Certain Relationships and Related Transactions" in the 2002 Proxy
Statement, and is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. Financial Statements. The financial statements filed as part of
this report are listed at Page F-1 and indexed on Page 27.

2. Financial Statements Schedules. None.

3. Exhibits. A complete listing of exhibits required is given in the
Exhibit Index that precedes the exhibits filed with this report on page E-1
hereof.

(b) Report on Form 8-K. None.

(c) See Item 14(a)(3) of this report.

(d) See Item 14(a)(2) of this report.

27

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

FORRESTER RESEARCH, INC.

By: /s/ GEORGE F. COLONY
------------------------------------
George F. Colony
Chairman of the Board and Chief
Executive Officer

Date: March 20, 2002

Pursuant to the requirement of the Securities Act of 1934, this report has
been signed by the following persons on behalf of the registrant in the
capacities and on the dates indicated.

28

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
Forrester Research, Inc.:

We have audited the accompanying consolidated balance sheets of Forrester
Research, Inc. (a Delaware corporation) and subsidiaries as of December 31,
2000, and December 31, 2001, 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, 2001. 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 auditing standards generally
accepted in the 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 includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes 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 financial statements referred to above present fairly,
in all material respects, the financial position of Forrester Research, Inc. and
subsidiaries as of December 31, 2000, and December 31, 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.

/s/ ARTHUR ANDERSEN LLP

Boston, Massachusetts
January 29, 2002

F-1

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

(The accompanying notes are an integral part of these consolidated financial
statements.)

F-2

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

(The accompanying notes are an integral part of these consolidated financial
statements.)

F-3

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

(The accompanying notes are an integral part of these consolidated financial
statements.)

F-4

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

During 1999, Forrester acquired Fletcher Research Limited in a transaction
accounted for as a pooling of interests. Due to Fletcher's immateriality to the
financial position and results of operations of Forrester, these historical
financial statements were not restated.

(The accompanying notes are an integral part of these consolidated financial
statements.)

F-5

(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Forrester Research, Inc. (Forrester) is a leading independent
emerging-technology research firm that conducts research and analysis on the
impact of emerging technologies on business, consumers, and society. The
accompanying consolidated financial statements reflect the application of
certain significant accounting policies as described below and elsewhere in the
accompanying financial statements and notes.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
Forrester and its wholly owned subsidiaries. All significant intercompany
balances have been eliminated in consolidation.

FOREIGN CURRENCY

The functional currencies of Forrester's wholly owned subsidiaries are
generally the respective local currencies. The financial statements of the
subsidiaries are translated to United States dollars using period-end exchange
rates for assets and liabilities and average exchange rates during the
corresponding period for revenues and expenses. Translation gains and losses as
a result of this translation are accumulated as a component of accumulated other
comprehensive loss. Net gains and losses resulting from foreign exchange
transactions are included in other income in the consolidated statements of
income and were not significant during the periods presented.

NET INCOME PER COMMON SHARE

Basic net income per common share is computed by dividing net income by the
basic weighted average number of common shares outstanding during the period.
Diluted net income per common share is computed by dividing net income by the
diluted weighted average number of common 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 (in
thousands):

As of December 31, 1999, December 31, 2000, and December 31, 2001,
approximately 672,000, 442,000, and 3,483,000 stock options, respectively, were
outstanding but not included in the diluted weighted average common share
calculation as the effect would have been anti-dilutive.

REVENUE RECOGNITION

Forrester generally invoices its core research, advisory, and other
services when an order is received. The contract amount is recorded as accounts
receivable and deferred revenue when the client is invoiced. Core research is
generally recorded as revenue ratably over the term of the agreement. Advisory
and other services are recognized during the period in which the services are
performed.

DEFERRED COMMISSIONS

Commissions incurred in acquiring new or renewal 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.

F-6

DEPRECIATION AND AMORTIZATION

Forrester provides for depreciation and amortization, computed using the
straight-line method, by charges to operations in amounts that allocate the
costs of these assets over their estimated useful lives as follows:

LONG-LIVED ASSETS

Forrester continually evaluates whether events or circumstances have
occurred that indicate that the estimated remaining useful life of long-lived
assets and certain identifiable intangible assets and goodwill may warrant
revision or that the carrying value of these assets may be impaired. To compute
whether assets have been impaired, the estimated 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. To
date, Forrester has not recorded any impairments of its long-lived assets.

COMPREHENSIVE INCOME

Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Comprehensive income is disclosed in the accompanying
statements of stockholders' equity and comprehensive income. The components of
accumulated other comprehensive loss as of December 31, 2000, and December 31,
2001 are as follows (in thousands):

PRODUCT DEVELOPMENT

All costs associated with the development of new products and services are
expensed as incurred.

ORGANIZATIONAL COSTS

Forrester charges the costs of all start-up activities, including
organizational costs, to operations in the period in which those costs are
incurred.

CAPITALIZED SOFTWARE COSTS

Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, requires certain computer
software costs associated with internal-use software to be expensed as incurred
until certain capitalization criteria are met. Forrester adopted SOP No. 98-1
beginning January 1, 1999. SOP No. 98-1 had no effect upon adoption. Capitalized
internal use software costs are amortized over three years and are included
within property and equipment, net on the accompanying consolidated balance
sheet. The net book value of capitalized internal-use software costs at December
31, 2000, and December 31, 2001 was approximately $4,363,000 and $4,011,000,
respectively.

F-7

CONCENTRATION OF CREDIT RISK

Forrester has no significant off-balance sheet 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
securities, and accounts receivable. Forrester places its investments in highly
rated securities. No single customer accounted for greater than 10% of revenues
or accounts receivable in any of the periods presented.

FINANCIAL INSTRUMENTS

Forrester's financial instruments consist of cash equivalents, marketable
securities, accounts receivable and accounts payable. The estimated fair value
of these financial instruments approximates their carrying value. The fair
market value of marketable securities is based on market quotes. Forrester's
cash equivalents and marketable securities are generally investment-grade
corporate bonds and obligations of the federal government or municipal issuers.

Forrester does not use derivative financial instruments for speculative or
trading purposes.

MANAGEMENT ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles in the United States 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. On an ongoing basis, management evaluates its
estimates, including those related to revenue recognition, allowance for
doubtful accounts, non-marketable investments, and goodwill and other intangible
assets. Actual results could differ from these estimates.

RECLASSIFICATIONS

Certain amounts in the prior year's financial statements have been
reclassified to conform with the current year's presentation.

NEW ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. SFAS No. 141 also specifies criteria
that intangible assets acquired must meet to be recognized and reported apart
from goodwill. The adoption of SFAS No. 141 is not expected to have a material
effect on Forrester's consolidated financial position or results of operations.
SFAS No. 142 requires that goodwill and intangible assets with indefinite lives
no longer be amortized but instead be tested for impairment at least annually,
or when events indicate that there may be an impairment. In connection with the
SFAS No. 142 transitional goodwill impairment evaluation, Forrester is required
to perform an assessment of whether there is an indication that goodwill is
impaired as of the date of adoption. To accomplish this, Forrester must identify
its reporting units and determine the carrying value of each reporting unit by
assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of the date of adoption.
Forrester will then have up to six months from the date of adoption to determine
the fair value of each reporting unit and compare it to the carrying amount of
the reporting unit. To the extent the carrying amount of a reporting unit
exceeds the fair value of the reporting unit, an indication exists that the
reporting unit goodwill may be impaired and Forrester must perform the second
step of the transitional impairment test. In the second step, Forrester must
compare the implied fair value of the reporting unit goodwill with the carrying
amount of the reporting unit goodwill, both of which would be measured as of the
date of adoption. The implied fair value of goodwill is determined by allocating
the fair value of the reporting unit to all of the assets (recognized and
unrecognized) and liabilities of the reporting unit in a manner similar to a
purchase price allocation, in accordance with SFAS No. 141. The residual fair
value after this allocation is

F-8

the implied fair value of the reporting unit goodwill. This second step is
required to be completed as soon as possible, but no later than the end of the
year of adoption. Any transitional impairment loss will be recognized as a
cumulative effect of a change in accounting principle in the statement of income
as of January 1, 2002.

SFAS No. 142 is effective for fiscal years beginning after December 15,
2001. Although Forrester expects to adopt SFAS No. 142 in the fiscal quarter
ended March 31, 2002, the extensive effort needed to comply with adopting the
statement makes it impracticable to reasonably estimate the financial statement
impact, specifically whether there will be any transitional impairment losses
realized as a cumulative effect of a change in accounting principle. As of
December 31, 2001, Forrester had unamortized goodwill of $13.2 million and
unamortized identifiable intangible assets of $1.1 million. Amortization expense
related to goodwill and assembled workforce was approximately $180,000 and
$710,000, for the fiscal years ended December 31, 2000 and December 31, 2001,
respectively. Amortization expense related to other identifiable intangible
assets that will continue to be amortized in the future was approximately
$80,000 and $325,000, for the fiscal years ended December 31, 2000 and December
31, 2001, respectively.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This statement supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, and the accounting and reporting provisions of APB Opinion No.
30, Reporting the Results of Operations -- Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions. Under this statement, it is required that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, and it broadens the
presentation of discontinued operations to include more disposal transactions.
The provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years, with early adoption permitted. Adoption of SFAS No. 144 is
not expected to have a material effect on Forrester's consolidated financial
position or results of operations.

(2) REORGANIZATION

On July 12, 2001, Forrester announced a sales force reorganization and
general work force reduction in response to conditions and demands of the market
and a slower economy. As a result, Forrester reduced its workforce by 111
positions, closed sales offices in Atlanta, Los Angeles, Melbourne, New York,
and Zurich, and recorded a reorganization charge of approximately $3.1 million
in the quarter ended September 30, 2001. Approximately 66% of the terminated
employees were from the sales force, while 12% and 22% had held research and
administrative roles, respectively. This charge consisted primarily of severance
and related expenses from the work force reduction. This charge also included
office consolidation costs, such as contractual lease commitments for space that
was vacated, the write-off of related leasehold improvements, and other payments
for professional services incurred in connection with the reorganization.
Additional depreciable assets that were written off include computer equipment,
software, and furniture and fixtures related to employees and locations
terminated in connection with the reorganization.

Reorganization costs as of December 31, 2001, are as follows (in
thousands):

A significant portion of the remaining liabilities accrued as of December
31, 2001, are expected to be paid out in the three months ended March 31, 2002.

F-9

(3) ACQUISITIONS

On October 15, 2000, Forrester acquired 100% of the outstanding shares of
Forit, GmbH (Forit) for $15.0 million in cash and the assumption of
approximately $1.0 million in liabilities. Forit was a provider of technology
research to companies primarily located in Germany, Switzerland, and Austria.
The acquisition was accounted for under the purchase method, and accordingly,
Forit's results of operations have been included within the consolidated results
of Forrester since the date of acquisition. The purchase price was allocated to
the assets acquired and the liabilities assumed based upon estimated fair values
at the date of acquisition. The excess of purchase price over the fair values of
the net assets acquired was approximately $15.6 million and was recorded as
goodwill and other intangible assets, which is being amortized on a straight-
line basis as follows (in thousands):

Forit's historical financial position and results of operations prior to
the date of acquisition were not material to Forrester's financial position and
results of operations.

As of December 31, 2000 and December 2001, goodwill and other intangible
assets consisted of the following (in thousands):

On November 15, 1999, Forrester acquired 100% of the outstanding shares of
Fletcher Research Limited (Fletcher). The transaction was accounted for as a
pooling of interests. However, Fletcher's historical financial position and
results of operations were not material to Forrester's financial position and
results of operations. Accordingly, the historical financial statements of
Forrester were not restated. Forrester incurred approximately $694,000 of
various costs including legal, accounting, printing, filing, and other fees and
expenses related to this transaction, which were separately stated in the
accompanying consolidated statement of income for the year ended December 31,
1999.

(4) CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

Forrester considers all short-term, highly liquid investments with
maturities of 90 days or less from the original date of purchase to be cash
equivalents.

Forrester accounts for investments in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. 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. At December 31, 2000, and December 31, 2001,
these securities consisted of investments in federal and state government
obligations and corporate obligations, which were recorded at fair market value,
with any unrealized gains and losses reported as a separate component of
accumulated other comprehensive loss. There were no held-to-maturity or trading
securities at December 31, 2000 and December 31, 2001.

F-10

The aggregate market value, amortized cost, gross unrealized gains, and
gross unrealized losses on available-for-sale marketable securities are as
follows (in thousands):

The following table summarizes the maturity periods of marketable
securities as of December 31, 2001:

Gross realized gains and losses on sales of marketable securities for the
years ended December 31, 2000 and 2001, which were calculated based on specific
identification, were not material.

(5) PROPERTY AND EQUIPMENT

At December 31, 2000, and December 31, 2001, property and equipment
consisted of the following (in thousands):

F-11

(6) NON-MARKETABLE INVESTMENTS

In September 2001, Forrester sold its Internet AdWatch product to Evaliant
Media Resources, LLC ("Evaliant"), a privately held international provider of
online advertising data, in exchange for membership interests in Evaliant
representing approximately 8.3% ownership. Revenues related to the Internet
AdWatch product were not material to Forrester's total revenues in any of the
periods presented. This transaction resulted in a net gain to Forrester of
approximately $1.7 million during the quarter ended September 30, 2001, which
was included in other income in the consolidated statement of income. The
investment in Evaliant 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. As of December 31,
2001, Forrester determined that no further impairment had occurred.

In March 2000, Forrester invested $1.0 million in the common stock of
Doculabs, Inc. ("Doculabs"), an independent technology research firm. In March
2001, Forrester invested an additional $2.0 million, resulting in approximately
a 10.4% 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. In December 2001, Forrester determined that its investment had been
impaired. As a result, Forrester recorded a write-down of approximately
$1,474,000 during the quarter ended December 31, 2001, which was included in
other income in the consolidated statement of income. As of December 31, 2001,
Forrester determined that no further impairment had occurred.

During the years ended December 31, 2000 and December 31, 2001, Forrester
expensed approximately $300,000 and $1,030,000, respectively, to the cost of
services and fulfillment related to services purchased from Doculabs. Management
believes that the services received from Doculabs were at arm's-length fair
market value.

In July 2000, Forrester invested $1.6 million to purchase preferred shares
of comScore Networks, Inc. ("comScore"), a provider of infrastructure services
that uses proprietary technology to accumulate comprehensive information on
consumer buying behavior, resulting in approximately a 1.2% ownership interest.
This investment is being accounted for using the cost method and, accordingly,
is valued at cost unless an impairment in its value that is other than temporary
occurs or the investment is liquidated. In September 2001, Forrester determined
that its investment in comScore had been impaired due to an additional round of
financing at a significantly lower valuation. As a result, Forrester recorded a
write-down of approximately $836,000 during the quarter ended September 30,
2001, which was included in other income in the consolidated statement of
income. As of December 31, 2001, Forrester determined that no further impairment
had occurred.

During the year ended December 31, 2001, Forrester expensed approximately
$60,000 to the cost of services and fulfillment related to services purchased
from comScore. Management believes that the services received from comScore were
at arm's-length fair market value.

In June 2000, Forrester committed to invest $20.0 million in two private
equity investment funds over a period of up to five years. Forrester has adopted
a cash bonus plan to pay bonuses, after the return of our invested capital,
measured by the proceeds of a portion of our 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. As of December 31, 2001, Forrester
had contributed approximately $7,225,000 to the investment funds. These
investment funds are being accounted for using the equity method. Accordingly,
Forrester's pro-rata share of the investment funds' performance is recorded each
period as other income in the statement of income. The carrying value of the
investment funds as of December 31, 2001 was approximately $5,613,000. During
the year ended December 31, 2001, fund management charges of approximately
$1,472,000 were included in other income in the consolidated statement of
income, including approximately $907,000 due to the impairment of certain
investments within the portfolio of one of the private equity funds. During the
year ended December 31, 2000, fund management charges of approximately $161,000
were included in other income in the statement of income.

F-12

During the years ended December 31, 2000 and December 31, 2001, Forrester
recognized revenues of approximately $71,000 and $102,000, respectively, related
to a Partners Program purchased by one of the private equity investment firms.
Management believes that the services sold to the private equity investment firm
were at arm's-length fair market value.

In May 1999, Forrester invested $1.0 million in a holding company that is
the majority shareholder of Greenfield Online, Inc. ("Greenfield"), an
Internet-based marketing research firm. In March 2000 and June 2000, Forrester
entered into additional Note and Warrant Agreements with Greenfield. Pursuant to
these agreements, Forrester loaned Greenfield an aggregate of $216,000 bearing
interest at 10% per annum. Forrester also received warrants to purchase
additional equity in Greenfield. In August 2000, and concurrent with an
additional round of financing in which Forrester did not participate, the notes,
related accrued interest, and warrants were all converted into common stock such
that Forrester's effective ownership interest in Greenfield was approximately
3.1%.

In December 2000, Forrester determined that its investment in Greenfield
had been impaired due to its decision not to participate in an additional round
of financing at a significantly lower valuation. As a result, Forrester recorded
a write-down of approximately $1.0 million during the quarter ended December 31,
2000, which was included in other income in the consolidated statement of
income. As of December 31, 2001, Forrester determined that no further impairment
had occurred.

During the years ended December 31, 1999, December 31, 2000, and December
31, 2001, Forrester expensed approximately $220,000, $399,000, and $314,000,
respectively, to the cost of services and fulfillment related to services
purchased from Greenfield. Management believes that the services provided by
Greenfield were at arm's-length fair market value.

In the aggregate, Forrester included net losses of $1,111,000 and
$3,782,000 in other income in the consolidated statements of income related to
non-marketable investments during the years ended December 31, 2000 and December
31, 2001, respectively. The aggregate carrying value of non-marketable
investments included in other assets in the accompanying consolidated balance
sheets as of December 31, 2000 and December 31, 2001 were $6,666,000 and
$9,845,000, respectively.

(7) INCOME TAXES

Forrester accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 prescribes an asset-and-liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
financial statement carrying amounts and the tax basis of assets and
liabilities.

Income before income tax provision for the years ended December 31, 1999,
December 31, 2000, and December 31, 2001 consists of the following (in
thousands):

F-13

The components of the income tax provisions (benefits) for the years ended
December 31, 1999, December 31, 2000, and December 31, 2001 are as follows (in
thousands):

A reconciliation of the federal statutory rate to Forrester's effective tax
rate for the years ended December 31, 1999, December 31, 2000, and December 31,
2001 is as follows:

Deferred income taxes as of December 31, 2000 and December 31, 2001 are
related to the following temporary differences (in thousands):

Forrester has aggregate net operating loss carryforwards for federal tax
purposes of approximately $49.2 million related to exercises of employee stock
options. These net operating losses were recorded as a benefit to additional
paid-in capital within stockholders' equity and will expire between the years
2015 and 2021. The use of these net operating loss carryforwards may be limited
pursuant to Internal Revenue Code Section 382 as a result of ownership changes.

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those

F-14

temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and
tax-planning strategies in making this assessment. Although realization is not
assured, based upon the level of historical taxable income of Forrester and
projections for Forrester's future taxable income over the periods during which
the deferred tax assets are deductible, management believes it is more likely
than not that Forrester will realize the benefits of these deductible
differences. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable income
during the carryforward period are reduced.

A provision has not been made for US or additional non-US taxes on
approximately $7.4 million of undistributed earnings of foreign subsidiaries
that could be subject to taxation if remitted to the US because Forrester plans
to keep these amounts permanently reinvested overseas.

(8) COMMITMENTS

Forrester leases its office space and certain office equipment under
operating leases. At December 31, 2001, approximate future minimum rentals due
are as follows (in thousands):

2002........................................................ $ 9,125
2003........................................................ 8,550
2004........................................................ 8,816
2005........................................................ 8,822
2006........................................................ 7,269
Thereafter.................................................. 6,889
-------
Total minimum lease payments................................ $49,471
=======

Aggregate rent expenses were approximately $2,760,000, $6,428,000, and
$9,388,000 for the years ended December 31, 1999, December 31, 2000, and
December 31, 2001, respectively.

(9) STOCKHOLDERS' EQUITY

STOCK SPLIT

On February 7, 2000, Forrester increased the number of authorized shares of
common stock from 25,000,000 to 125,000,000 and effected a two-for-one stock
split as a 100% stock dividend. Forrester has retroactively restated all share
and per share amounts for the periods presented to give effect to this stock
split.

PREFERRED STOCK

Forrester has authorized 500,000 shares of $.01 par value preferred stock.
The Board of Directors has full authority to issue this stock and to fix the
voting powers, preferences, rights, qualifications, limitations, or restrictions
thereof, including dividend rights, conversion rights, redemption privileges and
liquidation preferences and the number of shares constituting any series or
designation of such series.

(10) STOCK OPTION PLANS

In February 1996, Forrester adopted the Forrester Research, Inc. 1996
Equity Incentive Plan, which has been subsequently amended (the Plan). The Plan
provides for the issuance of incentive stock options (ISOs) and non-qualified
stock options (NSOs) to purchase up to 13,500,000 shares of common stock. Under
the terms of the Plan, ISOs may not be granted at less than fair market value on
the date of grant (and in no event less than par value). ISO grants to holders
of 10% of the combined voting power of all classes of Forrester stock must be
granted at an exercise price not less than 110% of the fair market value at the
date of grant. Options generally vest ratably over three to four years and
expire after 10 years. Options granted under the Plan immediately vest upon
certain events, as defined.

F-15

In September 1996, Forrester adopted the 1996 Stock Option Plan for
Non-Employee Directors (the Directors' Plan), which provides for the issuance of
options to purchase up to 300,000 shares of common stock. Under the Directors'
Plan, each non-employee director shall be awarded options to purchase 12,500
shares of common stock, at an exercise price equal to the fair market value of
the common stock upon his or her election as a director. These options vest in
three equal annual installments commencing on the date of grant. In addition,
each non-employee director will also receive an option to purchase 8,000 shares
of common stock, at an exercise price equal to the fair market value of the
common stock, each year immediately following Forrester's annual stockholders'
meeting. These options will vest in three equal installments on the first,
second, and third anniversaries of the date of grant. The Compensation Committee
of the Board of Directors (the Compensation Committee) also has the authority
under the Directors' Plan to grant options to non-employee directors in such
amounts and on such terms as set forth in the Directors' Plan as it shall
determine at the time of grant.

Stock option activity under the Plan and under the Directors' Plan from
December 31, 1998, to December 31, 2001, was as follows (in thousands, except
per share data):

On January 29, 2002, Forrester approved the grant of approximately 744,000
additional options under the Plan at an exercise price of $16.28 per share.

F-16

The following table summarizes information about stock options outstanding
and exercisable at December 31, 2001 (in thousands, except per share data):

The weighted average remaining contractual life of stock options
outstanding at December 31, 1999, December 31, 2000, and December 31, 2001 was
8.6, 8.1, and 7.5 years, respectively. As of December 31, 1999, December 31,
2000, and December 31, 2001, options available for future grant under the Plan
and the Directors' Plan were approximately 2,261,000, 4,025,000, and 3,307,000,
respectively.

SFAS No. 123, Accounting for Stock-Based Compensation, requires the
measurement of the fair value of stock options or warrants to be included in the
statement of income or disclosed in the notes to financial statements. Forrester
has determined that it will continue to account for stock-based compensation for
employees under Accounting Principles Board Opinion No. 25 and elect the
disclosure-only alternative under SFAS No. 123. Forrester has computed the value
of options granted during the years ended December 31, 1999, December 31, 2000,
and December 31, 2001 using the Black-Scholes option pricing model prescribed by
SFAS No. 123, and the following assumptions:

F-17

If compensation cost for Forrester's stock option plans had been determined
consistent with SFAS No. 123, net income for the years ended December 31, 1999,
December 31, 2000, and December 31, 2001 would have been approximately as
follows (in thousands, except per share data):

In January 1998, Forrester's founder and principal shareholder granted
certain key employees options to purchase 2 million shares of his common stock.
The options have an exercise price of $9.57 and vest as follows:
one-thirty-sixth of the total number of options granted monthly through January
28, 1999; and one-third of the total number of options granted on and after each
of January 28, 2000, and January 28, 2001. As of December 31, 2001,
approximately 282,000 options remained outstanding, all of which were
exercisable.

(11) EMPLOYEE PENSION PLANS

Forrester sponsors several defined contribution plans covering all eligible
employees. Generally, the defined contribution plans have funding provisions
which, in certain situations, require contributions based upon formulas relating
to employee wages or the level of elective participant contributions, as well as
allow for additional discretionary contributions based upon profitability.
Further, certain plans contain vesting provisions. Forrester's pension
contributions totaled approximately $521,000, $813,000, and $1,276,000 for the
years ended December 31, 1999, December 31, 2000, and December 31, 2001,
respectively.

(12) EMPLOYEE STOCK PURCHASE PLAN

In September 1996, Forrester adopted the 1996 Employee Stock Purchase Plan
(the Stock Purchase Plan), which provides for the issuance of up to 400,000
shares of common stock. The Stock Purchase Plan is administered by the
Compensation Committee. With certain limited exceptions, all employees of
Forrester who have completed six months or more of continuous service in the
employ of Forrester and whose customary employment is more than 30 hours per
week, including officers and directors who are employees, are eligible to
participate in the Stock Purchase Plan. Purchase periods under the Stock
Purchase Plan are generally six months in length and commence on each successive
July 1 and January 1. During each purchase period under the Stock Purchase Plan,
the maximum number of shares of common stock that may be purchased by an
employee is limited to the number of shares equal to $12,500 divided by the fair
market value of a share of common stock on the first day of the purchase period.
An employee may elect to have up to a maximum of 10% deducted from his or her
regular salary for the purpose of purchasing shares under the Stock Purchase
Plan. The price at which the employee's shares are purchased is the lower of: a)
85% of the closing price of the common stock on the day that the purchase period
commences, or b) 85% of the closing price of

F-18

the common stock on the day that the purchase period terminates. Shares
purchased by employees under the Stock Purchase Plan are as follows:

(13) OPERATING SEGMENT AND ENTERPRISE WIDE REPORTING

Operating segments are defined as components of an enterprise about which
separate discrete financial information is evaluated regularly by the chief
operating decision-maker, or decision-making group, as defined under SFAS No.
131, in deciding how to allocate resources and assess performance. Forrester's
chief decision-making group is the Executive Team, consisting of the Chief
Executive Officer and other executive officers. To date, Forrester has viewed
its operations and managed its business as principally one segment, research
services. As a result, the financial information disclosed herein materially
represents all of the financial information related to Forrester's principal
operating segment.

Long-lived tangible assets by location as of December 31, 2000 and December
31, 2001 are as follows (dollars in thousands):

Net revenues by geographic destination and as a percentage of total
revenues for the years ended December 31, 1999, December 31, 2000, and December
31, 2001 are as follows (dollars in thousands):

F-19

(14) CERTAIN BALANCE SHEET ACCOUNTS

ACCRUED EXPENSES:

Accrued expenses as of December 31, 2000 and December 31, 2001 consist of
the following (in thousands):

ALLOWANCE FOR DOUBTFUL ACCOUNTS:

A roll-forward of the allowance for doubtful accounts as of and for the
years ended December 31, 1999, December 31, 2000, and December 31, 2001 is as
follows (in thousands):

(15) SUMMARY SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of selected quarterly financial data for the
years ended December 31, 2000 and December 31, 2001 (in thousands, except per
share data):

(16) SUBSEQUENT EVENT

On January 10, 2002, in response to conditions and demands of the market
and a slower economy, Forrester announced it would reduce its workforce by
approximately 126 positions and expects to record a reorganization charge of
approximately $4.0 million to $6.0 million in the quarter ended March 31, 2002.
This charge will consist of severance and related expenses from the reduction of
the workforce, including office consolidations.

F-20

EXHIBIT INDEX

- ---------------

+ Denotes management contract or compensation arrangements.

(1) Filed as an Exhibit to the Company's current Report on Form 8-K filed on
November 30, 1999 and incorporated by reference herein.

(2) Filed herewith.

(3) Filed as an Exhibit to the Company's Registration Statement on Form S-1
filed on September 26, 1996 and amended on November 5, 1996 (File No.
333-12761) and incorporated by reference herein.

(4) Filed as an Exhibit to the Company's Form 10-Q filed on August 16, 1999 and
incorporated by reference herein.

(5) Filed as an exhibit to the Company's Annual Report on Form 10-K filed on
March 10, 2000 and incorporated by reference herein.

E-1